Top 4-methods used for analyzing your restaurants' food and liquor costs!
If someone tells you that managing your restaurant's inventory is easy then they're probably cutting corners and it's costing you valuable information or they're hopefully using some type of software like CooksTime. If they're not using an advanced software system, then managing inventory can be a challenge that takes up hours out of your manager's week. Here are our four tips for analyzing your restaurant inventory cost.
The summation of the blog you're about to read is that a significant percentage of the restaurant industry will use their purchase history to determine their inventory cost but this is the least effective method because of the imbalance in days within a calendar month. If you're insistent on using your purchases to measure your cost percentage then we recommend converting to a 13-period calendar year.
If you want an even more accurate analysis of your inventory, you can always calculate your usage and then compare it to your purchases but of course, the best way to analyze your restaurant's inventory and get the most detailed information is to count your inventory at least once per month.
#4 USING YOUR PURCHASE HISTORY TO CALCULATE YOUR INVENTORY COST BASED ON A NORMAL CALENDAR MONTH CAN BE MISLEADING AND RANKS AS THE LAST OPTION
It’s very common for new and emerging restaurants to use their purchases as a way to measure their cost. The flaw in this method is that the number of days in the month and the actual days of the week aren’t consistent from period-to-period therefore the percentages will always be flawed.
For example, the month of June 2022 has four Saturdays while the month of July has five Saturdays. If your restaurant order inventory in June which didn't sell until July. The affects of this is a higher inventory cost in June and potentially a lower cost in July.
#3 USE YOUR PURCHASE HISTORY BUT ANALYZE IT BASED ON A 13-MONTH CALENDAR INSTEAD OF YOUR NORMAL 12-MONTH CALENDAR.
For restaurants that don’t wish to count their inventory and insist on using purchases, then we suggest using a 13-period calendar. This is a calendar that breaks up your months into four equal weeks ultimately creating an additional month. This calendar should always start on a Monday and end on a Sunday. Using a 13-month calendar correctly should remove the flaw created by a 12-month calendar so that your percentage analysis will be more consistent and closer to the truth.
The flaw with the 13-month calendar is that you'll be comparing your percentages to historical numbers instead of a true budget which can be costly because there are still limited details.
For example, Tom looks at his financial statement and notices that his food cost is at 28% for the period. He then notices that his historical cost averages around 27.2% so he's fine with the 28% cost. But what Tom isn't seeing is that his food cost budget should be at 25% because of a new low-cost, high-selling item they introduced six months ago.
For a restaurant that makes $100k per month, being over budget by 3% equates to $30K per year in inventory loss which equates to $120K per year in lost revenue opportunity.
#2 ADD YOUR USAGE DATA INTO THE MIX THEN COMPARE IT TO YOUR PURCHASE HISTORY.
Taking your sales and tracking the cost of each ingredient that was sold then comparing it to each ingredient that was purchased will give you a real boost when it comes to reviewing your inventory cost. This sounds very detailed, time-consuming, and complicated which is all true but it can be worth it if you're losing enough money.
The biggest drawback to this method is that you still won't know what is on your shelves or what isn't
#1 NOTHING BEATS A GOOD OLD-FASHIONED INVENTORY COUNT.
Counting your inventory is the best way to monitor and manage your inventory. Counting inventory and generating a shrinkage report is the best way for your restaurant to identify lost inventory and further identify potential problems.