The income statement: the biggest key to success | Modern restaurant management

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It has been said that catering is a penny-pinching affair. I believe this is true, and there has never been a more important time to follow every penny that goes into your operation. I can read an income statement quickly, and without even seeing your transaction, I can tell you if someone is stealing money; someone gives beer, liquor or food, and even if the product “comes out” the back door. Regardless of your experience, you can miss what might look like a small detail on the income statement, but it can mean the difference between a profit or a loss.

My next two columns will tell you how to properly produce your income statement and then how you can use it to improve your operation.

Cost of Goods (COGS)

About 90 percent of the clients who come to me (both experienced and novice) miscalculated their COGS. They have extremely low costs and cannot understand why they are wasting money.

Example: A restaurant has a food cost goal of 30%, a beer cost goal of 25%, and an alcohol cost goal of 20%. Rather than calculating the costs against the individual sales of those items, they perform the calculations based on total revenue. Let’s look at the examples to understand the difference this can make.

INCORRECT

CORRECT

REPLY

Income / Expense

$

% of income

$

% of income

$

% of income

Sales

Food Sales

$ 679,257

70.57%

$ 679,257

70.57%

$ 679,257

70.57%

Beer sale

$ 110,724

11.50%

$ 110,724

11.50%

$ 110,724

11.50%

Wine sales

$ 47,453

4.93%

$ 47,453

4.93%

$ 47,453

4.93%

Sale of alcohol

$ 125,029

12.99%

$ 125,029

12.99%

$ 125,029

12.99%

Total sales

$ 962,462

100.00%

$ 962,462

100.00%

$ 962,462

100.00%

Cost of goods sold

To buy food

$ 250,000

25.98%

$ 250,000

36.80%

$ 203,777

30.00%

Buy beer

$ 46,038

4.78%

$ 46,038

41.58%

$ 27,681

25.00%

Buy wine

$ 20,000

2.08%

$ 20,000

42.15%

$ 14,236

30.00%

Buy alcohol

$ 51,987

5.40%

$ 51,987

41.58%

$ 25,006

20.00%

Total Cost of Goods

$ 368,025

38.24%

$ 368,025

38.24%

$ 270,700

28.13%

This column was calculated based on total sales, giving us low costs and inaccurate information

This column was calculated using the item’s cost as a percentage of the item’s sales.

We adjusted the COGS to targets and reduced costs by $ 97,325.

Labor cost

The cost of labor is calculated based on gross sales. Typically, when I review owner’s tax returns, they only calculate management and hourly wages versus sales. Again, doing it this way shows an artificially low cost of labor. For example, an owner calculates the cost of labor at 21% of total sales because only payroll is included.

However, to get the true cost of labor, the following should also be included: payroll taxes, employee benefits, workers’ compensation, contract labor, federal and state labor taxes. unemployment, etc. When all of this is added, we find that the cost of labor is not 21 percent but 42 percent.

Operating costs

To put us all on the same page, operating costs are the daily expenses incurred by all businesses. These are usually all the items that go into the income statement section after the key COGS (cost of food, cost of drinks, cost of labor). This will include marketing, equipment, utilities, rent, and insurance. All of these costs should be consistent with each month’s income statement, and when there is an unexpected increase or decrease, the cause should be investigated.

One area that I watch closely in this area is marketing. If the business spends $ 5,000 per month on marketing, then I want to know the return on that investment. This forces my clients to come up with marketing programs that are traceable.

Focus on profitability

I just did this same example with one of my clients’ income accounts. They have been in the restaurant business for over 30 years. When we realigned their income statement, set appropriate goals, and then put in place a strategy to achieve those goals, their profit margin went from 8% to 14%. They’ve created a weekly income statement overview and, looking at and reacting to the correct information, I think they’ll end the year with profits as high as 16%, double the best they’ve ever made.

They have done it, other customers have done it, and so can you.


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