Almost every restaurant that closes was profitable on paper at some point. The gap is usually that the two numbers governing the business, food cost percentage and labour cost percentage, were not visible monthly, so a slow drift went uncorrected for a year.
Food cost is not the same as food purchases
Food cost is opening inventory, plus purchases, minus closing inventory, over sales. Without an inventory count, purchases in a heavy stocking month look like a cost blowout and the following month looks artificially good. Neither figure means anything, and decisions get made on both.
- Count inventory on the same day each period, consistency matters more than precision
- Separate food from beverage; they carry very different margins and blending them hides both
- Track waste and comps as their own lines rather than letting them vanish into cost of sales
Labour, including the parts people forget
Labour cost is wages plus employer contributions, vacation accrual, and the salaried time of anyone working the floor, owner included. Excluding an owner who works forty hours makes a business look viable in a way it is not, and it is the single most common distortion in owner-operated hospitality books.
Tips, and why they are not revenue
Tips collected and paid out are a flow-through, not income. Running them through revenue inflates sales, distorts every percentage calculated against sales, and can create a GST/HST problem that takes real work to unwind.