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This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.
There are 11 references cited in this article that you can view at the bottom of the page.
This article has been viewed 25,796 times.
Managing a restaurant, caterer, or cooking school can be an expensive and complicated task. To ensure your business runs smoothly, you must calculate your food costs regularly and accurately. There are three main calculations you need to pay attention to: maximum allowable food costs (costs that you can afford); projected food costs (i.e. how much the menu will cost); and actual food costs (the amount of food you need to buy for your business). Comparing these three numbers will help you make adjustments and cut costs to ensure a successful long-term business.
Steps
Calculate Maximum Allowable Food Costs
- Target profit
- Hourly labor (waiter, dishwasher, etc.)
- Monthly labor (manager, company owner, chef, etc.)
- Living expenses (gas, electricity, water, wireless, etc.)
- Fixed costs (rent, mortgage payments, insurance, etc.)
- Fees and permits (taxes, liquor licenses, business licenses, food sales permits, etc.)
- Supply (cleaning supplies, non-food cookware, plates, takeout bags)
- Marketing
- Maintenance
- Assess your finances: create a monthly household budget that includes: rent/mortgage, transportation, food, personal insurance, and all other personal expenses. [7] X Trusted Source US Small Business Administration Go to the source Don’t sacrifice personal stability for business.
- Calculate debt payment options. In addition to a simple understanding of interest rates, you also need to know if you plan to pay the minimum installment, or pay off your debt as quickly as possible. How much personal money do you have and how much business income will be used to pay off debt? How much is left?
- After weighing your personal finances and paying off debt, decide how much money to invest in your business each month.
- Compare that amount to your operating budget. If you can’t meet it, you need to adjust your operating budget instead of putting pressure on your finances.
- Consider enlisting the help of an accountant or banker to figure out how safe you can stretch your finances.
- For example, let’s say you can spend 100 million VND per month on your restaurant.
- You and your manager receive a salary of 5 million VND per month. In general, the monthly salary to be paid is 10 million, or 10% of the budget.
- Monthly Salary (10%) + Hourly Rate (17%) + Supply (5%) + Cost of Living (6%) + Marketing (4%) + Fees and Permits (3%) + Maintenance ( 4%) + Fixed Cost (21%) + Target Profit (5%) = 75%
- In this example, 75% of the maximum budget is spent on everything but food.
- To calculate the maximum allowable food cost, subtract 100% from the above rate.
- 100% – 75% = 25%
- If your monthly budget is VND 100 million, you can spend up to VND 100 million x 0.25 = VND 25 million on food for a profit of 5% (100 million x 0.05 = VND 5 million) per month .
Calculate Actual Food Costs
- Always check stock outside of business hours, so no food is delivered or used for cooking.
- Add up all the amounts to determine the opening inventory – the cash value of the food in the kitchen on the first day of the financial week.
- To calculate the actual cost of food, complete the following expression: Food Cost % = (Starting Inventory + Purchases – Ending Inventory) ÷ Sales Revenue.
- In our example, let’s say Beginning Inventory = 14 million dong; Purchase Amount = 3 million VND; Ending inventory = 15 million dong; Sales = 7 million dong
- (14 million + 3 million – 15 million) 7 million = 0.30 = 30%
- Adjust weekly food purchases to control inventory. You want to reduce your actual food costs to or below the maximum allowable food costs.
- Keep in mind that this calculation can be wrong if you count food items incorrectly when calculating inventory, counting and entering units that are different from the inventory valuation (like counting 10 boxes of tomatoes but the price is different). re-invoice), lose invoices for products counted in inventory, or bill non-existent products (such as returns).
Calculate Estimated Food Costs
- Multiply the cost of food for each item by the number of items sold each week.
- Add it all up to get the total cost. In the example above, let’s say we have a total cost of 4.5 million. That’s how much you spend on making dishes this week.
- Ensure all items are strictly controlled by volume. This is to ensure that all chefs will serve each dish at the same price.
- In the above example, let’s say you have 12 million in sales for the week.
- You can increase the price of all the dishes on the menu a bit – maybe 5,000 VND if the price of the dish is quite cheap, or 40,000-60,000 VND if the cost of making the dish is higher.
- Look at sales to see which dishes are most loved by customers. You can increase the price of your favorites more than your less-loved ones – people will be willing to pay even if the price goes up.
- Consider getting rid of items that aren’t selling well. They are unlikely to generate much revenue. Continually re-evaluate the menu to make sure you use all the food in stock.
Advice
- You can do both buying and selling on the same day.
- The closest you’ll pay for each food item will be the price of your inventory.
- You should not deliver the goods during the inventory.
This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.
There are 11 references cited in this article that you can view at the bottom of the page.
This article has been viewed 25,796 times.
Managing a restaurant, caterer, or cooking school can be an expensive and complicated task. To ensure your business runs smoothly, you must calculate your food costs regularly and accurately. There are three main calculations you need to pay attention to: maximum allowable food costs (costs that you can afford); projected food costs (i.e. how much the menu will cost); and actual food costs (the amount of food you need to buy for your business). Comparing these three numbers will help you make adjustments and cut costs to ensure a successful long-term business.
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