Chapter 1 - Managing revenue and expense. This chapter presents the following content: Professional foodservice manager, profit: the reward for service, four major foodservice expense categories, percentages, percentages in foodservice, profit formula, understanding the income (profit and loss) statement, common percentages used in a P&L statement, understanding the budget, technology tools.
Chapter 1 Managing Revenue and Expense © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Main Ideas Professional Foodservice Manager Profit: The Reward for Service Four Major Foodservice Expense Categories Percentages Percentages in Foodservice Profit Formula Understanding the Income (Profit and Loss) Statement Common Percentages Used in a P&L Statement Understanding the Budget Technology Tools © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Professional Foodservice Manager Management handles functions of product sales to product delivery Management of foodservice is more difficult than for manufacturing or retailing management counterparts The food service operator must serve as a food factory supervisor, and a cost control manager © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.1 Management Task Checklist Task Secure raw materials Manufacture product Distribute to end- user Market to end- user Reconcile problems with end-user © 2011John Wiley & Sons Foodservice Manager Yes Yes Yes Yes Yes Manufacturing Manager Yes Yes No No No Retail Manager No No Yes Yes Yes Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Profit: The Reward for Service If management focuses on controlling costs more than on servicing guests, problems will certainly surface Do not get yourself in the mindset of reducing costs to the point where it is thought that “low” costs are good and “high” costs are bad © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Profit: The Reward for Service Efforts to reduce costs that result in unsafe conditions for guests or employees are never wise The question is whether costs are too high or too low, given management’s view of the value © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.2 Foodservice Business Flowchart Cash reserves Profits Purchases Supplies Raw materials and labor Produces Accounts receivable or cash Generates Finished products © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Profit: The Reward for Service Revenue Expenses = Profit Revenue is the amount of dollars you take in Expenses are the costs of the items required to operate the business Profit is the amount of dollars that remain after all expenses have been paid © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Profit: The Reward for Service Revenue Expenses = Profit The following terms will be used interchangeably: revenue and sales; expenses and costs All foodservice operations, including nonprofit institutions, need revenue in excess of expenses if they are to thrive Profit is the result of solid planning, sound management, and careful decisionmaking. © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Profit: The Reward for Service Revenue – Desired Profit = Ideal Expense Desired profit is defined as Profit that the owner wants to achieve on that predicted quantity of revenue Ideal Expense is defined as Management’s view of the correct or appropriate amount of expense necessary to generate a given quantity of revenue © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.6 Pat's Steakhouse Revenue Expenses Food and Beverage Cost Labor Cost Other Expense Total Expense $400,000 $150,000 175,000 25,000 $350,000 Profit Figure 1.7 Pat's Steakhouse P&L Revenue Food and Beverage Cost Labor Cost Other Expense Total Expense Profit © 2011John Wiley & Sons $ 50,000 $400,000 $150,000 175,000 25,000 100% 37.50% 43.75% 6.25% $350,000 $50,000 87.50% 12.50% Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.8 Pat’s Steakhouse Costs and Profit as a Percentage of Revenues Profit 12.50% Other Expense 6.25% Food and Beverage Cost 37.50% Labor Cost 43.75% © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Common Percentages Used in a P&L Statement Food and Beverage Cost Revenue = Food and Beverage Cost % Labor Cost Revenue = Labor Cost % Other Expense Revenue = Other Expense % Total Expense Revenue = Total Expense % Profit Revenue = Profit % © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget Budget An estimate of projected revenue, expense, and profit The budget is known as the plan All effective managers, whether in the commercial (for profit) or nonprofit sector, use budgets © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget Performance to budget is the percentage of the budget actually used Figure 1.9 Weekday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Total © 2011John Wiley & Sons Candy Purchases Budgeted Amount $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $7.00 % of Total 14.28% 14.28% 14.28% 14.28% 14.28% 14.28% 14.28% 100.00% Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget The 28dayperiod approach to budgeting 13 equal periods of 28 days each Figure 1.10 Common Foodservice Budget Periods Budget Period One week Two-week period One month 28 days 30 days 31 days Six months One year Portion One day One day One week One week One day One day One day One month One day One week One month % of Total 1/7 or 14.3% 1/14 or 7.1% 1/2 or 50.0% 1/4 or 25.0% 1/28 or 3.6% 1/30 or 3.3% 1/31 or 3.2% 1/6 or 16.7% 1/365 or 0.3% 1/52 or 1.9% 1/12 or 8.3% © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget Percentages are used to compare actual expense with the budgeted amount, using the formula: Actual Budget © 2011John Wiley & Sons = % of Budget Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.11 Camp Eureka One-Week Budget Item Meals served Revenue Food Expense Labor Expense Other Expense Profit Budget 3,780 $6,993 $2,600 $2,800 $ 700 $ 893 Actual 3,700 $6,993 $2,400 $2,900 $ 965 $ 728 © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 1.12 Camp Eureka Performance to Budget Summary Item Meals Served Revenue Food Expense Labor Expense Other Expense Total Expenses Profit © 2011John Wiley & Sons Budget 3,780 $ 6,993 $ 2,600 $ 2,800 $ 700 $ 6,100 $ 893 Actual 3,700 $ 6,993 $ 2,400 $ 2,900 $ 965 $ 6,265 $ 728 % of Budget 97.9% 100.0% 92.3% 103.6% 137.9% 102.7% 81.5% Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget “Inline” with the budget vs. “significant” variation to the budget A significant variation is any variation in expected costs that management feels is an area of concern © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Understanding the Budget If significant variations with planned results occur, management must: Identify the problem Determine the cause Take corrective action © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Most hospitality managers would agree that an accurate and timely income statement (P&L Statement) is an invaluable aid to their management efforts There are a variety of software programs on the market that can be used to develop this statement © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Variations include programs that can compare actual results to budgeted figures or forecasts, to prior month performance, or to prioryear performance P&L’s can be produced for any time period, including months, quarters, or years Most income statement programs will have a budgeting feature and the ability to maintain historical sales and cost records © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Not all information should be accessible to all parties, and security of cost and customer information can be just as critical as accuracy To effectively manage an operation, a manager will need to communicate with employees, guests, and vendors. Thus, the software you will need includes office products for word processing, spreadsheet building, faxes, and email © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Summary Professional Foodservice Manager Profit: The Reward for Service Four Major Foodservice Expense Categories Percentages Percentages in Foodservice Profit Formula Understanding the Income (Profit and Loss) Statement Common Percentages Used in a P&L Statement Understanding the Budget Technology Tools © 2011John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller ... Total 1/ 7 or 14 .3% 1/ 14 or 7 .1% 1/ 2 or 50.0% 1/ 4 or 25.0% 1/ 28 or 3.6% 1/ 30 or 3.3% 1/ 31 or 3.2% 1/ 6 or 16 .7% 1/ 365 or 0.3% 1/ 52 or 1. 9% 1/ 12 or 8.3% © 2 011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control, 5th ... Figure 1. 4 Forms of Expressing Percent Form 1% Percent 10 % Common Fraction Decimal 1% 1/ 100 0. 01 10% 10 /10 0 0 .10 © 2 011 John Wiley & Sons 10 0% 10 0% 10 0 /10 0 1. 00 Food? ?and? ?Beverage? ?Cost? ?Control, 5th ... $1. 00 $1. 00 $7.00 % of Total 14 .28% 14 .28% 14 .28% 14 .28% 14 .28% 14 .28% 14 .28% 10 0.00% Food? ?and? ?Beverage? ?Cost? ?Control, 5th Edition Dopson, Hayes,? ?& Miller Understanding the Budget The 28dayperiod approach to budgeting