Why Your Monthly P&L is Useless
While there are various ways to measure and ensure the success of your restaurant, nothing can replace the profit and loss (P&L) statement for measuring restaurant profitability. However, if you are like most restaurant operators, you run a P&L once a month or once a period. But by then, the data is old news. Ancient history. It is virtually useless. Sure, you can use the data to make adjustments in the next period, but what about the money you left on the table in the last period because you didn’t have daily visibility into your profitability?
There may be several reasons you run your P&L statement on an infrequent basis, but some of the most common are:
- Your restaurant business is successful. Your restaurant brands are making money, so you do not keep close tabs on your daily or weekly profitability. If you have more money at end of the month than you had at the beginning of the month, you are happy and may not think it is necessary to run a P&L report more frequently than once a month. But how much more successful could your restaurants have been last month if you had caught a portion control issue or excessive overtime at the beginning of the month and took corrective measures in the moment?
- It is too time consuming. You’re using separate, disconnected systems to run your restaurants, so pulling key metrics like sales, food costs, front-of-house labor costs, back-of-house labor costs, discounts and credits, is not only time consuming to access, but time consuming to analyze because they’re all in separate reports in various formats. Additionally, your accounting system doesn’t produce restaurant-specific reports, so the process to produce the right reports is manual and slow, while leaving you with a lack of information for timely and accurate decision making.
- You are unaware of a simple solution for running a daily P&L. The existence of an all-in-one restaurant management solution that can give you daily access to all of your key metrics in a simple-to-read P&L statement is not even on your radar. Until recently, this solution was not available and you’re still trying to figure out your 10+ different software packages.
Without reviewing your P&L statements daily or at least weekly, you are missing the opportunity to understand the day-to-day strengths and weaknesses of your business. You are also losing out on the opportunity to make immediate, data-driven decisions if you see anomalies in your P&L numbers. It requires a daily checkup on your business health in order to implement strategies to lower controllable costs – your food and labor – to ensure your restaurant's continued financial success.
These anomalies can quickly add unnecessary costs if you are allowing negative issues to continue through the period. A few extra employees per shift may not seem like a major expenditure, but over a month’s time, even at minimum wage, overstaffing or other scheduling issues can have a significant impact on your bottom line. If you budgeted your labor at 10 percent, for example, but you do not discover until the end of the period that you are at 15 percent due to a combination of overstaffing, overtime and employees clocking in too early, by then it is too late to recoup that five percent.
It is imperative that you take appropriate steps in the moment to effectively counter any immediate problems before they become persistent, costly problems. It is impossible to make corrections to employee scheduling when all you have is a monthly P&L statement that is not available until the middle of the following month. You have to make these decisions immediately and you can only do that by reviewing your P&L statement on a daily basis.
Similarly, you need to run a P&L frequently in order to reduce food costs. Managing inventory and controlling your food costs are at the heart of profitability for your restaurant business. While your theoretical cost is not part of your P&L, it is important to compare your theoretical food costs to your actual food costs on your P&L statement daily, or weekly at a minimum. The variance between your theoretical food costs and your actual food costs can change daily, but you cannot close the gap if you are not aware of it.
When you look at your daily food and labor costs as a percentage of sales, it puts these numbers in context and gives you greater clarity on future decisions regarding cutting costs, changing a menu item, scheduling staff or improving an existing process.
A monthly P&L statement gives you a clear view of what happened in your restaurant last month – the key word being “happened,” as in past tense. If you want to use your P&L numbers to make data-driven decisions to increase the profitability of your business, then reviewing those numbers just once a month or once a period is hindering your growth. Your P&L statement plays a critical role in shaping and growing your business. It is THE document of restaurant profitability. So why wouldn’t you want to review it every day?
If you would like to review your P&L statement daily but the slow and manual process of accessing data from disparate systems impedes you from doing so, then consider an all-in-one accounting and back-office platform created specifically for the restaurant industry.
With Restaurant365 you can access your P&L statement in minutes, whether you operate one restaurant or 100. Restaurant365 is a cloud-based restaurant management solution that is integrated with your point-of-sale system, as well as to your food and beverage vendors, payroll vendor and bank. For more information, schedule a free demo.
Morgan Harris is Co-Founder of Restaurant365, an enterprise accounting, back-office, and reporting solution specific to the restaurant industry. Harris has worked in accounting since 1998 and earned his CPA license while working with PriceWaterhouseCoopers. In his role at Restaurant365, Harris supports large accounts, strategic partnerships and executive-level sales. Harris is passionate about software and its potential to help growing restaurant businesses.