How to read a restaurant P&L

Start with sales, then follow the costs

Read the reporting period and confirm that actual and budget cover the same dates. Check whether sales are reported net of discounts and refunds, and keep that definition consistent when comparing periods. Your company’s account definitions determine which costs belong on each line.

Read net sales first, then cost of goods sold, labor and other operating expenses. Follow the statement down to its reported profit subtotal. Do not assume that an operating profit figure includes interest, taxes or every corporate charge; check the report’s definitions.

Worked example: dollars and percentage points

This simplified training example uses $200,000 in net sales. Budgeted food cost is 30% of sales, but actual food cost is $66,000. Actual food cost is therefore $66,000 ÷ $200,000 × 100 = 33%.

The variance is 3 percentage points, not 3 percent. At actual sales, the 30% target allows $60,000 of food cost. The difference is $6,000. Saying “food cost is $6,000 above the target at current sales” gives your team a clearer problem to investigate.

If budgeted sales differ from actual sales, distinguish the original dollar budget from a target recalculated at actual sales. Otherwise, a sales change can make the dollar comparison misleading.

Separate the result from the explanation

A higher food-cost percentage is a result, not a diagnosis. Invoice prices, portion sizes, waste, sales mix and inventory errors can produce similar changes in the report. Select a few checks that could distinguish those causes.

Compare quantities as well as dollars. For example, if chicken sales are flat but chicken usage rises, inspect production records and portioning before blaming a supplier price increase. If all costs seem to jump at once, verify the reporting dates and invoice cutoffs.

Turn the finding into a manager briefing

Use four parts: the variance, the evidence, the action and the next review. An illustrative briefing is: “Food cost is 33%, three points above target, or $6,000 at current sales. Protein waste rose while supplier pricing was stable. The chef will compare production with covers each day this week; we will review waste quantities on Friday.”

Separate confirmed facts from open questions. A briefing can be short and still say what you do not know. After the next period closes, compare the outcome with the expected result and explain what changed.