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“If the restaurant owner/operator doesn’t know what percentage of their income their expenses represent, they’re setting themselves up for failure.”
This incisive observation comes from Kenneth Knief, managing director of Naples Hospitality Consulting (one of the integrated companies making up Hospitality Resource Group), a consulting firm that provides one-on-one full-service restaurant and management coaching.
One thing Knief has found shocking about many of the food-and-beverage owners/operators who attend his seminars is that they don’t know much about tracking their profits and losses nor recognize how this contributes to their bank account.
This is where a profit and loss (P&L) statement comes into play as in instrumental tool. This financial report, also known as an income statement, summarizes a company's revenues, costs, expenses, and net profits/losses over a specific period. It is just as important as a balance sheet and cash flow statement when it comes to running a business soundly.
Key trackable metrics featured in a proper P&L statement include:
- Revenue (sales)
- Cost of Goods Sold (raw materials, direct labor, and manufacturing overhead)
- Operating Income (profit generated from daily business activities)
- Other Income and Expenses (interest income, interest expense on loans, gains/losses from the sale of assets, etc.)
- Gross Profit (profit before operating expenses, taxes, or interest are deducted)
- Net Profit/Loss (the bottom-line figure after all expenses, taxes, and interest have been deduced from total revenue).
Knief finds that many of the owners/operators he meets aren’t keeping tabs on their controllable costs (office supplies, advertising, incentives, etc.) nor fixed costs (rent, insurance, salaries, etc.) as a percentage of their overall revenue. This neglect leads to a lack of focus. “Most people tell me the first time they see it planned out is at the end of the year when their accountant gives them their P&L statement,” he says.
Failure to regularly keep track of their profits and losses can lead to disastrous consequences for owners/operators in the food-and-beverage industry.
“Consistently rising cash balances in their checking accounts can create the impression that their business is performing well,” says Mark Wasilefsky, head of the Restaurant Franchise Finance Group at TD Bank. “And while generating more cash than expenses in the short term is certainly positive, it can also obscure longer term financial trends that warrant closer attention.”
Making a (P&L) Statement
Tracking profits and losses starts with the prime costs (food, beverage, and labor). However, Knief stresses that many operators fail to notice fixed costs and their impact on an overall P&L statement.
One fixed cost blind spot for many of Knief’s clients is rent. “When you ask them what percentage of their bottom line represents rent, that’s when the lightbulb then goes off. They then realize they have a bigger issue than they thought.”
Knief indicates some of these clients are already starting out behind the eight ball, experiencing a rent gobbling up between 15% to 18% of their revenue—a figure already 5% to 8% higher than recommended. “In that scenario, they need to work on their top line focus first and generate more revenue to bring their fixed cost back into line,” he explains. “Fixed costs can only be ‘lowered’ as a percentage of income by increasing revenue.
“For example, when your fixed cost of rent is 18% of your revenue, you can control your food and liquor costs to curb that 18% impact. So the only way to reduce that 18% to 12% or preferably 10% (where it should be) is to focus on driving people through the door.”
However, increasing the top line needs to be performed “surgically” to avoid having a negative impact on the prime costs and negate this effort’s desired results. Knief stresses implementing discount programs, half-off coupons, and DoorDash (which alone can eat up to 50% of revenue) can prove disastrous if performed incorrectly.
Wasilefsky explains that analyzing trends in each expense category on a P&L statement as a percentage of sales provides a clearer view of operating efficiency and helps identify opportunities to better manage costs. (Note: It’s important to recognize that net income is not the same as cash flow, meaning both should be tracked.)
To analyze cash flow, Wasilefsky brings up the “well-accepted” metric “EBITDA” (Earnings Before Interest, Taxes, Depreciation, and Amortization). The EBIT portion of a P&L Statement refers to operating income and reveals the profitability of the company’s core business activities. This formula equates to earnings before interest and taxes, calculated by subtracting operating expenses from gross profit to shows the profitability of the company's core business activities.
“It removes non-cash expenses such as depreciation and balance sheet accruals, extracting capital costs and taxes,” he says. “This approach provides a clearer view of cash flow before debt service and taxes, helping operators assess how much debt the business can reasonably support, plan for tax obligations, and evaluate its true cash-generating capacity.”
Wasilefsky stresses that every dollar expensed is important—meaning all expenses should be analyzed and tracked. “Smaller expenses such as insurance, maintenance items, and legal costs can undermine profitability, if overlooked,” he says.
In the food-and-beverage industry, information is king, and because of that, Chef & Owner Erik Niel says that, if you cannot generate a P&L statement for the previous month or period in a reasonable amount of time, you’re in trouble.
