Quality of Products

The first and most important attribute of a restaurant food supplier is that they have high-quality products.

However talented your chef is, they can’t overcome poor ingredients, so make sure your suppliers have fresh, quality goods. On each delivery, carefully assess incoming produce to ensure it meets your standards.

Pricing and Payment Terms

Suppliers differ in price and the terms they offer. It’s worth the time to compare suppliers of similar quality to find the best price on the product you need.

Some suppliers require payment on delivery, while others offer Net 30 payment.

It’s typically advantageous to your restaurant to select the longest possible payment period. The Buyers Edge Platform can help manage your supply chain to make sure that you receive the correct products at the best prices.

Delivery Options and Schedule

Your best restaurant food supplier is one that delivers to you on a compatible schedule. Assess the options for delivery and optimize for a schedule that makes the most sense for your needs.

For produce, you want a delivery schedule that gets you the freshest possible goods for immediate use. Other types of goods, such as alcohol and paper products, can be delivered at longer intervals.

Customer Service and Support

Finally, don’t forget about customer service. You’ll be working closely with suppliers for restaurants for a long time, and will depend on their services.

It’s important that your suppliers have a meaningful commitment to a high level of customer service. If you have a problem with the day’s delivery of seafood, you want your seafood supplier to consider that to be their problem too, and work hard to resolve your concerns.

Types of Food Suppliers for Restaurants

Wholesale Food Distributors

Wholesale distributors purchase goods in large quantities from manufacturers for resale to restaurants. They often offer a wide variety of goods at wholesale prices. It’s quite possible that you can find a single distributor offering produce, meat and seafood.

Local Farms and Producers

The modern dining customer values local food and the support of local farms. It can be to your advantage as a restaurateur to establish connections with farms and farmers in your area, and highlight the origin of your ingredients on the menu. Whether local farms can supply the appropriate type and quantity of food for your restaurant will depend on your area, the season, and your restaurant concept.

Specialty Food Importers

Hard to find goods from distant regions of the world are the province of the specialty food importer. This business is dedicated to the provision of gourmet goods such as wines, cheeses, specialty meats, pastries, and spices.

In the United States, a specialty food importer will often be dedicated to bringing European goods to the American market.

Steps to Finding and Evaluating Food Suppliers

Identifying Your Restaurant’s Needs and Requirements

When preparing to select new suppliers, begin with an overview of your menu.

Dish by dish, what ingredients are required to execute these dishes?

Make a list and then consult with your chef—does he want to change the makeup of any of these dishes, or add entirely new creations to the menu?

Once you’ve established your ingredient list, track which products are coming from which suppliers. Most likely, you’ll want to preserve your relationship with your best suppliers while replacing the worst performers.

Optimizing your restaurant’s operations is key and companies like RASI & The Buyers Edge Platform offer services that can help tremendously for your restaurant’s profitability.

Researching and Comparing Food Suppliers

You may be wondering how to find food suppliers for a restaurant.

These days, the best approach is two-pronged: research online and talk with friends in the industry.

With your list of confirmed ingredients in hand, do some research online to find prospective suppliers that offer what you need. Collect phone numbers or email addresses, and start contacting them to request quotes.

You may find a supplier that offers a significantly better deal than others. In that case, don’t immediately sign a contract before you’ve done your due diligence. Research online to determine whether the supplier has a good reputation, and ask other restaurateurs for their experience.

Conducting Site Visits and Sampling Products

Once you’ve whittled down your list of prospective suppliers to a few candidates with the best prices and reputation, it’s time to sample products for quality.

Most local farms will be glad to show you their operation, including how they harvest and store produce for distribution.

Other types of suppliers, such as meat and seafood wholesalers, may not offer a tour but will gladly deliver sample goods. Ultimately, there’s no better way to test the quality and flavor of a product than to try it yourself.

Reviewing Contracts and Agreements

Your chosen suppliers will offer standard contracts and agreements—review them carefully to ensure their terms are satisfactory and appropriate to your needs.

If there are particular clauses that are unclear, ask for clarification. A contract is a negotiation on paper, so don’t be afraid to ask for changes that make the terms more favorable to your restaurant.

Tips for Building Strong Relationships with Food Suppliers

Communicating Effectively and Establishing Trust

Relationships are built on communication and trust. Speak frequently with your vendors, and bring up any issues that arise, such as quality problems or unreliable delivery schedules.

The more openly you can discuss the issues, the quicker you’ll see resolutions. Be careful to approach such conversations with a solutions oriented mindset, focused on how you can solve the problem together, rather than a focus on blame.

Being Open to Negotiation and Collaboration

Your restaurant food suppliers are businesses with their own way of doing things, their own schedules and procedures that work for them.

