inventory

How to Manage Your Restaurant’s Inventory

If you own a successful restaurant, there’s a good chance you’re almost always in a state of urgency. You probably wake up each morning with the goal of having a busy yet problem-free service that day.

However, restaurant owners can’t simply take it one day at a time. It’s important to save some time to make sure the business is operating efficiently. Ensuring your inventory count is correct is one of those responsibilities that keeps your business on track.

Counting your inventory correctly is critical because it translates to one of the most important financial indicators for your restaurant - Cost of Goods Sold (COGS). Calculating COGS for your restaurant is simple. Take your beginning inventory, add purchases made during the period, subtract your ending inventory, then divide by sales for the period.

In restaurants, COGS often account for one third of the total expenses, so it’s important to have a good handle on these costs. The first step in doing so is to create a target for your COGS as a percentage of income. COGS should be 30 - 35% of your sales, depending on the type of restaurant. If your COGS are significantly higher than your targeted percentage, you might want to look at your menu pricing. It’s likely that you need to raise your prices to achieve the desired target.

Once you are consistently able to meet your target, you can identify sharp changes to COGS. Increases in COGS could be due to many variables, including employee theft, incorrectly preparing products, or waste. The good news is once you identify a problem, you can set up controls to minimize these losses.

In order to accurately calculate your COGs, you must first accurately count your inventory. If you’re inventory count is incorrect, your COGs will be too. Here are few tips for efficiently keeping track of your inventory:

  • Devote a specific day each week to counting inventory - It should probably be your least busy day of the week. Get in the habit of making it inventory count day and don’t skip it.
  • Organize your inventory before the count - Before you start, make sure everything is where it should be and throw away items that have gone bad and are no longer useful.
  • Have multiple people do an inventory count - People make mistakes. Have multiple people do the inventory count and compare their numbers at the end to make sure they match. It can also be beneficial to have the same people do the count, like your restaurant manager or chef, so they develop an efficient process.
  • Don’t take inventory during service or when shipments are arriving - Counting your inventory while new items are arriving or being used is going to make things messy. Do your inventory count during a downtime.
  • Use technology to make things easy - Once again, people make mistakes. Fortunately, there is cloud-based software available to restaurants that tracks purchases and sales. You can use the data to make sure your inventory eventually makes it to your customers’ tables.

Get into the habit of regularly doing an inventory count and stay on top of your COGS. Doing so is a big step towards running a financially successful restaurant.

BookKeeping Express (BKE) is the leader in accounting and bookkeeping services for restaurants. Our team of financial specialists can manage your bookkeeping, handle your payroll, help you track revenue and expenses, and more. Visit our restaurants page to learn more.

Why Your Inventory Count Is So Important

By Lauren Crum  Email Lauren

Counting your inventory correctly is critical because it’s used to calculate one of the most important financial indicators for some types of business - Cost of Goods Sold (COGS). Specifically, the calculation of COGS is beginning inventory (what you already had) plus purchases during the period (what you bought new and added to the beginning inventory), less ending inventory (what you have left). So, you can see that if your inventory count is incorrect, your COGS won't be accurate either! In some businesses, COGS accounts for one third of the total business expenses, so it is important to have a good handle on these costs. In addition, monitoring your COGS is a good way to identify operational problems within your business.

The first step to monitoring your COGS is to create a target for COGS as a percentage of income. For restaurants, a target COGS percentage is often 30-35% of sales. If your COGS are significantly higher than your targeted percentage, you might want to look at your menu pricing. It is likely that you need to raise your prices to achieve the desired target. If your COGS is significantly lower than the estimate you had anticipated, you may want to find out  what others in your industry are seeing, review your books to make sure you are capturing all expenses appropriately and finally consider whether reducing prices would in fact increase revenue via a significant increase in overall sales.  

Once you are consistently able to meet your target, your business can be diligent in identifying meaningful changes to COGS. Increases in COGS could be due to many variables, including employee theft, incorrectly preparing product, or waste. The good news is that once you identify a problem, you can set up controls to minimize these losses. Some businesses are even able to set targets for specific categories of COGS. Using these fine tuned targets will allow you to easily and quickly find areas of concern. For instance, a restaurant might define their COGS as Food, Beverage, Paper and Liquor. Each category then holds a certain percentage of total Product COGS. When a particular category, such as paper products, consistently exceeds the expected percentage, the restaurant knows they need to pay closer attention to the use of these items or shop around for better priced paper products. Tracking liquor sales separately could even highlight when too many drinks are comped by the bartenders.

If you like, BKE can help you calculate your COGS and generate reports that help you monitor your business more closely. Just let us know if you’d like to chat.