Niel likens studying a P&L statement to counting inventory. “If you don’t count your inventory regularly to know what you’ve got and what your loss is, you’re never going to get a hold of it right,” he says.
Counting inventory is a necessary function Niel knows much about. He boasts over twenty-five years of experience in the industry and is the two-time James Beard Southeast nominee chef/owner of three MICHELIN Guide-recognized restaurants in Chattanooga, Tennessee—Easy Bistro & Bar, Main Street Meats, and Little Coyote.
While inventory counting might be a “boring” process to many operators, the economic reality is that inventory is cash. “Knowing what you have and the dollar amount from proper and regular inventory accounting and maintenance might be one of the most important things that takes place in the restaurant business,” says Niel.
The best way to maintain your inventory is to know what your dollar amount is and be able to say with certainty about it over a certain period—every week, two weeks, month, etc. “You have to know whether you’re going up, down, or sideways with it,” says Niel, comparing this to a P&L statement, “and if you don’t know that, you’re not in control of your money. It becomes hard to make better decisions.
While it is important to have your checks and balances within whatever point-of-sale (POS) system you’re using, Neil advises you shouldn’t be the only person with this information. “Having a trusted advisor or accountant or somebody from the operations side to bounce ideas off is important. You’ve got to be able to manage your team’s prime costs and let that be their goal. Then you, as an owner, can handle the rest of it, as far as fixed costs and variable costs on the P&L.
“But if any of these are words you don’t know, I’ll warn you: These are words you need to know.”
AI to the Rescue?
Let’s address popular discussion topic today—AI technologies and their increasing adoption over the coming months and years. Could your accountant (or even yourself) be replaced by automation in the P&L statement generation process?
A recent TD Bank survey of 253 participants at the 2025 Restaurant Finance & Development Conference in Las Vegas found that 34% of restaurant and franchise professionals identified consumer data analysis/market trend prediction as one of the top areas AI can deliver meaningful improvements. Does this translate to income statements?
The gloss and sheen behind this automation can prove luring to many, but caution still needs to be exercised in implementations and expectations. Consider it a double-edged sword.
“AI’s ability to help analyze trends depends on the quality of data input,” says Wasilefsky, “so keeping careful track of expenses and developing strong and detailed P&L statements will help business owners take advantage of the growing availability of AI analytical tools to keep close tabs on their [operations].”
If an operator doesn’t know the fundamentals of the P&L process, they will not be able to trust—let alone verify—the accuracy of the data and recommendations provided by the AI tool. “If that data if incorrect, the decisions an operator make based upon that data can be fatal to an operation,” warns Knief.
As another example, Knief relays how one of his clients bought into an AI service promising great daily P&L output. However, it ended up taking them 100 manhours to integrate it with their POS system, their QuickBooks, their accounting software, and their vendors. “By the time it was all said and done, they weren’t getting any more detailed information than they could’ve gotten by tracking it with a pen and paper,” he says.
Knief once experimented with creating an affordable AI app that would give clients the cost of goods being sold. However looking at the data generated, he realized AI was doing it incorrectly. “It was making the percentages additive as opposed to accumulating the total dollars and making the percentage from that,” he says, noting he found a way to correct this.
What’s the Frequency, Operators?
It’s important food-and-beverage operators use their P&L statements to identify, assess, and manage trends on a periodical basis. “Profit and loss statements should be analyzed in increments over time with trends between those periods identified and assessed,” says Wasilefsky.
However, a P&L analysis conducted over just one specific period offers limited insight compared to those conducted regularly over days, weeks, and months, which prove more effective in tracking gross and net profit margins.
But how much time is too much or too little? Knief recommends no less than frequently for all operators but weekly for those experiencing cost or revenue issues until those are resolved. “The industry is fast-moving, and operators need to be proactive, not reactive,” he says. “By the time they get their P&L on a quarterly or annual basis, it’s too late.”
“Remember, the more frequent and accurate the data, the easier it is to be proactive is resolving issues.”
Some operators manage their P&Ls daily. “The more detailed your P&L is—and the more frequently you analyze it—the better,” says Wasilefsky.
On the opposite end of the spectrum, tracking some metrics over a longer term can still help operators distinguish between fixed expenses and variable expenses that can fluctuate with sales revenue. “This insight can help uncover things like business seasonality, enabling more effective planning for periods of both lower and higher revenue,” says Wasilefsky.
Measurable Trends for 2026
Everyone interviewed for this story agree that labor is a key metric to keep a closer eye on with P&L statements in 2026—especially as states continue to implement higher minimum wage requirements for a shrinking talent pool.