Be willing to negotiate to find contract terms and delivery schedules that work for you both. Treat the supplier management team as your collaborators in solving problems, rather than taking a competitive or adversarial approach to issue resolution.

Providing Feedback and Sharing Goals

In any relationship, clear and timely feedback is an important component to building a shared understanding of how to work together.

When problems arise, address them immediately in a constructive fashion. Beyond issue by issue problem solving, you can help your suppliers understand how to serve your restaurant by sharing goals with them. Give them clear metrics to aim at.

Maintaining Regular Contact and Showing Appreciation

Ultimately, the health of your supplier relationships will be determined by the quality of your contacts with them. Most suppliers will tell you that the most important thing they want from a restaurant is consistent payment. But there’s more to it than that—they also want appreciation for the job they do and the products they deliver. If your restaurant food vendor is delivering high quality food on schedule, let them know you’re grateful. Have regular positive interactions with your vendors; these interactions will form the basis of a relationship that thrives and can survive difficulties.

The post Finding the Right Food Suppliers for Your Restaurant appeared first on Restaurant Accounting Services, Inc..

Learn about the business

A preliminary step in how to buy a restaurant is to gain a clear picture of why a given restaurant is for sale.

Are the owners retiring and uninteresting in maintaining a popular spot? Or is the business struggling to attract customers?

Note that business owners may be reluctant to share detailed information until you demonstrate serious interest in purchasing the business. Once you’ve convinced the owners that you’re a real buyer, ask to see their financial information.

When evaluating a restaurant’s finances, seek to inspect the balance sheet to see the overall assets and liabilities of the business.

Also, consider the cash flow statement, which details the flow of cash through the business.

A healthy property will have positive cash flow, while a struggling business may have more money going out than coming in. Of course, if you’re ready to overhaul a restaurant and make major changes, and have the operational expertise to turn around a troubled business, then negative cash flow need not be a disqualifying condition for you. But know what you’re getting into upfront.

WATCH THE FULL VIDEO BELOW!

Going in depth on the financials — what documents to inspect

Profit & Loss Statement, Balance Sheet, and Cash Flow Statements should all be reviewed when assessing the business’s financial health.

Inspect Profit & Loss for consistency in costs, performance against budget, and overall contribution to the bottom line. Here are some questions to ask when buying a restaurant:

• Does the current structure of the business generate a profit, or are costs too high to support profit?
• Are there large swings in cost of goods indicating opportunities with current operational controls? Can better management reduce food costs and make them more consistent?
• What is the current labor structure, and is it sustainable? Could the restaurant staff be reorganized for more efficiency in operation?
• Is the R&M budget used to maintain the property and equipment? Are long-term assets well cared for or will they require a big initial investment in reparative maintenance?

When examining the balance sheet, review any unnatural or negative balances. The balance sheet should not house negative accounts outside of depreciation and amortization.

Negative accounts indicate that there was an issue with the account where it was either over or under-collected. Also give consideration to the remaining life of asset purchases such as property & equipment.

Are the tax accounts trued up? Does the business have outstanding loans, and are they being properly allocated between principal and interest?

These questions all matter most if you’re assuming the complete assets and liabilities of the existing restaurant (also known as a FEIN purchase, because you buy and use the existing Federal Employer Identification Number).

If you’re purchasing only some of the assets of the business, you may be able to pick and choose the most valuable parts of the balance sheet, while avoiding major liabilities.

All types of buyers will be interested in the Cash Flow Statement. This document shows the health of the business in terms of cash in and out. Review it to see where the cash position is gaining momentum and to what degree future cash growth can be expected.

Do they have income coming from ownership distributions? Are they utilizing credit cards to pay bills when cash is tight? Is the way they are utilizing cash sustainable?

Learn how to distinguish between a safe bet and a red flag in restaurant financials

The following financial attributes make for a relatively safe purchase: consistency in costs (specifically look for large inventory swings period to period), Profit and Loss cost categories are in line with industry averages, consistent trends between revenue and profit when reviewing 3-years worth of tax returns, current and balanced bank reconciliations and accurate balance sheet accounts (no unnatural balances).

Conversely, these attributes raise red flags: unnatural balances on the balance sheet, heavy credit card usage to augment cash flow, inability to provide recent financial statements, inability to produce bank reconciliations, missing expenses or incomplete financials, and negative trends in sales as it relates to profit

How to think about trouble spots in the financials

No restaurant is perfect—if it was, it wouldn’t be for sale. So, as a buyer, you can expect to find imperfections. Yet not all flaws are created equal: some problems are deal breakers, while others can be easily remedied. The biggest question to answer up front is how much of the business you want to buy.

If you opt for a total package purchase (a FEIN purchase), then rocky past performance will impact the new ownership, and all previous liabilities would be the new owner’s responsibility. If purchasing the FEIN, increased audits and legal guidance should be sought prior to exploring the purchase to ensure that the new ownership doesn’t incur massive debt or, worse, legal responsibility.

