Understanding the P&L in Your Café, Bar or Restaurant

If you run a café, pub or restaurant and you don't have a clear picture of your profit and loss, you're flying blind.

The P&L is the tool I come back to more than any other. Whether I'm building a business case for a new operation or analysing an existing one to understand where the problems are, it's where I start. In my experience, it's where most operators should start too, but many don't, because the whole thing feels intimidating.

It doesn't need to be. Real P&L accounts can be dense and confusing, full of line items that make your eyes glaze over. But if you understand the simplified version and how the key elements fit together, you can cut through most of the confusion and start making better decisions almost immediately.

The simplified P&L

Here's how a healthy hospitality P&L should look, expressed as percentages of net sales. That means your turnover with VAT removed. All the figures that follow are net of VAT, which is important to keep in mind as it can distort the picture significantly if you're working from gross numbers.

That gross profit of 65-70% is the money you have to run the business. Everything else comes out of it.

Historically, both raw materials and labour sat closer to 30% in well-run operations, and that should still be the target. But cost pressures in recent years, from food price inflation to rising wages, have pushed many operators towards the higher end of these ranges. If you're consistently at 35% on either, it's worth understanding exactly why and whether there's a realistic path back towards 30%.

That net profit of 15-30% is what remains after your variable costs, the ones that rise and fall with your sales. But you're not done yet. You still need to pay your fixed costs: rent or mortgage, business rates, loan repayments, professional fees, depreciation, and potentially others depending on your situation. These don't move in relation to how much you sell. They're there whether you have a great month or a terrible one.

If there's anything left after all of that, it can go to you as the owner or be retained in the business. And money does need to stay in the business, for maintenance, for refurbishment, for future investment. Without reserves, you're one bad month away from trouble.

Why this matters

Once you understand these ratios, you can start asking the right questions.

If you know your fixed costs are roughly £100,000 a year, and those fixed costs need to represent about 20% of turnover for the business to work, then you know your net turnover needs to be north of £500,000. You can then look at your capacity, how many covers you have, what a realistic spend per head looks like, how many customers you can realistically serve, and come to a view on whether there's a viable business there.

If you're already trading, you can examine whether your current offer is delivering the turnover you need at the volume you're doing. If it's not, you can ask whether a higher price point might work, and then whether your market would support it, what would need to change for customers to pay more, and so on.

The point is that without these numbers, you're guessing. With them, you have a framework for every commercial decision you make.

A note on raw materials

That 30-35% figure for raw materials needs constant attention. It's difficult to maintain when cost inflation is high, and wastage factors in too. Menu engineering, meaning properly costed recipes, smart menu design and reducing waste, is essential. So is negotiating well with suppliers and running a tight operation day to day. If your raw materials cost is creeping towards or beyond 35%, it's worth understanding exactly why before you look at anything else.

A note on labour

The 30-35% labour figure varies between different types of operations. A high-street café with a simple offer will look different from a restaurant with a full brigade. But here's something I'd encourage every owner-operator to do: include your own salary in that number.

I know many operators don't pay themselves a proper salary. They take whatever's left at the end of the month. I think that's a mistake, for reasons I'll write about separately. But in the context of the P&L, if you're not including your own labour cost, you don't have a true picture of the business. You're effectively subsidising it with your time, and the numbers on the page are more flattering than reality.

What to do with this

If you don't currently produce a P&L, even a rough one, that should be the first thing you address. It doesn't have to be produced by an accountant. A meaningful, approximate P&L that you update regularly is far more useful than a precise one your accountant produces once a year, six months after the period it covers.

The aim is to have a current enough picture that you can act on what you see. If labour is running high, you can address it this month, not discover it next year. If your gross margin is slipping, you can look at your recipes and your waste before it becomes a crisis.

Get the numbers in front of you. Everything else follows from there.