Restaurant Theft Findings

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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Make Butchered Inventory Perpetual

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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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

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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POS for Thought

POS systemI’ve purchased several POS systems for my restaurants over the years.  As an accountant and restaurant owner, I think I can give you a bit of practical advice when it comes to implementing a POS system in your restaurant.  I visited a few web sites to see whether this topic had been adequately covered and found that there are still a few useful things to say.  This article fills in a few of the missing details you should know about.
Most advice is written by people associated with a particular POS developer or a firm that implements such systems.  Do you think they might be biased?  I do.  Based on my experience and research, all of the leading POS systems have very similar capabilities.  Many provide the usual management capabilities in the standard package.  Others provide functions commonly employed in a basic bistro style operation, and require you to purchase additional modules, if needed, such as inventory control (ingredients), menu engineering (recipes and costing), labour scheduling and time control, reservations, delivery, pool table rentals, etc…
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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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Wine Cost Control

Wine inventory is different from food inventory in one very important aspect.  Wine turns over a lot slower than food.  In other words, it stays on the shelf longer.  While food must be sold quickly, or it perishes, wine often improves with age.
The size and composition of a wine list depends on the type and style of restaurant.  Higher priced, fine dining restaurants tend to have larger wine lists and include higher priced wines, while casual dining restaurants feature a smaller selection of reasonably priced labels that appeal to a larger audience.
We usually categorize wines by varietals, countries and price, and often show the wines by-the-glass separately.  This is helpful for the customer trying to make a selection, but it is much less useful to the owner/manager.  There are at least four different categories of wine, and each has its own unique profit profile and implications for analyzing costs.
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Coupon Accounting

When the economy went into a tailspin, a lot of restaurants experienced an alarming drop in sales.  Not only were guests spending less, fewer were dining out and those that were, dined out less often.  Pretty much every restaurant that I knew saw their sales drop by a minimum of 20% – some as much as 40%.  Understandably, this put severe pressure on the bottom-lines of a lot of restaurants.
Restaurateurs were willing to do just about anything to bring a customer in the door.  Many began offering coupons, some for the first time.  Done properly, coupons and other discounts can be a valuable marketing tool, but too often they seriously harm the restaurant’s brand.  Today’s article is not about whether they are useful.  Instead, I want to talk about how we account for discounts and what it means to our analysis of costs.
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