1. Chapter 17 Managing Revenue and Expense

2. Main Ideas Professional Foodservice Manager Professional Foodservice Manager Profit: The Reward for Service Profit: The Reward for Service Four Major Foodservice Expense Categories Four Major Foodservice Expense Categories Percentages Percentages Percentages in Foodservice Percentages in Foodservice Profit Formula Profit Formula Understanding the Profit and Loss Statement Understanding the Profit and Loss Statement Common Percentages Used in a P&L Statement Common Percentages Used in a P&L Statement Understanding the Budget Understanding the Budget

3. Professional Foodservice Manager  Handles functions of product sales to product delivery.  Management is more difficult than for manufacturing or retailing management counterparts.

4. 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 mind-set of reducing costs to the point where it is thought that "low" costs are good, and "high" costs are bad.

5. Profit: The Reward for Service Efforts to reduce costs that result in unsafe conditions for guests or employees are never wise. 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. The question is whether costs are too high or too low, given management’s view of the value.

6. Profit: The Reward for Service  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. Revenue - Expenses = Profit

7. Profit: The Reward for Service The following terms will be used interchangeably: revenue and sales; expenses and costs. The following terms will be used interchangeably: revenue and sales; expenses and costs. All foodservice operations, including non-profit institutions, need revenue in excess of expenses if they are to thrive. All foodservice operations, including non-profit institutions, need revenue in excess of expenses if they are to thrive. Profit is the result of solid planning, sound management, and careful decision-making. Profit is the result of solid planning, sound management, and careful decision-making. Revenue – Expenses = Profit

8. Profit: The Reward for Service Desired profit is defined as Desired profit is defined as profit that the owner wants to achieve on that predicted quantity of revenue profit that the owner wants to achieve on that predicted quantity of revenue Ideal Expense is defined as Ideal Expense is defined as management's view of the correct or appropriate amount of expense necessary to generate a given quantity of revenue management's view of the correct or appropriate amount of expense necessary to generate a given quantity of revenue Revenue – Desired Profit = Ideal Expense

9. Profit: The Reward for Service Revenue varies with Revenue varies with number of guests number of guests amount of money spent by each guest. amount of money spent by each guest. Increase revenue by Increase revenue by increasing the number of guests served increasing the number of guests served increasing the amount each guest spends increasing the amount each guest spends or a combination of both or a combination of both Revenue – Desired Profit = Ideal Expense

10. Four Major Foodservice Expense Categories Food costs Food costs Costs associated with actually producing menu items Costs associated with actually producing menu items Largest or second largest expense category Largest or second largest expense category Beverage costs Beverage costs Costs related to the sale of alcoholic beverages – beer, liquor, wine Costs related to the sale of alcoholic beverages – beer, liquor, wine May also include ingredients, mixers, garnishes May also include ingredients, mixers, garnishes

11. Four Major Foodservice Expense Categories Labor costs Labor costs Cost of all employees, including taxes Cost of all employees, including taxes Labor costs are second only to food costs in total dollars spent. Labor costs are second only to food costs in total dollars spent. Some include the cost of management in this category. Others prefer to place the cost of managers in the Other Expense category. Some include the cost of management in this category. Others prefer to place the cost of managers in the Other Expense category. Other expenses Other expenses Include all expenses that are neither food, beverage nor labor, such as utilities, rent, linen, etc. Include all expenses that are neither food, beverage nor labor, such as utilities, rent, linen, etc.

12. Percentages  Numbers can be difficult to interpret due to inflation. Therefore, the industry often uses percentage calculations.  You will be evaluated primarily on your ability to compute, analyze, and control these percent figures.

13. Percentages  Percent (%) means “out of each hundred.”  There are three (3) ways to write a percent:  Common Form  "%" sign is used, as in 10%.  Fraction Form  the part, or a portion of 100, as in 10/100.  Decimal Form  the decimal point (.), as in 0.10.

14. Percentages  Divide the number that is the part by the number that is the whole. Part = Percent Part = Percent Whole Whole

15. Expense Revenue = Expense % Revenue = Expense % Percentage of revenue that went to pay for expenses: Percentages in Foodservice

16.  As long as expense is smaller than revenue, some profit will be generated. Profit Profit % = Revenue  Modified profit formula: Revenue – (Food and Beverage Cost + Labor Cost + Other Expenses) = Profit

17.  Put in another format, the equation looks as follows: Revenue (100%) – Food and Beverage Cost % – Labor Cost % – Other Expense % = Profit % Profit Formula

18. Understanding the Profit and Loss Statement  Profit and loss statement (P&L) lists revenue, food and beverage cost, labor cost, other expense, and profit.  The P&L is important because it indicates the efficiency and profitability of an operation.

19. Understanding the Profit and Loss Statement The Uniform System of Accounts is used to report financial results in most foodservice units. This system was created to ensure uniform reporting of financial results. The Uniform System of Accounts is used to report financial results in most foodservice units. This system was created to ensure uniform reporting of financial results. Published by the National Restaurant Association Published by the National Restaurant Association

20. 2. Labor Cost Revenue = Labor Cost % Revenue = Labor Cost % 3. Other Expense Revenue= Other Expense % Revenue= Other Expense % 4. Total Expense Revenue= Total Expense % Revenue= Total Expense % 5. Profit Revenue= Profit % Revenue= Profit % 1. Food and Beverage Cost Revenue= Food and Beverage Cost % Revenue= Food and Beverage Cost % Common Percentages Used in a P&L Statement

21. Understanding the Budget Budget Budget An estimate of projected revenue, expense, and profit. An estimate of projected revenue, expense, and profit. The budget is known as the plan. The budget is known as the plan. Both commercial and non-commercial foodservice operators may use budgets. Both commercial and non-commercial foodservice operators may use budgets.

22. Understanding the Budget Performance to budget is the percentage of the budget actually used. Performance to budget is the percentage of the budget actually used. The 28-day-period approach to budgeting The 28-day-period approach to budgeting 13 equal periods of 28 days each 13 equal periods of 28 days each

23. Understanding the Budget  Percentages are used to compare actual expense with the budgeted amount, using the formula Actual Budget= % of Budget

24. Understanding the Budget "in-line" with the budget vs. "significant" variation to the budget. "in-line" 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. A significant variation is any variation in expected costs that management feels is an area of concern.

25. Understanding the Budget  If significant variations with planned results occur, management must: 1.Identify the problem 2.Determine the cause 3.Take corrective action

26. Summary Professional Foodservice Manager Professional Foodservice Manager Profit: The Reward for Service Profit: The Reward for Service Four Major Foodservice Expense Categories Four Major Foodservice Expense Categories Percentages Percentages Percentages in Foodservice Percentages in Foodservice Profit Formula Profit Formula Understanding the Profit and Loss Statement Understanding the Profit and Loss Statement Common Percentages Used in a P&L Statement Common Percentages Used in a P&L Statement Understanding the Budget Understanding the Budget