“I believe operators will be forced to pay their employees more,” says Knief. “Due to the vast and rapid reduction in the traditional hospitality workforce, fewer people are fighting for those jobs, and in all honesty, you’re going to be paying them more—that line cook who used to be $20 an hour is now going to be $25, that dishwasher that used to be $13 is going to be $18, etc.”
Another cost likely to rise this year, according to Wasilefsky, is rent. “This is being driven by higher interest rates that are increasing the cost of mortgages and commercial real estate,” he explains.
In a volatile economic market frequently having to deal with tariffs, immigration, inflation, interest rates, etc., restaurant owners are resorting to the familiar “Cash Is King!" mantra.
“To manage through tough times, operators are not likely to look at their P&Ls as much as their balance sheets,” offers Wasilefsky. “Retaining adequate liquidity through tough times is paramount and keeping good levels of balance sheet cash is the best way to survive market volatility.
“After all, restaurants must perform necessary asset maintenance and cover expenses, such as payroll, when revenue falls during slowdowns. For operators with multiple locations, maintaining a specific cash reserve per store is critical. These reserves should cover maintenance and capital expenses, plus up to six months of payroll if a revenue downturn occurs. While liquidity can be in the form of cash or available lender lines of credit, the latter must be paid back. Many credit agreements have a clean-down provision that requires a $0 balance for a certain period each year.”
The cost of goods sold (COGS) should be studied on a P&L statement, as it reflects commodity prices of those elements that go into the final product (beef, chicken, vegetables, cooking oil, etc.). “In addition to providing a picture of your food costs, analyzing COGS can help you identify waste and spoilage, which are two critical factors in the ability of a restaurant to generate positive cash flow,” says Wasilefsky.
When having to deal with out-of-your-control financial intangibles, Knief’s advice is to simply breathe. “Think first. Do not overreact based upon perceived trends, social media posts, or media cycles,” he says. “Operators should deliberately and thoughtfully analyze their own current situation within their own market. Once they have the data, they can make cogent decisions that will positively affect their operations. Facts, not hype!”
Tariffs are one of the easier expenses to solve. “If your imported bottle of wine from France has a 35% to 60% tariff on it, you’re simply just going to have to charge more for that bottle of wine,” says Knief.
However there are ways to mitigate cost impact on your bottom line without the need to raise prices, which would upset your customer base. Before you start raising prices, recognize you’re not absorbing as much as you are in the supply chain—just changing the process a little.
It truly is in the way you look at things. Knief says he had a client freak out because the French fries he ordered had doubled in price, from $50 a case to $100. His first survival instinct: Raise prices!
“I told him a case of French fries is thirty pounds,” explains Knief. “Fifty bucks divided by 30 pounds is only $1.66 a pound. That’s how much your French fries went up. If you put four ounces on a plate at ten cents an ounce, your cost went up 40 cents.”
The factor that contributes the least to your overall cost problems is what you’re paying for something. “If you’re buying the most expensive produce on the street or if you can get it for ten dollars cheaper, as long as you’re costing your menu out properly with what you’re paying and utilizing it properly, i.e., not wasting it, then controlling how you use the product, you’ll be successful,” says Knief.
The possibility of rising food and labor costs, as well as diners maybe growing more hesitant to order $18 cocktails, $20 glasses of wine, and $50 entrees, are x-factor measures to consider. Niel opened his first restaurant a few years before the 2008-09 recession hit, survived it, and can draw on lessons learned during it—for example, maintaining cash flow, trimming purchases, and making hard calls about staffing.
With higher wages now the norm, front-of-house (FOH) workers, over the past ten years, have been able to work just three to four shifts a week and make enough to cover their expenses and lifestyles, with some to spare. Back-of-house (BOH) employees have never struggled to get their 40 hours a week, as there is plenty of demand for cooks, resulting in a guaranteed, solid income.
“But in a recessionary time, both FOH And BOH staffers can be cut earlier (resulting in less hours), and fewer people are needed to work each shift,” says Niel. “The paragon shift would be that we can’t continue to employ them as fully as we would like.”
Your P&L: The Key to Success
The “bottom line” about your bottom line is that if you’re not utilizing your P&L and actively finding out what your profit or loss is in any given month, you’re setting yourself up for failure. Be proactive!
“However you decide to track it—whether on a cocktail napkin or a $600/month AI program—you need to analyze how much you are taking in and spending on a monthly basis and net out one way or the other,” says Knief.
Checking your bank account to see if you have any money left to spend is not exactly the best habit to employ for sustained success.
“It’s tough. The average profit is 10 to 20 cents on the dollar in this industry,” says Knief. “There’s not a lot of wiggle room, so you can’t just hope the money will be there at the end of the month. You need to make sure that what you’re spending as a percentage of what you’re bringing in is being controlled.
“Unless you track it, you’re setting yourself up for failure.”
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