Reading your P&L: What hospitality owners must know

Your P&L statement is the single most important financial document in your business. Yet most hospitality operators only glance at the bottom line, missing critical insights hiding in plain sight. The difference between profitable venues and struggling ones often comes down to how thoroughly they understand and act on their P&L data.

This guide walks you through reading your P&L like a pro, understanding the key metrics that matter, and spotting problems before they drain your profits.

P&L basics: The structure you need to know

A Profit & Loss statement (also called an income statement) shows your revenue, expenses, and profit over a specific period. Here's the basic structure:

• Revenue: All sales (food, beverage, delivery fees, etc.)
• Cost of Goods Sold (COGS): Direct costs of ingredients and beverages sold
• Gross Profit: Revenue minus COGS (what's left to cover everything else)
• Operating Expenses: Labour, rent, utilities, marketing, insurance, etc.
• Net Profit: What's left after all expenses (before tax)

Most operators stop at "did we make money this month?" But the real insights live in the percentages, the trends, and the line-by-line details.

Key line items to watch closely

Not all P&L lines carry equal weight. Here are the metrics that deserve your closest attention:

1. Food and beverage COGS (separately)

Your COGS should always be tracked separately for food and beverages. They have different margin targets and behave differently.

• Food COGS benchmark: 28–35% of food revenue
• Beverage COGS benchmark: 18–24% of beverage revenue

If your food COGS is creeping above 35%, you have a problem. It could be portion control, waste, theft, menu pricing, or supplier costs. Each requires a different fix.

2. Labour costs (by category)

Labour is typically your largest controllable expense. Break it down into:

• Kitchen labour: Chefs, cooks, kitchen hands
• Front-of-house labour: Servers, bartenders, hosts
• Management labour: Managers, supervisors

Total labour benchmark: 30–35% of total revenue for full-service, 25–30% for quick-service or cafes.

If your total labour is sitting at 40%, you're not making money. Period. You need to optimise rosters, reduce overtime, or increase revenue per labour hour.

3. Prime cost (COGS + Labour)

Prime cost is the sum of your COGS and labour. It's the single best indicator of operational efficiency.

Prime cost benchmark: 60–65% of revenue. Below 60% is excellent. Above 70% means you're likely unprofitable.

Prime cost is powerful because it isolates your two biggest variable costs. Everything else (rent, utilities, insurance) is mostly fixed. If your prime cost is under control, you have breathing room. If it's not, nothing else matters.

Read your P&L as percentages, not dollars

A $5,000 labour bill sounds expensive. But if you did $50,000 in revenue, that's 10% labour (amazing). If you did $15,000 in revenue, it's 33% labour (terrible).

Always calculate your key metrics as a percentage of revenue. This makes your P&L comparable across months, venues, and industry benchmarks.

Key percentages to track:

• Food COGS % (Food COGS ÷ Food Revenue)
• Beverage COGS % (Beverage COGS ÷ Beverage Revenue)
• Labour % (Total Labour ÷ Total Revenue)
• Prime Cost % (COGS + Labour ÷ Total Revenue)
• Net Profit Margin % (Net Profit ÷ Total Revenue)

Percentage-based thinking also helps you set targets. Instead of "reduce costs by $3,000," you say "reduce labour from 35% to 32%." That's a clearer, more actionable goal.

Spotting trends: Compare month-on-month and year-on-year

A single month's P&L is a snapshot. Trends emerge when you compare multiple periods.

Month-on-month comparison

Compare this month to last month. Look for:

• Revenue growth or decline: Is it trending up or down?
• Cost spikes: Did labour or COGS jump unexpectedly?
• Expense creep: Are utilities, marketing, or repairs climbing steadily?

Month-on-month helps you catch operational issues fast. If COGS jumps 4% in one month, investigate immediately. Was there theft? Poor inventory control? A supplier price increase you missed?

Year-on-year comparison

Compare this July to last July. Hospitality is seasonal. Revenue in July is rarely comparable to revenue in December.

Year-on-year comparison controls for seasonality and reveals:

• Whether your business is truly growing or just following seasonal patterns
• Long-term cost trends (are expenses climbing faster than revenue?)
• The impact of changes you made 12 months ago

Common P&L mistakes and misclassifications

Your P&L is only as good as your bookkeeping. Here are the most common errors that distort your numbers:

1. Mixing COGS with operating expenses

COGS should only include ingredients and beverages used to produce sold items. Cleaning supplies, kitchen equipment, takeaway containers, and disposables are operating expenses, not COGS.

Why it matters: If you inflate COGS with non-food costs, your gross profit margin looks worse than it is, and you can't accurately benchmark against industry standards.

2. Inconsistent invoice timing

If you record supplier invoices when paid (cash basis) instead of when incurred (accrual basis), your COGS will swing wildly from month to month.

Example: You receive $10k of stock on 28 June but don't pay the invoice until 5 July. On cash basis, June looks great and July looks terrible, even though June's revenue used July's stock.

Solution: Use accrual accounting. Record expenses when goods are received, not when invoices are paid.

3. Forgetting to accrue wages

If your pay period doesn't align with month-end, you need to accrue unpaid wages. Otherwise, some months show inflated labour costs and others show artificially low costs.

Example: Your team works the last week of June but gets paid in early July. June's P&L needs to include that labour cost, even if the cash hasn't left your account yet.

4. Ignoring discounts and refunds

If you're recording gross sales without deducting comped meals, staff meals, refunds, or discounts, your revenue is overstated and your profit margins look better than reality.

Best practice: Show net revenue (after discounts and refunds) on your P&L. Record comps and staff meals as a separate line item so you can track their cost.

How often should you review your P&L?

Most operators review their P&L monthly when their accountant sends it. That's too slow. Here's a better rhythm:

Weekly: Flash reports

Run a simplified P&L every Monday: revenue, COGS, labour, prime cost. You don't need perfect numbers. Close enough is fine.

Why it works: Weekly reviews catch problems within days, not weeks. If last week's COGS was 38%, you investigate now, not at month-end when you've already bled cash for four weeks.

Monthly: Full review

At month-end, review your complete P&L. Compare it to the prior month and the same month last year. Ask:

• Did we hit our revenue target?
• Are COGS and labour within benchmark ranges?
• Are any operating expenses unusually high?
• What caused the variance between budget and actuals?

Quarterly: Strategic review

Every quarter, zoom out. Look at three-month rolling averages. Review your vendor contracts. Analyse trends across categories. Make strategic decisions:

• Should we renegotiate supplier pricing?
• Do we need to adjust menu pricing?
• Are we staffed correctly for current demand?
• Should we cut low-margin menu items?

Turn your P&L into action

Reading your P&L is step one. Acting on it is where profit happens.

When you spot a variance, drill into it. High COGS? Check waste logs, portion sizes, and supplier invoices. High labour? Review rosters, overtime hours, and revenue per labour hour.

The best operators don't just read their P&L. They use it as a diagnostic tool, a scorecard, and a roadmap. Every line tells a story. Your job is to read between the lines and act before small issues become expensive problems.

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About the author: The Equimise team is dedicated to helping hospitality operators run smarter, reduce costs, and grow profitably with intelligent back-of-house systems.