Reading your profit and loss

This topic reads one profit and loss statement from top to bottom. The example runs through the whole course, so it is worth following the arithmetic once: a small restaurant, one ordinary month, fifty thousand pesos of sales. Your own numbers will be different, and that is the point — what matters is the shape, the order of the lines, and knowing which ones deserve a reaction when they move.

🧮 One month, line by line

Here is the whole statement. Every line is expressed both in money and as a percentage of sales, and the percentage column is the one that teaches you something, because it is comparable from month to month even when sales are not.

Read it as a subtraction going down: fifty thousand came in, sixteen went on what you served, seventeen on the people who served it, five on the roof, nine on everything else, and three thousand pesos survived. That six percent at the bottom is not a bad month — it is a fairly normal one for this industry, and it is the reason everything above it deserves attention.

⚖️ Prime cost is the line that decides your year

Notice that the two biggest lines were added together into their own row. That sum — food and drink plus labour — is prime cost, and it is the single most useful number on the statement, for two reasons. First, at sixty-six percent it dwarfs everything else, so it is where your result actually gets made or lost. Second, unlike rent, both halves are things you can influence week by week, through purchasing, portioning, scheduling and menu decisions.

It also has a property that matters when you are diagnosing a bad month: the two halves trade against each other. A kitchen that buys pre-cut vegetables has a higher food cost and a lower labour cost; one that preps everything in house has the opposite. Looking at either half alone can make you fix the wrong thing, which is why the sum is what you watch and the halves are what you investigate.

What counts as a healthy prime cost varies by the kind of restaurant you run, and you will find any number of published benchmarks. Treat them gently: a bar, a bakery and a full-service dining room have genuinely different structures, and the useful comparison — as topic 6 argues at length — is against your own restaurant last quarter, not against an average of somebody else's.

🚩 Which movements are warnings

Once you have two or three months side by side, the statement starts talking. You are not looking for precision; you are looking for lines that moved when nothing else did.

• Food cost up, sales flat. Supplier prices rose, portions grew, waste grew, or something is walking out the door. The cost control course is where each of those gets chased down.
• Labour cost up, sales flat. Hours drifted above what the volume justifies — the labour cost course covers the fix, and it is usually scheduling, not wages.
• Both halves flat but prime cost up as a percentage. Then sales fell and the costs did not follow, which is the classic quiet-season squeeze.
• Rent above roughly a tenth of sales. Rent is fixed, so this line only moves because sales fell. A rising rent percentage on a falling sales line is the most dangerous trend on the page.
• "Everything else" creeping up. Usually subscriptions, repairs deferred too long, or delivery commissions filed somewhere you are not looking.
• A result that got smaller while sales grew. You are selling more of something that does not pay — a menu mix question, which belongs to the sales analytics course.

Two practical warnings about the statement itself. Make sure the delivery platform commissions from the first course of this whole library are visible somewhere you can see them, rather than netted out of sales, because a sales figure that arrives already reduced hides the cost that made it smaller. And check whether your P&L includes an owner's salary — many small-restaurant statements do not, which makes the result look better than it is by exactly the amount you are worth.

🔍 The lines that hide things

A P&L can be technically correct and still mislead you, and it is nearly always through the same handful of places. The most common is a category called "other" or "miscellaneous" that grows quietly until it is a serious number nobody can explain; if it is more than a small fraction of the page, ask for it to be broken out. Another is timing: a quarterly insurance payment landing entirely in one month makes that month look bad and the two around it look good, and unless you know the payment schedule you will read it as a business problem.

Then there are the two that specifically bite restaurants. Inventory: if the statement uses what you bought rather than what you used, then a month where you stocked up looks like a food cost disaster and the following month looks brilliant, when nothing actually changed. And staff meals, comps and waste: how those are recorded moves cost between lines and can make a kitchen look inefficient when it is being generous, or the reverse. None of this means the statement is wrong. It means you should know how yours is built, and asking your accountant those three questions once is an hour that pays for itself for years.