Chapter 1 Managing Revenue and Expense Cost Control Chapter 1 Managing Revenue and Expense

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

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.

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.

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.

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.

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 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: 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.

Profit: The Reward for Service Revenue – Desired Profit = Ideal Expense Revenue varies with Number of guests Amount of money spent by each guest Increase revenue by Increasing the number of guests served Increasing the amount that each guest spends Or a combination of both

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

Four Major Foodservice Expense Categories Labor Costs Cost of all employees, including taxes 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. Other Expenses Include all expenses that are neither food, beverage nor labor, such as utilities, rent, linen, etc.

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.

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

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

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

Percentages in Foodservice As long as expense is smaller than revenue, some profit will be generated Modified profit formula: Profit Profit % = Revenue Revenue - (Food and Beverage Cost + Labor Cost + Other Expenses) = Profit

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

Understanding the Income (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.

Understanding the Income (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. Published by the National Restaurant Association.

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 %

Understanding the 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 non-profit sector, use budgets.

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

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

Understanding 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.

Understanding the Budget If significant variations with planned results occur, management must: Identify the problem Determine the cause Take corrective action

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.

Technology Tools Variations include programs that can compare actual results to budgeted figures or forecasts, to prior-month performance, or to prior-year 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.

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 e-mail.