If you don’t know how to read your P&L, you’re driving blindfolded, and you are sure to crash. You end up making guesses instead of decisions, and that is exactly how profits slip away. Too many restaurant owners are busy, stressed and working harder than ever, yet they still feel unsure about where the money is really going. To give you the most tools to run your restaurant, here is the #1 reason you need to know how to read your restaurant’s P&L and why it is the most powerful tool in your restaurant.
Reason No. 1: It’s a scorecard, not a tax form
Too often accountants, CPAs and bookkeepers build your profit and loss statement strictly to file taxes. They follow GAAP, generally accepted accounting principles, which is absolutely appropriate for compliance. The problem is that when the profit and loss statement is built only for taxes, it often turns into a report you cannot easily read or use to make decisions.
That does not mean your accountant or bookkeeper is doing anything wrong. They are doing exactly what they were trained to do. But you are running a restaurant, not just filing tax returns. You need a managerial P&L that tells you how your business is performing in real time.
You need a P&L you can read at a glance and understand. Think of it as your scorecard. A yearly P&L is a post-mortem. It tells you what already happened and what you cannot change. At minimum, you should have a monthly P&L that closes by a consistent date so you can see, right now, whether you are winning or losing.
Take Bert, who runs a $3.2 million restaurant. He reorganized his books so they close by the 10th of every month and reviews his P&L against his budget. This allows him to see the plan, the actual results and the variances side by side. When he misses a number, he does not panic or guess. He asks smart questions.
Were systems in place that managers were not using? If so, he retrains and holds them accountable. If the systems were followed and the result still missed the mark, he creates new systems, updates the budget and measures again the next month. What we measure improves.
Here is the real payoff. If you planned to make $14,000 last month and only made $7,000, you still have many months left in the budget year to make small, smart adjustments. You do not have to slash quality, hurt guest satisfaction or violate your core values. You can course-correct gradually and earn that $7,000 back. That is the power of a restaurant’s P&L.
Reason No. 2: It shows you where the money hides
While using your P&L as your scorecard is the No. 1 reason to know how to read it, there are other benefits. For example, when you build a budget, you go line by line through everything you spend money on. Every dollar has a job. But leaks still happen. They hide in sales categories, prime cost, controllable expenses and operating expenses. Your P&L is how you uncover those leaks.
Consider Tracy. He and his team started using what I call the Restaurant Checkbook Guardian, a budgeting system that ties ordering decisions and weekly targets directly to the budget. On paper, his food cost looked fine. But the P&L and weekly controls told a different story.
A half-empty walk-in revealed theft, waste and spoilage. Once the numbers were tracked correctly, they could no longer lie or hide what was really happening in the restaurant. By paying attention to the P&L and using the right systems, Tracy and his team stopped the bleeding and regained control.
Reason No. 3: It buys you control and freedom
Reading your P&L is not bookkeeping. It is leadership. Your budget is your proactive plan for success. Your P&L is your report card. When you put them side by side, you clearly see where you hit or missed, and that allows you to lead change based on facts, not feelings.
I do not care if you think you are not a numbers person. When you commit to budgeting and learning how to read your P&L, you become one.
The No. 1 reason you need to know how to read your restaurant’s P&L is simple. It tells you the truth about your business. Learn it and live it, and you will earn the control every restaurant owner craves. Control buys freedom. Freedom to grow. Freedom to step back. Freedom to enjoy the life you have worked so hard to build.
David Scott Peters is an author, speaker, restaurant expert and coach who coaches restaurant operators how to stop being prisoners of their businesses and to finally achieve financial freedom. His book, Restaurant Prosperity Formula: What Successful Restaurateurs Do, teaches the systems and traits restaurant owners must develop to run a profitable restaurant. Thousands of restaurants have worked with Peters to transform their businesses. Get his free 30-minute training video http://www.davidscottpeters.com.
