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Posts Tagged ‘Theft’

Most restaurateurs know that theft is a problem in the hospitality industry, but very few know how much is going on in their own establishments. According to the U.S. National Restaurant Association, approximately 4% of all revenue is lost to in-house theft.  The latest figures from Statistics Canada, NPD Group and the CRFA, indicate that the average profit margin for Canadian restaurants was only 4.4% of operating revenue!  Based on these figures, approximately one-half of your profit is lost to employee theft.

As if that isn’t bad enough, the cost of missing alcohol is only half of the story.  Increasingly, restaurants and bars are learning that they have substantial tax liabilities resulting from stolen alcohol.  I urge you to learn more about this insidious practice, here.  It’s no wonder that 35% of restaurants fail because of employee theft!

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The majority of the cost of most entrées comes from the “protein” component – meat or fish.  Chefs try to maintain a consistent portion size, usually based on weight.  Despite consistent portions, the cost will fluctuate depending on the raw purchase cost and the butchering yield.  Even if you don’t have recipes fully documented and costed for every menu item, as a bare minimum, you should know the portion cost of the protein component of every plate.  Also, you need to track the number of portions in inventory at all times.  This will allow you to identify major cost problems that may be occurring.

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AbacusWhile 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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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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I confess, the title of today’s post was the best I could come up with to try and make internal controls sound interesting.  Truth is, the mere mention of internal controls makes most accountants’ eyes glaze over.  While they may not be “fun”, they certainly are profitable.  I’ll be writing extensively on the topic in the future, because the lack of effective internal controls will eventually destroy otherwise sound businesses.  It’s a tough task, but I will try to keep the discussions practical and avoid theoretical, technical details.

Internal controls are the backbone of your operations.  They help ensure that things get done the way they are supposed to and help ensure the accuracy of your financial reports.  They include both preventive and detective controls.  Whether you know it or not, you already have some internal controls in your restaurant.  The question is how good are they?

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