A profit and loss statement tells the bar owner whether or not she has made a profit for a certain time period. The P&L can be completed for a week, month, quarter or on a yearly basis. The calculation is simple -- revenue minus cost of goods sold equals gross margin. Gross margin less operating expenses equals profit. The bar owner does have to deal with different costs, such as food and beverage, than other small businesses.


Revenues are generated from the sale of food and beverages. Incidentals such as t-shirts and glasses with the bar's name on it are included in revenue as well, as are cover charges. It's valuable as a management tool to separate out the three categories of food, beverage and incidentals and track and total them separately. Most point of sale systems will do this automatically.

Cost of Goods Sold

Food is marked up three to three and one-half times its cost in the restaurant industry and beverages are marked up to five times the cost. This translates into a cost of goods sold for food of from 30 to 35 percent and beverage of about 20 to 30 percent. Mixed drinks provide the opportunity for a higher markup since it's difficult for the customer to calculate what they would pay for the drink if they made it themselves, unlike ordering a bottle of beer they could buy in a store. The bar owner should review the cost of goods sold for each individual dish and each drink on the menu. She may find that she needs to adjust prices to reach a greater level of profitability. Add up the cost of the food, cost of the beverage and wholesale cost of incidentals.

Gross Margin

The bar owner should calculate the gross margin for each category of sales. Subtract the cost of goods sold from revenues. Tracking the gross margin as a percentage of sales shows the bar owner whether she needs to decrease costs, cut down on waste, or improve inventory controls of the liquor, beer and wine. The percentage also gives the bar owner the ability to compare her gross margins with the industry averages.

Operating Expenses

These expenses are grouped into categories of administrative, marketing, wages and benefits, utilities, depreciation, lease payments, insurance and other regular expenses. Wages for tipped employees such as bartenders, waitresses and waiters can get a little complicated. Tips should be reported to the bar owner on a daily basis by each tipped employee and calculated from the credit and debit card charges. A part of those tips can be used to offset the minimum wage requirement. The offset and the minimum wage is set by each state. Wages and tips must be reported to the Internal Revenue Service for each employee. Total the expenses and subtract from the combined gross margin of each sales category.


What is remaining after the operating expenses have been subtracted from the gross margin is the operating profit. Any gains or losses on asset sales, or unusual expenses such as a settlement for a lawsuit, are subtracted to arrive at net income. If it's positive then income taxes will have to be paid on the net income.