Cooking the Books

Rest assured, today’s post is not about tax evasion.  But, it does have a very important implications.  If your food recipes use any alcohol, it’s important to account for it properly.

Proper Accounting

Your food cost of sales should include all of the costs that are incurred in preparing the food menu items.  Sometimes, restaurants forget to include the costs of liquor, wine and beer that are used in food dishes.  Food costs are understated and alcohol costs are overstated.  No big deal to the bottom-line, but it does affect the margins for each category, which are considered in your decision-making.

But there is a far more important reason.

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Cost Control is the Key to Survival

While there are some signs that we may be emerging from the recession, I think you’ll find that consumer behaviour has been changed, perhaps for many years to come.  Even your “well-off” customers are much more price conscious that they have ever been before.  Actually, they are more value conscious.  In order to “survive and thrive”, you have to continuously monitor your restaurant’s value proposition.

While there’s more to the value proposition than your menu and prices, these are the two aspects that can be adjusted fairly easily in the short-term.  These are also the two areas that most restaurateurs fiddle with first, when times get tough.  We could probably add labour into the mix, too.

Recessions always harm the restaurant industry.  People lose their jobs (or worry that they will lose them), cut back on meals outside the home, and spend less when they do go out.  Most restaurants experience a drop in both volume and check averages, often severely reducing (or eliminating) their profits.  To cover their fixed costs, restaurateurs will try everything to keep the customers they have and steal their competitors’ customers.  Most start with price reductions, either through coupons and discounts or with across the board price reductions.  It doesn’t take long to realize that quality or portion sizes have to be reduced to maintain profitable margins.  Easier said than done!

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Counting Inventory a Waste of Time?

I’m sure all restaurant consultants and accountants advise their clients to count inventory regularly.  Depending on how many menu items and ingredients in use, and how many times you count inventory, this simple procedure can represent a very significant time commitment.  Let’s take a closer look at inventory counts and see whether they’re worth the time and effort.

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Restaurant Cost Percentages

I’ve been scouring the net for useful information on a variety of topics related to restaurant cost control.  I have to tell you that it is a pretty discouraging task.  The vast majority of the web sites and blogs offer very little useful information for a restaurateur who wants to manage his or her operations better.  Many blog articles are far too simplistic to be of any use.  It is a waste of time reading (or even scanning them)!  Others  offer a huge number of articles, videos and templates, but usually require you to sign up as a “member” (i.e. customer).  A quick review of their offerings suggest that you are not likely to get your money’s worth.  A few sites offer advice that is, well, wrong.  I hope to correct this deficiency, with an ongoing series of blog entries on this site.  In the mean time, you might consider Joe Dunbar’s blog, Food Cost Control.  Joe’s blog is one of the best I’ve come across so far.  Maybe I have a soft spot for his site, because he’s so analytical!

Today’s topic is restaurant costs.

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How the HST Will Affect Your Prices & Margins

Recently, the Canadian Restaurant and Foodservices Association (CRFA) published three calculators to help restaurateurs determine the effect of the new HST, effective July 1, 2010, on their prices.  The calculators cover wine, spirits and beer.  I’ve included the links, below.  Perhaps a short note is necessary to help you use them properly.  They are set up for “typical” value, medium and premium priced examples.  Unfortunately, you aren’t able to change the net cost figures, but they will give you an idea as to the effects on your prices and the price that your customers will be paying come July.

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