If it is an asset purchase, due diligence should be completed to ensure the financials are holistic.

Are small purchases lumped in with asset accounts? Are inconsistencies in expenses tied to timeliness, and if so, are expenses missing in the current financials?

If a complete overhaul of the restaurant is going to take place, past performance is less relevant but should still be considered. If sales volume was low, was it due to concept and/or operational performance or is it due to location?

Understanding why past performance led to a sale of the business can help you structure the future of the business in a strategic way, so that you do better with the business than the previous owners were able to.

How to value a Restaurant for sale?

Use financial documents to arrive at a valuation of the property.

As a refresher for buyers, the balance sheet reflects the business’ total financial worth. It takes into account the net income (retained earnings) from all years and reflects all current assets and liabilities for the business. A close scrutiny of the balance sheet will reveal the true health of the business you want to purchase.

Once you’ve examined the balance sheet, you should be able to answer the following questions about your prospective deal:

• Are you purchasing the inventory and equipment as part of the business? If so, those totals should be taken into consideration.
• If you purchase the business, are you also purchasing the clientele? If so, historical revenue should be considered as part of the valuation to estimate future growth potential.
• Lastly, is there debt that needs to be taken into consideration? How much is owed and who is responsible for paying it?

If it all looks good, proceed to hire an attorney and business appraiser

At this stage you’ve determined you have an interesting prospect on your hands. The next question is, how much does it cost to buy a restaurant? The answer will depend on how the business is appraised (valued) by a professional business appraiser. This is a trusted third party paid for a neutral assessment of the value of business, including all its assets and liabilities. The appraiser will establish a fair market value for the business.

As a rough rule of thumb, restaurants commonly sell for about three times their annual profit, but the value can go higher for businesses with a great location or committed local clientele. When purchasing a restaurant, the price will be a combination of many factors, such as the condition of the underlying real estate (owned vs rented), the desirability of the restaurant, the local reputation of the restaurant (often demonstrated by online reviews), and the state of the equipment and furnishings.

You’ll want to work with an experienced local attorney to examine the lease agreement and purchase agreement. Your attorney will then draft a letter of intent, which is a formal statement of your intention to purchase the property, pending due diligence.

Secure your funding

You’ve found a property of interest and had it appraised. Now you have a target for how much money you have to raise to complete the purchase. With this figure in hand, calculate the relative balance of investors and loans you’ll need. Sources of investment will vary by buyer, but if you have experience in the industry, past business partners are a great bet, as you already know whether they make for good partners. Secondarily, you might turn to friends and family, or a crowdfunding platform.

Most buyers will finance at least a portion of the purchase with debt. See our recent article on how to get a loan for a restaurant. In summary, your demonstrable credit worthiness will determine the quality and quantity of debt financing you are offered by lenders. Having a strong credit history, valuable collateral, and an impressive business plan will best position you to secure credit on favorable terms. Don’t simply accept the first offer you get—speak to multiple lenders and compare their offers.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Make the restaurant purchase

Finally, it’s time to buy your new restaurant. Establish a transition plan and responsibilities of buyer and seller over the closing period.

A typical transition would be one to two months for the seller to prepare the property, deliver financial and regulatory records, and provide access to relevant technical systems, such as payroll and accounting software, along with admin access to the website, web hosting, and social media profiles. Ensure that all property is transferred during this period, including any trademarks held by the company.

Your purchase agreement will specify the terms of closing, transition plan, and how assets are to be transferred. Have your lawyer draft this document and carefully review it yourself to check that all bases are covered. Send the document and it is signed. Congratulations, you’re now the new owner of the restaurant! Now the real work begins…

The post How to Buy a Restaurant: Everything You Need to Know, Financially appeared first on Restaurant Accounting Services, Inc..

What’s the one key ingredient – figuratively speaking – of your restaurant’s ultimate success? Some restaurant or bar owners think it’s all about location, location, location. Others may lean toward a loyal customer base. And don’t forget about seasonal swings and capitalizing on the “perfect timing” aspect of sales.

All valid “ingredients,” for sure. But have you considered the importance of menu pricing as a key driver of revenue and profit? Think about it this way: whatever type of eatery you run (restaurant, bar, catering service, food truck, etc.), day-in, day-out purchases off your menu are the most consistent source of income. And finding the right balance to offer customer value and optimal profit is critical to a profitable enterprise.

Pricing a menu impacts your restaurant well beyond the daily, weekly, and monthly books. Without a sound, sustainable menu pricing formula in place, it’s virtually impossible to ensure other sectors of your business are funded, including everything from utilities, labor, real estate, food stock levels, and much more.

