Restaurant Financial Statement: Sample & Analysis

Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community colleges and in the for profit sector.

The restaurant income statement not only measures income, but it is also a great tool for managing the business. We will go through a restaurant income statement and perform some detailed analysis that will help management.

Components of the Income Statement

What an exciting month it has been for Beth! She finally opened her restaurant on the first, and the cozy down home atmosphere and incredible meat pies have been a hot item in the community. She has been much busier than she expected. Today she is going to meet with Matt, her accountant, and go over her very first income statement. Her fingers are crossed tightly that it will show that she made a profit.

For a restaurant owner, knowing how to analyze the income statement is a key to success.

''The income statement is about far more than whether or not you made money,'' Matt tells Beth as they get underway. ''It is one of the best tools you have to evaluate whether you are managing the business properly and can really help you identify problem areas.''

Next, they move along and look at the major pieces of the income statement and what goes into each item.

Item Amount Explanation
Sales $110,000 Total amount paid by customers for food and beverages.
Cost of meals served $70,000 Variable costs for beverages and all of the ingredients for the meals. Also includes what is paid to the wait staff, cooks, bartenders, and bussers.
Gross profit $40,000 Sales - costs of meals served.
Overhead $30,000 Fixed costs including manager salaries for Beth and her assistant, rent and insurance on the building, utilities, membership dues, and marketing.
Capital costs $5,000 This covers interest on the loan she took out for equipment and fixtures and depreciation expense.
Net profit $5,000 Gross profit - overhead - capital costs.

Beth is thrilled to see the final bottom line number!

Analyzing Sales

''I know this just looks like numbers on paper,'' Matt says. ''Let's dig a little deeper into the big pieces and see what they are telling us.'' Because this is her first month in business, Beth doesn't have any past months to use for comparison. Once she does, it will be easy to do time series analysis, which is comparing a series of months side by side to see when sales are going up or down. That might indicate seasonality in her business. For example, Beth's meat pies may sell better in the cold weather months and drive up food sales. If sales fall in the spring and summer, she might want to add more cold sandwiches and salads to the menu for those months.

Combining Sales and Cost of Meals Served

''We can do some really powerful analysis by combining sales with cost of meals sold,'' says Matt. He does that for food and beverages. Here is what he finds:

Item Sales Costs Cost % of Sales
Food $82,500 $23,100 28%
Beverages $27,500 $6,325 23%

''The chart is the cost percent of sales for each category. It is not a percent of total cost of meals served, so it won't equal 100 percent. It tells us that your costs are five percent higher for food than for beverages, so you need to sell all of the beverages you can because they are more profitable,'' Matt advises.

''Now let's look at things another way and break down your beverage sales. Here is what I come up with'':

Beverage Sales Cost Dollars Generated Contribution %
Wine $9,000 $2,250 $6,750 75%
Beer $12,000 $3,100 $8,900 74%
Nonalcoholic $6,500 $975 $5,525 85%

• Sales - food cost = dollars generated. Dollars generated/sales = contribution %.

Beth could see right away that her most profitable beverage line is nonalcoholic because it has the largest contribution percent. Contribution percent is the percentage of what is sold that goes to pay all of the other expenses besides the cost of the product. This can be done for as many product lines and menu items as possible to find out which items will contribute the most to profits. Restaurant owners want to sell more of the ones with the highest contribution percent.

Beth is going to get a contest started for the wait staff with a prize for whoever sells the most nonalcoholic beverages in a month. The winner gets to go home early with pay!

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