The restaurant industry is notoriously competitive. Over fifty percent of all restaurants close within five years of opening. In addition, profits for full services operations only average four to five percent. By paying attention to the details, an operator can increase profits significantly. A key tool used by many operators to maximize profits is a weekly profit and loss report (commonly referred to as weekly P&L’s or flash reports). Weekly P&L’s can be as detailed or concise as necessary and are useful in analyzing trends in sales and prime costs.
Weekly P&L’s in summary format are useful in spotting sales trends by day (typically over the prior four to six week period). With detailed reports, an operator can more readily identify sales trends by item, check averages, sales per labor hour and servers who account for add-on sales (upselling).
Food and beverage costs account for thirty to forty percent of sales. By having access to timely information, an operator can reduce spoilage, evaluate portion controls, identify a potential theft problem and budget purchases more effectively.
Labor and benefits represent the other key component to prime costs. Weekly reports can aid in budgeting labor hour requirements (by day based on sales trends) and assist in controlling scheduled versus unscheduled labor.
Studies have shown that weekly P&L’s can add one to three percent to the bottom line. A typical full-service restaurant with annual sales of $1,500,000 can increase profits $15,000 to $45,000 by implementing some simple weekly reporting to help evaluate performance and take corrective changes (while traditional monthly financial reporting may fail to identify a problem for as much as six to eight weeks). A twenty-five cent increase in your check average, saving one-quarter labor hour per day for several employees and controlling portions more carefully can result in a substantial increase in the profitability of your restaurant.
Preparation of these reports usually requires little additional expense since much of the information can be obtained from the existing point of sales and time and attendance systems. Operators without computerized systems can also benefit with little additional cost by getting shift managers to assist in the data collection, much of which is already prepared for your current accountant.
Given the nature of the foodservice industry, weekly reporting is an essential tool used by management and is an industry standard with large multi-unit operators.
Author: Lou Guerrero, CPA & Greg Kniss, CPA