Inventory: to count it is to love it
So go tell the missus that your love for her is about the same now as it was nine years ago when you blurted out your “I Do”s at the Elvis-O-Rama Love Chapel and Sushi Bar. Peek down your nose at that boiler blocking the view between your neck and your tootsies and convince yourself that you now clock in at about the same weight as you did when you were popping zits in high school. Get out the crowbar, painfully pry open your latest 401K statement and convince yourself that your nest egg value is about the same this quarter (month/week/day/minute??) as it was the last time you looked. If you’re prudent, you see your dentist a couple of times a year. “How goes everything,” he asks cheerfully, with a tool the size of a landscaping rake in your pie hole. “Crqzzthppptbb,” you reply. Which is French for “about the same.”
Well - the reality is, not only have things changed tremendously for you in your life during the past six months, they also have the tendency to also be fluid in the world of restaurant inventory. I am pained to admit that I have restaurant clients who DON’T COUNT THEIR INVENTORY. Ever. And you know what their response is when I call them on it? When I ask them what their food costs are? ‘Oh, it’s always about the same.’
Oh really? Well, let’s do the math. An eatery did $95,000 of business during a four-week period (see my next blog on accounting periods - it’s a wing-dinger). The place bought $28,000 of food product during the period. Food costs are 29.5%. Not bad, right? Yes, but . . . what was their inventory count at both the beginning and end of the period? About the same? Let’s translate that phrase into English. If their actual beginning and ending counts were $6,000 and $7,800, respectively (not a noteworthy difference, one might argue), their true cost of goods sold for the period was 27.6% ($6,000 inventory on hand at beginning plus $28,000 purchased during the period minus $7,800 still on hand at end of period). Arguably pretty good.
Now let’s flip things. Beginning inventory is $7,800 and ending is $6,000. Food costs then go to 31.4%. That’s nearly a four-point swing, folks. And when the bottom line for a restaurant can so often be razor-thin, four points can be nearly fatal, especially if you don’t really know the actual, reality-based dollar amount of your food costs that take into consideration all the necessary accounting elements of the term ‘cost of goods sold’.
Counting inventory becomes such an important component of operations to be disciplined about and consistent in doing. It’s a pain. I acknowledge that. And it makes watching soccer explosively entertaining in comparison (uh, sorry soccer fans - well, not really). But you’ll never get a handle on your business’s profitability if you don’t do it, because you’ll never know what the real percentage is for food costs.
So go count your frozen chickens. Count the string beans. Count the mashed potato flakes. Count the straws. Count Chocula. Count it!
Tags: accounting, Inventory, Restaurant