RASI’s complete line of accounting services, including intuitive analytical applications, gives your restaurant a distinct advantage in all phases of pricing a menu, from conception to implementation. Let’s get into some specifics of restaurant menu pricing, including a key distinction with menu engineering.

Fundamentals of Pricing a Menu

Finding the right menu prices isn’t done by accident or on a whim. The most successful restaurant owners know it’s all in the details – namely, profit margins, food cost percentage, current market conditions, the competition, and more.

Keep in mind, menu pricing is much different than menu engineering. While menu pricing deals with finding the best possible menu costs, menu engineering is a true nuts & bolts exercise. Seasonal sales swings, vendor pricing, supply costs, you name it – menu engineering is more or less the “algorithm” of smart pricing strategies. Make sure you check out our informative article on menu engineering for some more in-depth analysis on the subject.

When figuring out your menu pricing formula, or even when engineering your menu, it’s helpful to keep in mind the relationship between costs and profit margins, especially in the wake of skyrocketing inflation: when costs increase, margins decrease. There’s simply no way around this inverse, dynamic relationship.

But back to the menu pricing formula…what are some ways to set your restaurant menu pricing?

WATCH THE FULL VIDEO BELOW!

Restaurant Menu Pricing Based on Ideal Food Cost Percentage

Once you figure out your food cost percentage, you have the foundation in place to set a profitable menu. Food cost percentage takes two factors into consideration: 

• How much is spent on food ingredients
• How much revenue is generated from this expense

Simply divide the ingredient cost by the sales, and you have the ideal food cost percentage. Those two factors in the equation require four different inputs: starting inventory, food purchases, final inventory, and total food sales.

Let’s say your restaurant, Frank’s Lunch Box, has a starting inventory of $5,000. You made $8,000 in purchases. At the end of the year, your final inventory was $3,000. With total food sales of $30,000. Your food cost percentage would be:

(Starting inventory + food purchases) – final inventory / total food sales, or

(5,000 + 8,000) – 3,000 / 30,000, which is

10,000 / 30,000, or

33%

So, your ideal food cost percentage is 33%. For every one dollar of revenue, 33 cents were spent on food inventory. Lucky for your restaurant, that’s right in the “sweet spot” of food cost percentage. Most profitable establishments keep food costs anywhere from 25% to 35% of overall revenue.

Now, how does this factor into restaurant menu pricing? The ideal menu item price formula is:

Cost per serving / ideal food cost percentage

If Frank’s has a food cost percentage of, say 40%, and you’d like to decrease that to 25%, you need to reduce this factor by 15%. Let’s say Frank’s best-selling chicken sandwich is currently on the menu for $10.00, and costs your restaurant $4.00 per serving to make. That’s a 40% food cost percentage.

In order to get the food cost percentage down to 25%, let’s plug the numbers into the equation.

Cost per serving / ideal food cost percentage

$4.00 / 25% = $16.00. So, in order to get your food cost percentage to a more manageable 25%, you have to raise the price of the chicken sandwich from $10 to $16.

Gross profit margin and cost of goods (COGs) are also helpful factors when pricing a menu. Here are a few other things to keep in mind:

• Competition pricing. It’s always helpful to know what your competitors are charging for similar menu items. If price reductions or slight increases are required, we recommend slight modifications to separate your restaurant’s menu from the competition.
• Premium menu items. Market trends and fads are common in menu items. Take “gourmet” grilled cheese sandwiches, for example. Even when made with premium breads and gourmet cheeses, many restaurants can charge up to $20 for a sandwich, even though it only costs less than $5 to make!
• Pricing balance. Your entrée selections should have a “ballpark” range that’s not too drastic; most restaurants, for example, charge anywhere from $18 to $30 for main courses. If the range is too sharp — $5 sandwiches next to $25 salads – that will cut into your profits and may confuse diners…”does this restaurant know what they’re doing?”

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Contact RASI Today – To Learn More About Pricing Strategy for Restaurant Menus

Here’s a smart strategy – connect with our restaurant accounting experts today. Our powerful, agile restaurant accounting software gives you plenty of tools to help with menu pricing, not to mention multi-unit inventory, compliance, payroll, and much more.

Request a demo today, or call us directly at (720) 826-9900. 

The post Restaurant Menu Pricing: The Secret to Your Restaurant Success appeared first on Restaurant Accounting Services, Inc..

What is inventory management? How do successful restaurants manage inventory? Does your restaurant have a sound strategy for this critical restaurant to-do?

You have questions about restaurant inventory management…and RASI has the answers! Our restaurant accounting software, including a powerful inventory management application, helps restaurants just like yours keep track of product levels, incoming supplies, analyze food costs, and identify discrepancies with vendors, food items, and more.

