In a situation where many are feeling terrible, sales aren’t meeting their targets, and entrepreneurs might be stressing out about deficits and losses on their investments, some restaurants remain able to maintain good sales and constantly have orders and might even be gladly planning business expansions.
What we want to let everyone know is that, for any entrepreneur who has not calculated a P&L, losses and profits will be only a feeling. They’ll only be thinking it on their own. Regardless of the business type, the reason is that the numbers are not things you can sense or feel to estimate. P&L calculations are particularly important and necessary to restaurant businesses, because P&Ls can immediately tell you whether or not your business is in a crisis or prospering, and that knowledge will allow you to make appropriate plans for the future.
Believe it or not, 50% (or more) of people who run restaurants hate numbers. This gets them avoiding profit and loss statements, while owners do not know about the health of their own restaurant businesses. For example, their sales might be great, but they might be making no profit at all. Otherwise, they might be making profits, but feel like they’re suffering losses. That’s why it’s better for you to understand how to prepare profit and loss statements or P&Ls for chain restaurants.
Profit and loss statements (P&Ls) are indicators of monthly business performance. They tell you whether or not you’re turning a profit after deducting all expenses. Importantly, if you’ve opened your restaurant at a rented facility with a rental or lease agreement, they tell you whether or not you’re going to get your investment back fully and have some profit leftover after your agreement has expired.
If anyone has never prepared a profit and loss statement, this article will give you some guidelines on how to prepare it. So, let’s dive in and do it together.
When preparing a P&L, you need to record the following information each month:
- Sales: Revenues from every channel.
- Food cost: Ingredient costs + beverage costs + packaging. Normally, the expenses in this category are about 30-35%.
- Labor Costs: Labor costs for regular employees + temporary employees + overtime + benefits. Normally, expenses in this category are about 15-20%.
- Administrative Expenses
Fixed costs such as electricity + water + gas + consumable + marketing + traveling + other fees. Expenses in this category generally range from 5-10%.
Variable costs such as accounting + tax + other fees. Normally, expenses in this category are about 5% to none for small restaurants.
- Rent: Normally, expenses in this category are about 10-15%.
- Net Profit/Loss: Normally, profit should be 10% and up.
Just recording all of these expenses and sorting them in categories will make it easy for you to quickly analyze the health of your business. If your expenses exceed the above recommendations, you can plan appropriately to correct them. On the other hand, if you don’t record your profit and loss statement up to the end of the month, and you suffer losses, you’ll never know which expenses are exceeding their standard values, and you won’t be able to correctly resolve problems or plug the leaks.
Let’s take a look at an example: One restaurant has been operating for 18 months with an average monthly profit of 40,000 baht. When calculated, the cumulative profit is 720,000 baht. Although this looks good, when the profit and loss statement is prepared and analyzed, it turns out the restaurant has a 36-month rent agreement and has invested three million baht.
If this restaurant remains idle and continues generating the same sales and managing expenses in the same way continuously until the end of the agreement, this means the restaurant’s profit will be 1,440,000 baht, so the restaurant will suffer a loss of 1,560,000 baht.
Once the restaurant knows the profits generated will not cover the investment, the restaurant has to make plans to increase sales and analyze various costs and expenses to find out excessive values and control them in order to boost profits.
Can you see that just this part of profit and loss statements can show you the actual health of your restaurant so you can know whether it’s doing well, a little sick or in a crisis. If any entrepreneur is neglecting P&Ls, particularly in regards to recording costs meticulously and categorizing them, we want you to stop that immediately. Especially since the situation and external factors are terrible right now, the first thing you should do is pay attention to the internal factors that you can actually control.
Learn about simple profit and loss statements in terms of recording incomes and expenses, filling information into tables and precautions and essentials and analyzing profit and loss statements to control costs and increase your business profits for free! Register now by clicking here!
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