Restaurant Profitability Blog

Not Taking Inventory is Costing You Cash. Quit Blowing Your Profits.

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It’s plain and simple: You need to know your food costs.

Why? Because understanding how your food spend relates to your sales is the defining health measure of your business.

Of course, there’s plenty of evidence if you pay attention you’ll be more profitable – up to 24% more profitable.

So, when we talk about inventory, we’re really talking about profits, money, cash flow – the reason you got into business.

But inventory sucks, and we all know it. The clipboard. The count. The data entry. The price look-up. No one in the restaurant likes it. No. One.

That’s probably why 60% of restaurants don’t take a regular inventory. It’s time-consuming, tedious, and to be honest –  our employees don’t really understand why we’re taking it in the first place

So they don’t do it. Or they just kinda do it. They fudge the count or don’t update all the prices and you’re left with an inventory valuation that’s not even correct.

And that’s… less than ideal.

At Orderly we’ve worked with thousands of restaurants on how to calculate their food costs.  One of our key findings has been most restaurants don’t take inventory because their employees don’t understand “why” it’s so important or “how” to use the data once they’ve taken it.

And this is something that needed to be cleared up yesterday.

We’re ready to end the confusion. Below, we’ve outlined the 5 reasons why it’s critical you and your team take regular inventory.

We’ve even created an inventory training cheat sheet for your employees to help them understand the extreme importance of inventory for your restaurant’s operations.

Knowledge is power. And power can make you more money.

#1 KNOW YOUR RESTAURANT’S HEALTH

Take inventory to find your Cost of Goods Sold

Your Cost of Goods Sold, or COGS, is one of the best ways to understand your food spend. It’s a mathematical look at the amount of money you spend on food. When compared to your sales, it’s the best way to determine the health of your restaurant.

If spend is flat and sales increase… things are great.

If spend increases, but sales don’t? They aren’t.

The formula is easy:

COGS: (Starting Inventory) + (Purchases) – (Ending Inventory) = COGS

But without an accurate inventory, you’re not going to have an accurate COGS. It’s like trying to bake a cake, but just eyeballing the amount of flour you put in. It might work, but it’ll be far from perfect.

And if way off, it can be disastrous.

The Takeaway: Know your COGS weekly, not monthly. Make weekly purchasing adjustments to drive higher profitability.

#2 STOP LEAVING MONEY IN THE STOCKROOM

Take inventory to understand the shelf value of your ingredients.

We’re yelling BUY BUY BUY and SELL SELL SELL… but without those funny jackets.

Oh, and we’re in your stockroom, not on Wall Street.

For restaurants, stock value involves knowing how much money is tied up on your shelves, and using that to inform your purchasing.

Sugar isn’t a key ingredient of yours, but you have hundreds of dollars of it. Why are you buying more? Also, why are you spending so much on sugar to begin with?

It’s important to know how much each ingredient is costing you, as well as how much money you have tied up in the ingredients sitting on your shelves.

One of our customers, a 100-seat casual dining restaurant, recently took their first inventory. They were amazed to find that they had $50,000 in cash tied to ingredients they rarely used. 

Once you have a better grasp, it’s so much easier to take a step back and fully analyze how much money you have tied up in your inventory.

Then, you can make the necessary changes and start spending your money on in the right areas.

The Takeaway: Know the shelf value of your goods. Look at big ticket and perishable items weekly and make monthly decisions on how much should be invested in your stock.

#3 KNOW WHY THINGS ARE DISAPPEARING

Take inventory to identify waste and theft.

You trust your staff. You’ve met Joe’s mom. Brittany has the sweetest kids. Sarah’s worked for you since she was a teenager.

But that doesn’t mean they’re not stealing from you. In fact, 75% of employees report stealing from their employer.

Ah. That explains where the steak keeps going missing.

Performing an accurate and consistent inventory will help you closely monitor unusual behaviors in your stock room. If certain ingredients mysteriously go missing, (or repeatedly disappear), you’ll know.

