February 23, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 487,400 tax returns that were filed in the restaurant industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their restaurant.
We hope that this data will be helpful for you as a “reality check” for your financial projections and restaurant business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How Many Restaurants in the US are Sole Proprietorships
There are approximately 500,000 restaurants in the US organized as sole proprietorships. We specifically analyzed 487,400 companies based on the 2019 IRS tax return data.
Average Annual Revenue for Restaurants
The average annual revenue for all sole proprietorship restaurants in the U.S. was $129,637.
If that sounds low, keep in mind that this includes all restaurants including restaurants that might operate on a part time basis. This could include small coffee shops and cafes as well as full scale fine dining restaurants, but the smaller restaurants are going to bring down the averages.
Average Annual Expenses for a Restaurant
The average annual expenses for all sole proprietorship restaurants in the U.S. was $125,167.
The raw dollar amount is less important here, the important thing to note is that all expenses for a restaurant amounted to 97% of total revenue.
Average Net Profit Margin for a Restaurant
The average net profit margin for a restaurant was just 3% for US based sole proprietors.
How Much Can I Make Owning a Restaurant?
If you are wondering how much you might be able to make by owning your own restaurant, you can get a good idea by creating a revenue projection based on the number of customers you expect to serve per day times the average order value. Then you can simply apply that 3% profit margin to the total revenue to forecast your restaurant profitability.
To develop a more sophisticated restaurant financial model you can use our template to create a full 5 year forecast as seen below:
Top 9 Expenses for a Restaurant
Based on the tax returns of 487,400 sole proprietors operating in the restaurant industry, the following were the 9 largest business expenses as a percentage of revenue.
Average Food Cost for a Restaurant
The average restaurant spent 36% of revenue on food cost of goods sold.
Average Labor Cost for a Restaurant
The average restaurant spent 20% of revenue on labor cost. This includes hourly and salaried employees.
Average Rent Cost for a Restaurant
The average restaurant spent 7% of total revenue on rent.
Average Utility Cost for a Restaurant
The average restaurant spent 4% of annual revenue on utilities.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 487,400 restaurant sole proprietorships in the U.S. in 2019.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!
