Understanding Expenses, Revenue & Profit

Introduction to Restaurant Financial Management

Running a restaurant or pub is a daily exercise in managing money. Sales can look strong while profit disappears through food waste, overtime, delivery fees, rent, repairs, and poor purchasing. Financial management helps you see what each service is producing and where cash is being lost. The goal is not to become an accountant. The goal is to make better decisions about menus, staffing, suppliers, pricing, and growth.

Concept: Expenses

Expenses are the costs required to open the doors and serve guests. In a restaurant or pub, they include food and beverage purchases, hourly wages, payroll taxes, rent, utilities, insurance, cleaning supplies, linen, repairs, credit card fees, licenses, and marketing.

Track direct costs separately from overhead. Food cost percentage is food and kitchen supplies divided by food sales. Beverage cost percentage is beverage purchases divided by beverage sales. Labor cost percentage is total labor cost divided by sales. Prime cost combines cost of goods sold and labor. A common management target is to keep prime cost near or below 60% of sales, although the right number depends on the concept, menu, location, and service model.

For example, a pub may report $40,000 in monthly sales but spend $13,200 on food and beverage purchases and $12,800 on labor. Its prime cost is $26,000, or 65%. That leaves only $14,000 to cover rent, utilities, insurance, repairs, technology, and profit. The owner should review purchasing, portion sizes, waste, scheduling, and menu prices before adding more advertising.

Concept: Revenue

Revenue is the money earned from food, drinks, private events, delivery, takeaway, and other services. Track sales by channel and by category rather than looking only at the total on the bank statement. A Toast POS report can show food sales, beer sales, cocktail sales, discounts, refunds, tips, and payment fees.

Useful operating measures include average cover, which is total sales divided by the number of guests; table turnover rate, which shows how many parties use each table during a service period; and sales per labor hour. These measures explain why revenue changed. A Friday may produce more sales because tables turned three times, while a quiet Tuesday may need a fixed-price menu or event rather than more staff.

Suppose a neighborhood restaurant raises average cover from $29 to $34 by improving drink sales and training servers to suggest starters. If guest counts remain steady, the additional revenue can improve profit without requiring more tables or a larger dining room. The owner must still check whether discounts, comped items, and ingredient costs reduce the gain.

Profit First

Traditional accounting says Revenue - Expenses = Profit. In practice, many owners pay every bill first and hope something remains. A profit-first approach changes the order: Revenue - Profit = Available Expenses. At set intervals, transfer a practical share of sales into separate profit and tax accounts before spending the rest.

Start carefully. An owner might reserve 2% of weekly sales for profit and 5% for taxes, then increase the percentages after reviewing cash needs. Do not move money blindly if payroll, sales tax, or supplier invoices are due. Use a cash forecast and keep required operating reserves. The point is to make profit visible and prevent every strong week from being consumed by extra purchases or unnecessary upgrades.

The Importance of Cash Flow Management

Profit and cash are not the same. A restaurant can show a profit on paper and still struggle because cash is tied up in inventory, paid out in payroll before a busy weekend, or used for equipment repairs. Review cash coming in and going out every week.

List expected deposits from Toast POS or Square POS, payroll dates, rent, supplier invoices, tax payments, loan payments, and scheduled repairs. Compare the forecast with actual bank activity. A 13-week cash forecast is especially useful for seasonal pubs and restaurants. It can show that a slow January requires reduced hours, a supplier payment plan, or a planned promotion rather than panic borrowing.

Use software that matches the size of the operation. Toast POS provides sales and menu reporting, while 7shifts supports labor planning and scheduling. Homebase Free can help smaller teams manage schedules and time clocks. Square POS Basic is another low-cost option for straightforward food and beverage operations. Whichever system you choose, reconcile its reports with bank deposits and accounting records.

Conclusion

Restaurant financial management turns daily activity into clear decisions. Track food cost percentage, labor cost percentage, prime cost, average cover, table turnover rate, and cash on hand. Review revenue and expenses every week, reserve money for profit and taxes, and investigate changes before they become emergencies. A busy restaurant is not automatically a profitable restaurant. Profit comes from controlling the cost of every plate, pint, labor hour, and service period.