The 38 financial terms every restaurant owner must master: food cost, prime cost, break-even point, working capital, EBITDA and more.
Finance is the language of survival in hospitality. A restaurant with a full dining room can lose money if it doesn't control these numbers. Here are the 38 financial concepts that determine whether a restaurant business is viable, profitable, or doomed to close.
Percentage of selling price spent on ingredients. Target: 28-35% depending on business type.
Sum of food, beverage, and labor costs. The most critical operational profitability indicator. Target: below 60-65%.
Difference between net sales and direct cost of goods sold, before deducting operating expenses, labor, or rent.
Real profit after subtracting all expenses. 5-10% is solid in hospitality; above 15% is excellent.
Sales level where revenue exactly covers all costs. Above: profit. Below: losses.
Actual movement of money in and out of the business. A restaurant can be profitable on paper and have negative cash flow.
Difference between current assets and current liabilities. Represents liquidity to fund daily operations without new debt.
Financial resources needed to sustain current operations: suppliers, payroll, supplies.
Total resources to get the business running: construction, equipment, licenses, initial stock, and operating capital for the first months.
Return on Investment. Percentage of return obtained on invested capital.
Average spend per customer per visit. Increasing by 2€ per customer can mean thousands of additional euros per month.
Synonym for average ticket. Total sales divided by number of customers served in a period.
Document showing revenue, costs, and business result for a period. The restaurant's financial X-ray.
Equivalent to food cost but applied to beverages. Usually lower (15-25%), making the bar a profitability lever.
Earnings Before Interest, Taxes, Depreciation, and Amortization. Measures the business's real cash-generating capacity.
Earnings Before Interest and Taxes. Similar to EBITDA but includes depreciation and amortization.
Synonym for break-even point. In some contexts includes amortization of initial investment.
Technical synonym for working capital. Refers to the money conversion cycle: cash → inventory → sales → cash.
First capital investment to launch the project, before seeking formal financing or bank credit.
Internal Rate of Return. Annual profitability generated by the project. In hospitality, IRR above 15-20% is attractive.
Net Present Value. If positive, the project creates value. If negative, it destroys value even if it generates revenue.
Return on Equity. Measures profitability on own funds invested in the business.
Time it takes for the investment to recover through generated profits. In hospitality, 2-3 year payback is reasonable.
Revenue Per Available Seat per Hour. Revenue per available seat per hour. Measures your dining room's real efficiency.
Gross Operating Profit. Gross operating profit before rent, insurance, and amortization.
GOP per available seat. Used in hotel restaurants to compare efficiency between establishments.
Space productivity metric. Key to evaluating whether the venue is sized for the revenue it generates.
Estimate of future revenue based on historical data, seasonality, and market trends.
Financial plan detailing expected revenue and expenses for a period. Basis for management control.
Snapshot of business assets, liabilities, and equity at a given moment.
Management of available cash to meet short-term payment obligations without liquidity strain.
Flexible banking financing allowing access to funds up to a limit. Useful for covering expense peaks or low seasons.
Long-term rental of equipment (ovens, coolers, POS) with maintenance included. Alternative to purchasing.
Financial lease with purchase option at end of contract. For high-value equipment.
Use of debt to finance operations or expansion. Amplifies profits but also risks.
Delay in payment of obligations. In hospitality usually refers to non-payment for events, catering, or third-party services.
Distribution of an asset's cost (oven, cooler, renovation) over its useful life. Affects accounting profit.
Loss of asset value from use and time. Accounting concept linked to amortization.
Plan completo con modelo financiero. Ideal para emprender con inversion reducida.
Every concept in this glossary is a lever for improvement in your restaurant. The first step is a professional diagnosis.
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