If you run a restaurant or a fast-food franchise, you know that there are a million moving parts that need constant attention. From managing inventory and staffing to ensuring customer satisfaction, there’s a lot to juggle. However, one crucial aspect that often gets overlooked is tracking your business’s financial health—specifically through your Profit and Loss (P&L) statement.

A P&L is not just an afterthought or something to look at once a year during tax season. For any restaurant or fast-food franchise, it should be reviewed weekly. Think of it as your business’s “dashboard” – a real-time view of how well your business is running. Without it, you’re essentially driving your business blindfolded.

Table of Contents

1. What is a P&L Report?

2. Key Components of a P&L Report

3. What is EBITA (Earnings Before Interest, Taxes, and Amortization)?

4. How Your P&L Acts as Your Business Dashboard

5. Conclusion

What is a P&L Report?

A P&L report summarizes your restaurant’s financial performance over a given period. It shows your revenue, costs, and expenses, helping you determine if you’re operating profitably or running into financial trouble. The P&L report acts as the roadmap for your business, providing critical insights into where the money is coming from and where it's going. It should be checked and updated weekly to ensure you’re staying on track.

Key Components of a P&L Report

To get the most out of your P&L statement, let’s break down its key components:

1. Revenue (Before GST or VAT):
   This is the total income your restaurant generates before taxes. It includes all the money made from food and beverage sales and other sources like merchandise or special events. Understanding your revenue is essential as it provides the base figure from which all other costs are deducted.
2. Cost of Goods Sold (COGS):
   This refers to the direct costs involved in producing your food and drinks—primarily the ingredients. A high food cost percentage can eat into your profits, making it essential to regularly monitor and control these costs. Tracking your COGS helps you assess if you're pricing your menu correctly or if waste and spoilage are eating into your margins.
3. Labor Cost:
   Labor is one of the largest expenses for restaurants, typically ranging from 18% to 25% of revenue. Labor costs include wages, benefits, payroll taxes, and other employee-related expenses. Keeping labor costs in check while ensuring you have enough staff to meet customer demand is a delicate balance. Your P&L helps you identify if you're overstaffed or understaffed, allowing you to make adjustments quickly.
4. Rent:
   Rent is often one of the highest fixed costs for a restaurant. Whether you're in a prime location or a less central one, it’s essential to assess how your rent compares to your revenue. If your rent is too high for the volume of customers you're attracting, it may be time to consider renegotiating or evaluating other cost-saving measures.
5. Overheads and Utilities:
   These are the regular costs of running your restaurant, such as electricity, water, gas, and other operational expenses. Keeping an eye on these costs allows you to identify areas where you might be overpaying and where you could save money.
6. Royalties (If Applicable):
   If you’re operating under a franchise agreement, you'll likely be paying royalties to your franchisor. These fees are typically a percentage of your sales. The P&L helps you understand how much you’re paying in royalties and whether these payments are sustainable in your business.
7. Advertising Fund (If Applicable):
   Many franchises require contributions to a national or regional advertising fund. This fund is used to promote the brand and increase overall visibility. Understanding the costs and how they contribute to your overall marketing efforts is important for ensuring that your investment in advertising is paying off.
8. Local Advertising:
   In addition to national or regional advertising, you may also be running local marketing campaigns to attract customers to your specific location. This could include local social media ads, print ads, or promotions. Tracking these expenses ensures that your local efforts are working and that you're getting the most out of your marketing dollars.
9. Finance Costs:
   If you have any loans or credit lines, you will have finance costs associated with paying them down. These costs must be included in your P&L statement to provide a full picture of your business’s financial obligations.
10. Miscellaneous:
    Any other expenses that don’t fall into the above categories should also be tracked. These might include supplies, cleaning products, insurance, or maintenance. These seemingly small expenses can add up quickly, and your P&L gives you insight into whether they are reasonable or out of control.

What is EBITA (Earnings Before Interest, Taxes, and Amortization)?

EBITDA is a key metric for any restaurant or fast-food business, and it's essentially your operating profit before non-operating expenses such as interest, taxes, and amortization are deducted. It provides a clearer picture of your operational efficiency because it isolates how well your restaurant is performing, regardless of your financing and accounting practices.
A high EBITDA means that your restaurant is operating efficiently and has healthy profit margins. This is crucial when evaluating the financial health of your business and understanding where to make improvements.

How Your P&L Acts as Your Business Dashboard

Now that we’ve covered the key components, let’s dive into how you should use your P&L as your dashboard.

• Real-Time Decision-Making: A well-maintained P&L gives you real-time insights into your business’s financial performance. Rather than waiting for monthly or quarterly reports, you can act immediately to adjust operations, reduce waste, or make strategic decisions that impact your profits.
• Key Performance Indicators (KPIs): Your P&L is the perfect tool to track your KPIs—revenue, cost of goods sold, labor costs, and more. These numbers will tell you if you're on track or falling behind. Regularly monitoring these KPIs ensures you're running your business effectively.
• Predicting Trends: By reviewing your P&L weekly, you can spot trends in your sales, costs, and profits. If your food costs spike or labor costs rise, you can identify the cause and make adjustments sooner rather than later.
• Operational Efficiency: Your P&L helps you stay on top of your business’s operations by providing insights into areas of inefficiency. Whether it’s a sudden rise in overheads, or a drop in customer traffic, the P&L allows you to identify these challenges and take action to fix them.

Conclusion

Your P&L is more than just a financial statement—it's the dashboard of your business. It provides you with the real-time data needed to make quick decisions, stay ahead of the competition, and achieve long-term success. As a restaurant owner or franchisee, reviewing and understanding your P&L on a weekly basis is essential for maintaining financial health and profitability.

Don't drive your business blindfolded. Start using your P&L as your business GPS today and make smarter, data-driven decisions that will help your business thrive.

Want to dive deeper into how to use your P&L effectively? Check out my full guide and other resources on FranEd.com