restaurants and bars fail is that owners and operators fail to implement a food and beverage control system. Without one, they have no way of knowing if anything is missing or if costs do not measure up to standard. A control system is a necessary and beneficial tool in maximizing profit and keeping waste and pilferage to a minimum.
One of the most critical aspects of food and beverage control is profit planning. In the final analysis, the profit generated must be sufficient to keep the business running and the owner pleased with the investment.
Three ratios are extremely important in profit planning:
Operating Ratio = Net Income Before Taxes / Net Sales: This ratio is commonly known as net profit to net sales. The higher this ratio is, the better. For example, in full service operations with an average check of less than ten dollars, the median operating ratio is usually greater for units serving food only, compared to those serving both food and alcohol. Franchise-operated multi-units produce more than either company-operated multi-units or independents. Operating profit increases as sales volume increases. For full service operations with an average check of more than ten dollars, the operating ratio is better for businesses serving both food and alcohol compared to food-only places. Multi-unit, company-operated units have a greater median operating profit than independents. Insufficient data exists for multi-unit franchises to compare. As above, operating ratios increase as sales volume goes up. For limited service operations, the operating ratio is more for company-owned chains.
Management Proficiency Ratio =Net Profit After Taxes / Total Assets: This ratio indicates what management does with the assets its has. The higher the ratio, the better job that management is doing.
Net Profit to Net Equity = Net Profit After Taxes / Net Equity: Some businesses make a relatively small profit on each item sold. Still, they rely on a large volume with a relatively small investment compared to sales to produce a modest operating ratio but a good net profit to net equity.
According to experts, there are several things that a restaurant can do to increase profitability. (Nation's Restaurant News)
Design a detailed income statement.
Hire an accountant with food service experience.
Monitor daily purchases.
Buy only cost-saving equipment
Base purchases on menu items.
Plan one week in advance to prevent unexpected events.
Shop for lower insurance rates.
Train and test servers in menu knowledge.
Promote food and beverage items.
Keep menu exciting.
Use entertainment as profit streams.
Offer merchandise sales.
In order to create profit, sales are necessary. Spending money up front can often save money in the long run. Balancing food and beverage costs and labor costs are essential for profit planning, which is ultimately essential for profitability.
Fundamentals of Control
To calculate the costs of food and beverage, restaurants often rely on a simple formula:
Opening Inventory (dollar value for food and beverages already purchased and on hand at the start of the period for which costs are being calculated) Plus Purchases (tally for all invoices for this period) Minus Closing Inventory (value for all products that have not been used during that period) Minus Adjustments (including employee meals, complimentary items, etc.) Equals Cost of Food.
While this method can be time-consuming, it is very important. Smaller businesses may choose to assign a ballpark figure for inventory and use their purchases for that period to determine the cost of food.
On their own, food and beverages costs are meaningless but when compared to targets, it becomes easier to identify differences between actual and budgeted costs. The owner can then make necessary adjustment.
There are many reasons why actual food and beverage costs may be higher than projected, and understanding these reasons is an important part of control. The main reasons are: waste; pilferage and theft; poor security; spoilage; improper portion controls; increase in raw food prices; and poor forecasting.
Cost, Volume, Profit and Break-even Analysis
Cost, volume, profit or break-even analysis is a representation between sales volume, fixed and variable costs, and profit. Management can determine what sales volume is required to show a profit while determining the level of costs and profit or loss at a specific sales level.
The break-even point can be arrived at arithmetically. For example, if a customer orders a $9 meal, the variable costs associated with the meal are subtracted immediately. The remainder contributes toward paying off the fixed costs. When all the fixed costs have been paid off, the restaurant breaks even.
When the break-even point has been reached, the contribution margin becomes profit. If the variable costs associated with the $9 meal are $5.50, then the restaurant contributes $3.50 toward paying off the fixed costs. Once all fixed costs have been paid, the restaurant turns a profit of $3.50 for each meal served.
Other Than Food and Beverage Control
In the restaurant business, there are many other ways to control costs, rather than just food control.
A tight inventory control ensures that food and beverage portions are measured and accounted for. By checking the prices of various suppliers regularly, owners can ensure that they are keeping current with the best deals and suppliers.
Many restaurant owners find that, by preparing items in-house, it costs less and produces fresh food. Payroll cost control is an important aspect, as it organizes how many employees are staffed at a particular time. By reducing staff expenses and cross-training employees, owners can save a lot of money.
Owners can also control energy costs and lease equipment, rather than buying it and paying maintenance. These are other examples of cost control.
Food store control is one of the most important aspects of running a restaurant. There are three basic rules regarding food storing.
There should be a place for everything and everything should be in its place. Storage areas should be organized and well marked and items should be stored properly.
To minimize spoilage, stock should be rotated so that the oldest items are used before the newer stock.
The storage rooms should be secure and locked to prevent stealing.
Sales and cash control is essential to all cost control systems, as cash is the most obvious and easiest thing to steal. A good cash control system provides a clear paper trail of the chain of the custody of cash from when it was collected to when it goes to the bank. Cash control begins with the creation of proper cash-handling procedures, which staff should be well trained on. Any violation of these procedures should be grounds for firing.
Economics and Accounting
An understanding of financial statements is necessary for preparing tax forms, negotiating deals and determining the financial condition of the business. Owners must use accounting statements, which indicate the profitability of the business over time; balance sheets, which indicate the financial conditions or value of the business over time; and profit an loss statements, which illustrate how much money the business is making or losing over a designated period of time, by subtracting expenses from revenue to arrive at a profit or loss.
Bars and restaurants differ very little in the way that they are operated. Accounting, control, production and service systems are very similar, yet there are some major differences.
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