Inventory management enables restaurants to track existing product levels (food, supplies, etc.), and also know when to reorder. And it’s certainly one of the more “tricky” aspects of day-to-day restaurant management. Managing restaurant inventory is the ultimate balancing act; your business requires a base level of ingredients and supplies to account for regular operations, but not too much.

Without a proper inventory tracking system, your restaurant could quickly run out of crucial menu ingredients; conversely, you also don’t want too much inventory taking up valuable interior space. Inventory management helps companies know how much product to order and when to order it. 

Inventory management can be accomplished with spreadsheets and manual counting. But inventory management software helps ease the process and more accurately count and track your products. Additionally, it can show important financial and performance data and re-order products when it reaches certain levels.

Here are a few inventory examples, and how NOT accurately accounting for stock levels could negatively impact business:

Perishables

Ingredients and menu items with a finite expiration date require accurate, timely, daily (sometimes, even hourly) tracking in order to fully optimize product levels. Every restaurant must properly account for perishables, whether it’s a food truck, catering service, or regular brick-and-mortar establishment. For perishables, how restaurants manage inventory is directly tied to having a good menu engineering system in place.

Available Storage Space

Food isn’t the only finite “ingredient” of your restaurant; space is also limited. Wasted space with too much (or even not enough) inventory brings down the operational efficiency of any eatery, and managing restaurant inventory the correct way allows you to properly utilize all available real estate.

Bulk Purchases

Another balancing act with managing restaurant inventory involves bulk purchases. At times, it may be advantageous to participate in a bulk purchase or manufacturer rebate program to save money. However, too many products purchased without regard to customer demand could take up valuable shelf space with minimal benefit to your operation. Throw in rampant inflation, and the equation is even more muddled. That’s why it’s more important than ever to have a robust, automated inventory platform working in your favor.

WATCH THE FULL VIDEO BELOW!

How Do Restaurants Take & Manage Inventory?

How do restaurants manage inventory? It starts with a system for initial quality and cost assessment. While every restaurant has their own method of inventory management, 

Here are the top 4 things to look for in a restaurant inventory management system:

1) Does your restaurant inventory management system include count sheets? Key info includes quantity, price, cost, and fluctuations from previous inventory levels.

2) Does it have the ability to schematic your inventory sheet together? List all products and amounts. RASI’s recommended best practice is shelf-to-sheet count sheets.

3) Does it update the current price based off of the most recent purchases so your inventory reflects the most up-to-date pricing? 

4) Does it provide the ability to view and assign par-level inventory? “Par inventory” is the baseline quantity of every item that’s required for daily operations. This helps pinpoint the exact time you should order more inventory.

Benefits of Properly Managing Restaurant Inventory

Get your restaurant inventory management locked in, and your establishment will enjoy the following benefits:

• Optimal food usage. From perishable items to sporadic menu demand, inventory management best practices ensure less food waste.
• Managing supply chain impacts. Sound restaurant inventory management allows restaurants to lessen the impact of supply chain disruptions. Check out RASI’s article on this subject for more info.
• Better vendor management. Timing is everything in the restaurant, particularly with vendor payments & purchases. Effective inventory strategies enable businesses to capitalize on the best possible outcomes with these crucial commerce partners.
• Happier customers. Closely related to food utilization, this benefit stems directly from having on hand exactly what your restaurant needs – when you need it.
• Maximum ROI. Managing restaurant inventory is all about reducing waste, which positively impacts your bottom line.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Let RASI Assist With Your Restaurant Inventory Management Needs

If your inventory strategy needs refinement, or you’re looking to establish a restaurant inventory management program that’ll contribute to the best possible ROI, RASI can help today. Schedule a demo to see our agile, intuitive inventory platform at work. Or, call our experts today at (720) 826-9900. We look forward to hearing from you soon!

The post How do Successful Restaurants Manage Inventory? appeared first on Restaurant Accounting Services, Inc..

The Importance of Calculating Food Costs 

Every restaurant operator has a multitude of responsibilities. From profit optimization to menu engineering, there’s never a shortage of factors to contend with.

Thanks to recent spikes in inflation and rising costs, food cost percentage is suddenly back as a hot topic — and for good reason. By even the most conservative estimates, costs have spiked around 20% for some restaurants – even more in big cities, resort towns, and other high-demand establishments.

If your restaurant is struggling with keeping operations afloat while keeping pace with ever-increasing menu ingredients expenses, understanding how to calculate food costs is critical. Let’s take a look at the importance of food cost percentage, different variables that impact your overall cost structure, how to calculate food costs, and more.

How to Calculate Food Cost Percentage:

The food cost percentage formula is relatively simple…you’ll need to have the following inputs, all in dollar value, ready to go:

• Beginning Inventory: inventory you started the period with
• Purchases:  purchases made throughout the period
• Ending Inventory: inventory on hand (remaining) at the end of the period
• Total Food Sales: all food sales from the period

Take your numbers from the inputs above and put them in the food cost calculator below to find your food cost percentage!

