Every restaurant owner in Singapore wants their restaurant to flourish. For that to be possible, they must make decisions that promote growth and increase profit margins, effectively improving their bottom line.
Therefore, handling your restaurant profit and loss (P&L) statement is essential. There’s a ton of work to do to ensure your profit and loss statement is an accurate reflection of your restaurant accounting.
You’ll need to optimise your restaurant accounting system to properly track cash flows and monitor net income and other volatile costs.
Your profit and loss statement is, in all ways, your restaurant’s financial report. It provides a snapshot of your business’s financial health, monthly, quarterly, or annual.
Here’s a guide on calculating your restaurant profits and losses. We’ll also offer tips on improving your business’s profitability. Let’s get into it.
1. What Is A Restaurant Profit And Loss Statement?
A P&L or income statement is a financial document which lists your business’ sales, expenses, and costs over a given period.
It’s a financial strategy that allows you to picture how much profit your restaurant is making or how much revenue it’s losing.
All this information is vital in improving your bottom line, or the total income, after you’ve calculated all the expenses and deducted them from the revenue.
Restaurant income statements have two critical uses for restaurant
owners:
- Understanding net profit and loss
- Finding out which areas are benefitting or hurting the bottom line
2. What Is A Profit Margin?
The profit margin reflects the profit you’ve made from your restaurant’s sales. Profit can be presented more generally as a currency figure or percentage.
But, you may also be extremely specific regarding this figure by calculating the profit margin per dish or item sold.
When running a restaurant, remember that most of your revenue will derive from food sales. Your expenses may come from multiple sources, such as:
- Overhead costs
- Raw ingredients
- Rent
- Utilities
- Hourly wages
- Worker’s compensation
- Marketing-related activities
- Taxes
- Credit card fees
- POS (Point-of-Sale) fees
- Etc.
3. Steps In Creating A Restaurant Profit And Loss Statement
Step 1: Choose A Timeframe
First, you must choose a timeframe for your profit and loss statement. P&L statements can be generated weekly, monthly, quarterly, or annually.
The best practice is to select a timeframe that won’t overwhelm you with data that prevents you from gleaning meaningful insights and discovering essential trends.
Similarly, avoid a too-short timeframe that won’t be enough to give you any critical data regarding your business’ revenue.
Once you’ve chosen a timeframe, open your accounting software and input your business name.
If you’re using a restaurant POS system like NinjaOS, you can already access information such as sales tracking and reporting, and other details.
Step 2: Record Your Sales
The next part is recording your total sales. Your total sales include all products from your restaurant’s revenue streams (i.e. online deliveries, takeaway, frozen packaged food items, etc.).
Remember to log how much revenue each brought to your business.
Step 3: Indicate The Cost Of Goods Sold
After noting down all your restaurant’s sales, you’ll need to note all expenses with a Cost of Goods Sold (COGS) analysis.
The COGS refers to the accumulated cost of your restaurant’s food and beverage inventory for a selected period.
Make a list of all sources of expenses, such as equipment, labour and food costs, utilities, utensils, suppliers, etc. You may use existing inventory software to compute the total cost of each source/product.
The resulting value will serve as your total COGS.
Step 4: Calculate Labour Costs
In a profit and loss statement, labour costs cover all hourly and salaried employees, including benefits and payroll taxes.
You must compute the amount of money your business has spent on compensating salaried/hourly-waged staff for your selected period. Input each value into your income statement or balance sheet.
Step 5: Calculate Restaurant Operating Expenses
Restaurant operating costs refer to the daily expenses incurred in running your restaurant. These costs can be further subdivided into the following:
- Variable costs – These are less predictable and much more difficult to budget for. Examples include hourly wages, utilities, ingredients, depreciation, and food expenses.
- Semi-variable costs – In most restaurants, labour can be considered semi-variable, especially if you’re employing a mix of salaried and hourly-paid staff.
- Fixed costs – Costs that are consistently the same every month. Examples include rent, mortgage, loan payments, licensing fees, insurance premiums, etc.
Step 6: Calculating Restaurant Profit And Loss
Calculating restaurant profit and loss is about pulling data from multiple sources, such as your POS and inventory management systems or accounting software.
You’ll need to use this formula:
Net Profit/Loss = Total Sales – COGS – Labour Costs – Operating Costs
Let’s say your restaurant was able to make these figures in a week:
- Total Sales = $11,320
- COGS = $3,537
- Labor Costs = $2,830
- Operating Costs = $1,698
The computation will be:
Net Profit/Loss = $11,320 – $3,537 – $2,830 – $1,698
Net Profit/Loss = $3,255
4. How To Understand A Restaurant Profit And Loss Statement
There are a few key concepts you must understand to allow you to analyse your P&L statement properly:
Percent Of Sales
If you’re using a restaurant income statement, you’ll realise the percentage of total sales already covers labour, food and beverage costs, operational, and rent/occupancy expenses.