Plus, by showing your staff that inventory is something you care about, guilt may start to curb their sticky fingers. Or, if they simply see you’re closely monitoring numbers in the stock room, they may simply be too scared to grab that snack from the fridge.

When it comes to waste, taking an inventory can also show you the value of what you’re throwing away. You know you always toss a loaf or two of bread away each week, but haven’t thought much of it. But, those small moments could be costing you hundreds of dollars a year – if not more.

The Takeaway: There’s money in your variance. Those heavy-handed portions, constant food waste, and employee theft are costing you. The only way to truly understand and fix this problem? A tight inventory process.

#4 ORDER WHAT YOU ACTUALLY NEED

Take inventory to make sure you maintain the proper pars on key ingredients

For years, you’ve put in the same orders with the same suppliers for the same menu.

Routine is nice, isn’t it?

Well, the times have changed even if your menu hasn’t. And maybe the chicken pot pie just doesn’t sell the same way it used to.

So why are you still ordering like it does?

By taking inventory, you’ll know exactly what you need to order each week. No guesstimating, no automating, and no wasted money.

Plus, you can order based on hitting your par.

No, we’re not telling you to go play 18 holes between the lunch and dinner rushes… although man, that sounds nice.

Par-based ordering means you order to have a specific amount of each item on the shelf.

You set your par at the ideal level for what you need. Then, you know exactly when you have a surplus and need to curb ordering, or when you have a shortage and need to boost your numbers.

Yes, that means you’ll have to change your order sometimes.

But, it also means you won’t have an over (or under) stuffed stockroom. And your pockets will be stuffed with cash.

The Takeaway: Ordering efficiency comes with par-based inventory. You’ll always have what you need, and not too much of what you don’t.

#5 INCREASE YOUR BEVERAGE BOTTOM LINE

Better manage the profitability of your bar 

Managing bar inventory is a different beast.

The ingredient usage can be, for lack of a better term, more casual.

Are bartenders over pouring? Are you comping too many drinks? Is the round of shots given out every night making more of a dent than you thought? Are your bartenders stealing a bottle or two for after work?

Luckily, you can still calculate a bar-specific COGS to help answer questions about spend.

Is it efficient? Is it increasing or decreasing? Are you ordering more vodka than you sell?

New technology out there lets you hyper focus on what liquors and beers you need to maintain and monitor more closely in order to run your bar more profitably.

When it comes to the booze, maybe it’s the portioning. When it comes to the beer, maybe a few too many are being given away.

These answers are hard to figure out when you’re not taking an accurate inventory.

While your college self may have enjoyed having extra booze around, your adult self knows your bottom line is what’s truly important.

The Takeaway: A lot of money and profits can get tied up in the bar. If you’ve got one, it’s even more important to understand COGS, shrinkage, theft, and shelf value.

CONCLUSION: UNDERSTAND YOUR BUSINESS BETTER WHEN YOU KNOW YOUR NUMBERS.

So now you understand why inventory can be vital:

  • Helps you know your food cost and manage COGS vs. sales weekly
  • Understand the shelf value of your ingredients
  • Identify and curb waste and theft
  • Maintain proper par levels on ingredients
  • Better manage the profitability of the bar

But, those are all part of one real reason… Higher profits.

But you still think it’s just too time-consuming?

Luckily, there’s a better way to take inventory. And that’s by not taking it at all.

That’s exactly what we’ve figured out at Orderly.

With Orderly, we read and measure all your supplier purchases. We then apply machine learning to understand your purchase patterns and depletion models on ingredients.

All you have to do? Snap photos of your invoices and update your sales figures.

And the results?

A food cost percentage that’s even more accurate than a full count. (We can show you, we’ve run hundreds of models).

And what you get… A weekly healthy measurement of your business, so you’ll always know what’s going on.

Automated recommendations to help you save money.

So sure, inventory may feel extremely important.

But with Orderly, you can get better numbers in a fraction of the time.

What the heck are you waiting for?

Danny BarryNot Taking Inventory is Costing You Cash. Quit Blowing Your Profits.

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