Food Cost Percentage Calculator

Food Cost Percentage Example

The following example illustrates just how important it is for your restaurant to fully grasp how to calculate food cost and how a slight increase in percentage can negatively impact your entire restaurant operation.

A detailed look at your food cost percentage provides more accurate tracking and forecasts for your P&L statement. This insight also empowers your purchasing department to make the best decisions for entire menus and even single ingredients.

Example of calculating food cost:

For this purpose, suppose your restaurant serves 500 customers daily.

If the average customer spends $20, and you have an up-to-date & accurate assessment of costs via weekly purchase tracking and weekly inventory, you will be able to accurately calculate your food cost enabling you to seamlessly project restaurant cash flow & profits from your entire menu.

Now, what if your food cost percentage calculations are off by even 25 cents per customer, and you’re spending that much more on your ingredients? That’s an extra $125 per day – or in yearly terms, an extra $32,500!

Small changes, huge impact. You’d never purchase a lot of ovens or automatic dishwashers without having a complete understanding of the costs. Well, that’s the same with food cost percentage.

What’s more, if you dig into the details and pinpoint which ingredients fluctuate on a weekly or monthly basis, or are more likely subjected to inflation spikes, you can anticipate these increases and make more informed purchasing decisions. All to the benefit of your entire operation.

Benefits of Understanding Food Cost Percentage

In the restaurant industry, knowledge is power. And knowing how to calculate food costs and track percentages is, in many ways, somewhat of a superpower! Get your costs locked in, and your restaurant will enjoy:

• Superior menu engineering. From your go-to menu items to individual ingredients, it’s always better to have the most accurate expense information at hand. This allows you to deliver high-quality menu offerings to customers while keeping costs as low as possible.
• Higher revenue. With food cost percentages as low as possible, you’re better positioned to optimize profits – and as our example above showed, even the smallest advantage here pays big dividends to your bottom line.
• More efficient supplier/vendor relationships. Your vendors and suppliers are the lifeline to your business. Without a reliable and affordable stream of supplies – including one of our most critical supplies, food – running your business is impossible. Once you have a firm grasp of food cost percentage, you can leverage your partnerships with suppliers and other vendors more efficiently.
• Better forecasting & planning. Food cost percentages are constantly in flux. And while your restaurant can’t predict the future, you can still anticipate changes to costs down the road, if you understand where prices are today.
• Accurate weekly inventory calculations. Regular inventory counting (RASI recommends weekly tracking — and always on the same day/night) – not only helps with food cost percentage and gives you a clearer picture of your entire inventory dynamic, including storage area, equipment, and other assets. There are many reasons to count your inventory; food cost percentage is just one.

WATCH THE FULL VIDEO BELOW!

How to Improve Food Cost Percentage Tracking

Here are a few ways you can immediately improve your accuracy:

• Stay on top of industry trends – you’re better able to understand what’s driving food costs and develop innovative ways to save money with purchases.
• Get timely, intelligent data – RASI’s data analytics offer customized information directly related to what matters most to your restaurant.
• Track your past & current data – RASI offers everything from financial reporting to multi-unit inventory tracking to show you past & present food cost percentages.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Wrapping Up

Take the next step with your food cost percentage data. Learn how to better calculate food costs with RASI’s complete restaurant accounting services. Schedule a demo now, or drop us a line – we’d love to help your restaurant optimize profits and lower costs today! Keep track of this critical expense category, and you better your chance of staying competitive – all while anticipating possible price hikes tomorrow.

RASI has a host of resources to assist you with weekly inventory and keeping food cost percentage fully in view, even while you concentrate on other crucial business tasks. Our tech-friendly analytical tools, accounting tools and other software applications allow you to manage even the most volatile business landscapes.

The post How to Calculate Food Cost appeared first on Restaurant Accounting Services, Inc..

What are manufacturer rebates?

Restaurant manufacturer rebates are financial incentives offered by suppliers to restaurants based on their purchase volumes or specific marketing agreements. Restaurant owners and operators typically recognize rebates through Group Purchasing Organizations or Buying Organizations (GPOs or GBOs). Group Buying aggregates individual restaurants into a large collective with the purchasing power to negotiate lower prices from manufacturers and distributors. Once programs are negotiated, the GPO/GBO can pass along any eligible rebates to individual restaurants that have signed up within the GPO/GBO. Restaurant manufacturer rebates are available for many of the staple items of a working kitchen, such as dry goods, poultry, meat, seafood, etc. A good rebate program will also provide savings on non-food items as well – think chemicals, cleaning, paper products, and more.