These percentages are good indicators of your restaurant’s performance. Generally, you’ll want your labour and food costs to comprise the largest portion of your total sales (about 30% for each).
No two restaurants are the same. However, if you notice irregularly high figures for food, beverage, and labour, it’s a good sign to re-examine your staffing and possibly remove low profit margin menu items.
Gross Profit Margin
We know how to calculate the gross profit margin, subtracting the COGS from total sales.
If you’re using an automated profit and loss template, it can easily calculate the gross profit once you input the necessary figures.
Once you generate the gross profit dollar amount, you should be presented with a percentage. This serves as your restaurant’s gross profit margin. (Gross Profit/Total Sales)
Remember to keep track of your monthly/weekly/quarterly/annual gross profit margin, as it will help you decide on menu pricing and portion sizing.
Net Profit/Loss
Finally, the bottom line: Net Profit/Loss is a critical indicator of your restaurant’s performance in a specified period.
The Net Profit/Loss can be either negative or positive, depending on your performance. If you receive a negative number, your restaurant’s expenses exceed the total revenue from food and beverage sales.
But if you end up with a positive value, then suffice it to say that your restaurant is profitable.
5. How To Improve Your Restaurant Profit And Loss
Increase The Sales Volume And Lower The Costs
Like any other business, there are multiple ways to increase your restaurant’s profit margin. You can up the sales volume, lower the costs, or increase your prices.
Restaurants will likely do well to increase their sales volume and lower costs. Increasing your menu prices may not be a good idea, as it may drive some of your customers away, resulting in a lower sales volume. It also depends on your location. The same menu price in CBD may not appeal to those in the heartland, whereas the pricing in the heartland will not work in the CBD if the overhead cost is high.
A good rule of thumb is to gather feedback from your target audience. Ask your customers through social media or have them fill out a feedback form after dining.
This is a great way to gauge their opinions, especially if you’re planning to increase some of the prices on your menu.
Consider A Cloud Kitchen
Now you’re probably wondering about the best way to increase your sales volume and lower food prices without hurting your bottom line. It seems near impossible initially, with so many expenses required to run a restaurant.
The answer? Cloud kitchens.
Shifting to a cloud kitchen model may be a good option, as it offers several advantages:
- Minimise operating expenses – Without a brick-and-mortar location, you won’t need to allocate money for furniture, decor, lighting, ornaments, cleaning, miscellaneous fees, etc.
- Reduce rent by opting out of the dine-in option – Without a front-of-house setup, you can run your restaurant in a much smaller yet dedicated kitchen space that receives orders, prepares food, and delivers them to your customers.
- Minimise staffing needs – Cloud kitchens allow you to work with only a small team that can perform the same output level as a physical restaurant. Virtually everything aside from food preparation is automated. There’s no need to spend on bartenders, dishwashers, pest control, etc.
- Streamline your operations – Cloud kitchens are built to prepare food efficiently at the fastest time possible. For example, when using our NinjaOS restaurant management software, all you need to do is set up a touchscreen tablet that tracks all orders and gives you a bird’s eye view of restaurant performance on the go.
- Easy to set up – Cloud kitchens are also extremely easy to set up. Whereas brick-and-mortar restaurants can take several months to a year before opening, cloud kitchens will be up and running after a few weeks.
- Modernise your F&B (Food and Beverage)’s brand image – Food delivery has become the future of the restaurant industry. Shifting to a cloud kitchen model allows you to be one of the first movers in the industry. Take this advantage to capture public interest and achieve market success while it’s still new.
Conclusion About Profitability For Restaurants In Singapore
Success is at the forefront of every restaurant owner’s mind. They ultimately want a high-profit margin by cutting back on losses and focusing on business aspects that provide positive value.
Data is at the centre of everything, which is vital in monitoring your restaurant’s P&L and gathering meaningful insights.
If you need dedicated software, try a demo of NinjaOS now! We offer online food ordering systems in Singapore that allows you to access customer data with analytics on their purchasing patterns and history.
Custom-designed at 0% commission fees, NinjaOS can skyrocket your restaurant, bistro, or cafe to unparalleled success. Get in touch with us for more information.
Frequently Asked Questions About
Profitability For Restaurants In Singapore
What Is The Most Profitable Type Of Restaurant?
Bars are considered among the most profitable restaurant types since alcoholic drinks have a higher markup than food.
What Is The Highest Restaurant Expense?
Labour costs make up the highest percentage when it comes to restaurant expenses. Your total labour costs will eventually include overtime, bonuses, benefits, sick days, and salaries and hourly wages.
How Do I Know If My Restaurant Is Profitable
A successful restaurant usually has a gross profit margin of around 70%. This means that for every $100 someone spends at your restaurant, the gross profit is $70.
How Much Should My Restaurant Make In A Day?
A restaurant is a profitable business, but it can be difficult to gauge its performance. If we’re talking about the daily average, restaurants usually make around $1,300.
*NinjaOS is a product of Jankosoft
