The foundation of a successful restaurant accounting system is to assure that your gross food and beverage revenues end up as net profit on your P&L statement.
Since gross revenues represent your food and beverage sales and the largest percentage of those revenues are generated from a small percentage of your food and beverage purchases, it is important that you have a tight control on those items.
We call these items “sensitive items,” and they should be treated that way. You spend 80% of your money on 20% of your items. These include center of the plate items like steaks, seafood, beef, lamb, chicken and other proteins. They also include your expensive wine, high-end liquors, bottled and craft beers. All of these represent the bulk of your purchases. If they are not accounted for properly, your bottom line will quickly dwindle or disappear.
This is why conducting regular sensitive item inventories are so crucial to the accuracy of your restaurant accounting system.
We use the term ‘sensitive' because it is defined as:
Readily fluctuating in price or demand; readily affected or changed by various agents.
As the food and beverage items you spend most of your money on fluctuate in price, and are affected by various other factors, you need to make sure you are accounting for these sensitive items at a minimum on a weekly basis, but more ideally on a daily basis.
Your high priced proteins, your expensive wine, beer, cordials, liquors all should be included in your daily sensitive item inventories.
If you regularly conduct these inventories, you will immediately be aware of any variations in your sensitive items and can quickly find the cause.
If you take these inventories at the end of the month, and a few weeks later examine your P&L and discover discrepancies, there’s very little you can do at that point. There is no way to find out what happened to missing items or exactly why you failed to meet your forecasted projections or why your food and beverage costs are out of line.
You may be thinking, “my staff and I are already doing more with less and adding one more task to our daily job is too much…” However, if you don’t add this vital method to your restaurant accounting system and to your daily routine, the money you’re spending on your high cost items may not be producing the expected revenues you projected. In fact, it could be costing you money each day and drastically affecting your bottom line profits.
Once you develop the habit of taking sensitive item inventories, it goes much faster, and you truly know where your money is going or where it is being wasted. In addition, your staff will also know you are accounting for all your sensitive items and you are paying close attention to how and where your money is working for you.
Consider this true story:
A restaurant allowed their staff to eat anything they wanted at the end of their shift. The staff would go into the walk-in and take anything they wanted, including steak, shrimp, lobster, etc. The cooks would prepare it or the staff would make it themselves…and get this…while they were on the clock. So the owners were not only letting their employees eat anything they wanted…they were paying them to do so.
One day their consultant took 10 fifty-dollar bills and placed them on the shelves in the walk-in and invited the owners in the walk-in. He asked what they saw and the owners replied… lots of money. The consultant asked if it would be okay if their staff took anything they wanted in the walk-in. They immediately replied “NO that's our money.”
The owners were asked, what is the difference between the fifty-dollar bills and the food product in the walk-in? That’s when the light bulb went off and they understood it was their money that was sitting in the walk-in. They realized they were allowing the staff to take their money by paying them to have free reign of their inventory. It was a wakeup call for them.
How to Conduct Your Sensitive Item Inventory
Decide which sensitive items you will count. We suggest counting your most expensive food and beverage items.
Conduct your first sensitive item inventory before you open for business or at the end of the day, when all your sensitive items are in their storage areas, i.e. freezers, walk-ins, reach-ins, coolers, store rooms etc.
You can create master sensitive item inventory forms of your own once you know what items you want to count. We suggest creating a separate sensitive item inventory for your food and beverage.
Here’s how you use the sensitive item inventory (available at the link above):
In the example above we're using an example restaurant.Fill in the day, date, time and person counting the inventory.
On the example above, The count is conducted on Monday evening after service.
We’ll count 5 and up peeled tenderloins and 14 ounce NY strip steaks.
For the tenderloin, under item name, we wrote 5+ tenderloins.
For unit count, we put “ea”, as we count tenderloins by the "each".
Previous total is the amount on hand at the end of the previous day count. Since this is our first count we enter 0.
"Received today" is any items received in the restaurant today.
"Total I/H" (Total In House) is the total from yesterday’s end of day count, plus any tenderloins received today.
Since we started our first sensitive inventory today, there was no previous total. We received 10 tenderloins and there are 10 in house, so the Total I/H is 20 tenderloins.
Next, we conduct an End of Day Count (EOD).
There are 4 in the "Freezer", 12 in the "Walk-in" and 2 on the "Line". If we store tenderloin in other areas that count would go in "Other" or you can rename that field. Tenderloins are not stored in any other area so we leave that blank.
"Transfers" is for items transferred in our out of your inventory. If you transferred tenderloins to the banquet kitchen or you had some transferred in, you add or subtract them from your inventory. There were no transfers in this example.
We started with 20 tenderloins In-House. The end of day count shows an EOD total of 18.
The next step is to account for any items sold from your POS reports (Qty Sold). In the case of tenderloins, we don’t sell them, but we do break them down into filet mignons and petite filets.
So when you look at the variance of -2, taking the 20 we had Total I/H and the EOD total of 18 (20-18=2) a red flag immediately goes up. Missing two expensive tenderloins from inventory is a large variance.
If there is a variance you notate that in the Var (+/-) column and write the reason for the variance. This could be a spoil, out of date, overcooked, returned, or any reason why there was a variance in your inventory.
The chef informed us the two tenderloins were broken down into filet mignons. These 20 filet mignons will then be added as an item and counted on the sensitive item inventory.
When we count tomorrow, we will start with a previous total of 18 tenderloins and complete the same process.
The next item counted is 14 ounce NY strip steaks. The item name is 14 oz. NY strip; the unit count is “ea” the Prev Ttl is zero since this is our first count.
We received 24 today and we already had 34 in house, Total I/H is 58.
At the end of day count, we have 8 in the freezer, 11 in the walk-in and 7 on the line.
The EOD total is 26.
The POS showed 31 sold. (Qty Sold)
We take the 58 total I/H, less 31 sold, less EOD Total of 26. The variance is -1.
A quick check with the chef reveals he decided not to serve a steak as it was too fatty. We account for the variance and will get credit from the purveyor so the variance does not affect our food cost.
Tomorrow we start with 26 as the Prev total and begin the process over again.
Conduct this count for all your sensitive items, those that represent your high value items in your freezers, walk-ins, coolers, and other storage areas.
Use the same procedure for your sensitive item beverages: high cost wine, liquor and beer.
Keep track of all those high value items in your restaurant accounting so at the end of the day, you are counting profit, not investigating your losses.
When you invest a small amount of time at the end of each day to conduct sensitive item inventories, you have a much tighter control of your high cost items and keep more money flowing to the bottom line.