COGS = Starting Inventory + Purchases – Ending Inventory
To start, look at your inventory at the beginning of the specific period you’d like to measure. Typically this will be the end of your month or quarter. Then, add the inventory you purchased over the course of the month or quarter. Finally, subtract what you have left now that the month or quarter is over. The resulting number is your cost of goods sold.
Net income is the total amount of money you’ve made over the last month. This is your profit after overhead, taxes and expenses have taken their cut. The equation is useful in determining your overall success as a restaurateur. It’s important to note that many restaurants won’t start showing a positive net income for the first year after opening.
Net Income = Gross income – Total Expenses
First, total all of your expenses for the month, including payroll, overhead and inventory. Then, subtract the total expenses from your gross income. The resulting number is your net income.
Profit margin is the percentage of money you’ve made based on how much you’ve invested in your restaurant for the month. A 30-percent profit margin means that for every dollar you’ve put in, you’ve made an additional 30 cents. Profit Margin = Net Income / Sales Calculate your net income. Divide your net income by your total sales. This resulting decimal number is your profit margin. Multiply it by 100 to get a percentage. (0.05 x 100 = 5% return on investment, or a 5% profit margin) There you have it! The five things you need to calculate in order to have a solid understanding of your restaurant’s financial situation. As we said before, this list is hardly exhaustive, but it’s a great place to start. If you can, it’s almost always worth the investment to hire a pro at the beginning. Once you see how financial plans are made and how restaurant financial calculations are done, you can eventually take over and do it yourself with the knowledge that you’re definitely doing it right, which is invaluable because these numbers matter—a lot.Book Consultation