Top 5 benefits of Manufacturer Rebates

• Cost Savings
• Greater visibility into product pricing and purchasing habits
• Enhanced relationships with suppliers
• Menu Diversification
• Boosted profits

How operators can combine rebates with menu optimization to improve restaurant profitability

When considering how to improve your restaurant’s profitability, regularly analyzing your COGS is critical. 

• Are you purchasing ingredients at the best price?
• Are you purchasing in the most cost-effective quantities?
• Can you save money by switching to equivalent products made by other manufacturers or changing distributors?

Beyond finding efficiencies within your current buying patterns, you should consider where you can optimize your menu to reduce costs and increase sales. If you have not established a menu engineering process with your chef in the last year, now is the time to do so. A well-engineered menu will highlight the dishes that sell at an increased velocity with a low margin and alert a chef to the poor selling plates that would put more dollars into the bottom line if sales were to increase. When you combine these changes with optimized purchasing, you can make substantive improvements in your COGS.

Using software to increase restaurant profitability

Once you’ve whet your appetite for savings through manufacturer rebates, it’s time to examine your financial performance closely. RASI offers purpose-built software for restaurants to help you handle costs, understand financials, and chart a course for increased profits. As a leading restaurant accounting software solution, RASI integrates with your POS system so that you have the latest sales and performance data. RASI’s system delivers integrated accounting and payroll solutions for everyday operator.

Thousands of restaurant operators nationwide have made RASI their choice for restaurant management. When you sign up, a dedicated team will onboard your operation, continuously provide industry education and best practices, and coach your team on using the software to set and meet financial goals. Contact us today for a free demo!

The post What Are Restaurant Manufacturer Rebates? appeared first on Restaurant Accounting Services, Inc..

What is vendor management, and which issues pose significant challenges if vendors aren’t properly managed? We’ve created this page to answer all your questions and provide guidance for optimal vendor management best practices. 

What is Vendor Management?

Many restaurant owners, particularly those new to the field, struggle to understand vendor management and its importance to long-term success. Think of vendor management as the ultimate behind-the-scenes “hack” to streamline your entire operations. Some management tasks – such as managing your payroll or employee work schedules – are easy to recognize. But the vendor management process is an often-overlooked, under-appreciated aspect of running a restaurant.

Strategic vendor management maximizes the processes and relationships between your restaurant and your suppliers, vendors, and other procurement partners. Some vital elements of vendor management best practices include: 

• Risk mitigation
• Food cost control
• Optimal customer service/product procurement
• Ultimately delivering great value – and an unforgettable dining experience – to your customers 

How Subpar Strategic Vendor Management Can Harm Your Restaurant Operations

Are you using your vendor relationship management strategy, or is it using you? Poor vendor management processes negatively impact everything from customer service to your bottom line. Here are some challenges restaurant operators face without vendor management best practices in place: 

• Supply chain issues. If operators aren’t adaptable, especially when major crises are occurring with the supply chain disruptions, procurement problems are sure to surface.
• Bad contracts. Contract negotiation is the bedrock of any well-run strategic vendor management system. Without solid data to illustrate your side of the story, it’s hard to leverage contracts in your favor.
• Haphazard scheduling. Unrealistic deadlines and delivery times are just two areas that negatively impact your vendor management process. And many issues are a domino effect situation; for example, without accurate accounting systems in place, it’s easy to misfire with deadlines and procurement.
• Unreliable relationships. For your strategic vendor management to really take off, you have to take the time to cultivate meaningful relationships. True vendor management should focus on both ends of the spectrum. From a restaurant owner’s perspective, that means their own business and their suppliers. When you don’t look at vendors as strategic partners in a mutually beneficial dynamic, your restaurant will never realize the true potential of strategic vendor management. 

WATCH THE FULL VIDEO BELOW!

The Benefits of a Streamlined Vendor Management System (VMS)

Some advantages of sound vendor management processes include: 

• Complete financial picture. The restaurant financial cycle (spend, usage, ordering, inventory, analysis, etc.) requires full transparency to make the best possible business decisions. With the complete picture in place, it’s easier to evaluate and tweak your vendor relationships, which is necessary in today’s environment, thanks to the fluidity of commodity prices.
• Sound spending practices. Which vendors are helping, and which are hurting? It’s easier with a VMS that encourages weekly performance monitoring of cash management and other key analytics. RASI’s vendor spending tools put spending fluctuations in context, allowing superior management of single and multi-unit enterprises.
• Expansion of preferred vendor/supplier lists. With inflation, tightening credit, and other challenges for procurement specialists, it’s wise to have vendor management processes that thrive in a fluid, constantly changing environment. RASI assists with auditing and negotiating prime vendor agreements and performs market basket analyses on current suppliers. This program targets optimal deals and contracts from existing suppliers within a larger network – a win-win for you and your suppliers! 

