The Low Down on Income Statements

finances | Culinary Business Strategy Blog
photo credit: sanchezcl

By Deagon B Williams

In my last post, I discussed why a restaurant P and L, otherwise known as the Income Statement, is important. In this post I will describe more about how to use one. There are 4 basic financial statements in the restaurant business. They are different enough that each one serves a specific purpose. While I was a young chef, I was focused exclusively on the food, so all income statements seems like jibberish. But now many years later, I appreciate the simplicity and clarity that these 4 primary statements deliver.

An income statement gives a snapshot of the financial state of the business during a specific time period. Most typically this is done in one month increments. Here’s how it works:

1)      Record gross sales.

2)      Subtract the cost of good sold. (Also known as COGS and food cost in this industry.)

3)      The result is called the gross profit.

After that we record and subtract overhead, equipment and all other expenses for that specific time period.  The end result is called the net profit.

The good news is that this gives an overview of how the restaurant is really doing. But the bad news is that this only looks at a specific time period and does not take the big picture into play- for that you will need to use the other types of financial statements.

An Income Statement helps to look at timely details in a specific way so that you can adjust things mid-course if you need to. If you see a problem developing in your Income Statement numbers you can be proactive and head the problem off quickly before you have a disaster on your hands.  Without an Income Statement it is common to have a busy restaurant all year long, only to discover that it didn’t actually earn any money at the end of the year!

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