How to actually prove whether your restaurant is profitable

The difference between cash flow and profit

Cash flow is the money moving in and out of the business. Profit is the money left over after all costs — not just the obvious ones. A restaurant can have strong cash flow and still be losing money, because the costs are hidden in the cost of ingredients, staff, power, and waste.

The five real costs of running a restaurant

Most restaurants count food cost and staff salaries, then stop. That leaves out the majority of the real cost.

• Food cost — ingredients, packaging, spoilage, and waste.
• Labor cost — not just salaries, but also staff meals, uniforms, and turnover costs.
• Occupancy cost — rent, generator fuel, and maintenance.
• Marketing cost — how customers actually find you.
• Administrative cost — licences, insurance, banking fees, and platform commissions.

The number that matters most: prime cost

Prime cost is food cost plus labor cost. If your prime cost is above 65% of revenue, you are probably running at or below break-even. If it is above 75%, you are likely losing money even if the cash flow looks healthy. This single number — not revenue, not profit — is the one to track weekly.

How to calculate it honestly

Take your total revenue for a week. Subtract the cost of every ingredient used (not just purchased — actually used). Subtract labor cost including staff meals. Divide the total by your revenue. That percentage is your prime cost. If it is below 60%, you have a healthy margin. Above 65%, you have a problem — and it is usually in portion sizes, waste, or staff scheduling.

The hidden killers: waste, theft, and portion creep

Most restaurants lose 5-15% of their potential profit to three things: waste (ingredients that spoil or are overcooked), theft (both inventory theft and cash theft), and portion creep (portions slowly getting bigger over time without anyone noticing). All three are invisible in the cash flow and devastating to profit.

How to prove your real number

Do a weekly inventory count. Compare what you bought against what you sold, and identify the gap. That gap — cost of goods bought minus cost of goods sold — is your waste and theft combined. If it is more than 5% of food cost, investigate.

• Count inventory weekly — not monthly.
• Compare purchase to sales every week.
• Audit portion sizes quarterly.
• Review your food cost per menu item and cut or reprice the worst performers.
• Track waste separately from theft, even if you cannot fully separate them yet.

Why most restaurants fail this test

Because it is uncomfortable. Cash flow feels like success. Profit is what pays you. Most owners avoid the calculation because the number is often worse than they expect. The ones who survive are the ones who face the number every week, adjust, and improve the margin by 1-2 points a month. That adds up faster than getting more customers.

The one-week test

If you want to know whether your restaurant is genuinely profitable, do this for one week: track every naira that comes in, every naira that goes out, count inventory on the first day and the last, and calculate your prime cost. That single week will tell you more than a year of cash flow glances ever will.