What are Vendor Management Best Practices?

The key to a well-run VMS begins with all the active participants using the system as intended. It’s difficult to gauge a strategic vendor management system as a singular entity; the important thing is for everyone to be comfortable using all the tools and applications as they should.

That said, here are some tips to ensure your vendor management structure works best: 

• Document results regularly. As we mentioned above, data analytics establishes a firm foundation for your employees to understand which particular dynamics of vendor management need to be adjusted. We suggest weekly reporting to provide regular, consistent vendor management analytics.
• Customize contracts. The extra legwork and research pay off here. In order to optimize your contracts, come to the table with institutional knowledge of your spend performance. This way, you already have the data ready to create more profitable agreements moving forward.
• Foster relationships with vendors built on trust. Vendor management is, in many ways, a “meet me halfway” compromise. RASI’s world-class accounting solutions and other restaurant operational resources enable you to cement long-lasting, trusting relationships with all your key procurement associates – because you can always trust RASI to lead the way with on-point analytic tools accounting resources! 

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Request a demo today and see how RASI can assist with all of your restaurant operational challenges, from strategic vendor management to cost control, accounting, and much more! 

The post The Best Tips for Strategic Vendor Management appeared first on Restaurant Accounting Services, Inc..

Industry supply/transportation issues and labor shortages control much of the conversation these days.

Having proper tools to keep tight control of your prime costs is essential to operational efficiency and profitability. Furthermore, by understanding what your prime costs are as a percentage of sales and the proper strategies to control prime costs, operators can look forward with the direct intention to utilize prime cost controls as an additional method to increase profits. 

What is Restaurant Prime Costs?

Restaurant Prime Cost includes your most significant expenses – it’s your cost of goods (food and beverage) and labor expenses (including payroll taxes). These are the first two categories you’ll find on your Profit & Loss Statement. Prime costs are one of the most important areas of focus for restaurant owners and operators as it’s the two expense categories that are directly controllable through strategic and data-driven decision-making.

How to Calculate Prime Cost?

Let’s start by first laying out what is the Prime Cost Formula?

Prime Cost = Total COGS + Total Labor 

TOTAL COGS

“COGS” stands for Cost Of Goods (or Cost Of Sales). COGS is the first Prime Cost area you see on your Restaurant P&L.

What is the COGS formula? As a quick reminder, we’ll put the COGS Formula below…

( Opening Inventory + Purchases – Credits – Ending Inventory ) / Sales = COGS

To learn more about what should be reflected in either food cost or pour cost, review our full guide on How to Control Your Cost of Goods!

TOTAL LABOR

Labor is the largest expense for most restaurants, and it’s the second and final Prime Cost area on your Restaurant P&L. Your total labor includes your Operational Labor (your FOH & BOH/hourly employees) plus the remainder of your labor. I.E., your salaried employees, payroll taxes, employee benefits, and employee discounts.

Restaurant Prime Cost Ratio

To get your restaurant’s prime cost ratio (a.k.a prime cost as a percentage of sales), you simply take your total prime cost and divide them by your total sales.

Knowing this number helps you determine where your prime cost fits within the industry average. More importantly, however, this allows you to compare against your historical data to ensure you’re making progress over time and maximizing profits.

What is the Formula for Prime Cost as a Percentage of Sales?

Prime Cost as a Percentage of Sales = Prime Cost ÷ Total Sales

Prime Cost Percentage Calculator

To calculate your restaurant’s prime cost as a percentage of sales, plug your Prime Costs from the Prime Cost Calculator above and your Total Sales in the calculator below.

What is the Average Restaurant Prime Cost?

Average Restaurant Prime Costs range is typically between 60% – 70% of sales, the lesser end of the range (or lower without cutting corners) being your ideal target. Keep in mind that this range can vary significantly between quick-service restaurants and full-service restaurants.

Why is it Important to Control Prime Costs?

Operators need to control their prime costs because COGS and Labor are the largest expenses to the restaurant. If you’re lowering your prime costs, then you’re positively impacting your bottom line.

Prime costs can fluctuate greatly depending upon what’s happening around the globe. Commodity prices, staffing challenges, and consumer behavior can all affect your prime costs. Therefore, the more frequently you review your prime costs (and your financial statements, for that matter) the better. We recommend a weekly manager meeting to review P&Ls for this reason. If you consistently assess your data, you’ll be better equipped to make educated business decisions based on opportunities presented in your analyses.

WATCH THE FULL VIDEO BELOW!

 3 Strategies to Control Prime Costs

1. Review and Forecast Labor, then Schedule Accordingly

Getting control of your labor dollars can feel daunting, especially when you’re facing industry-wide labor shortages. When reviewing labor, our best practices include:

• Review Period Trends: Analyze your last three periods, look at your overall labor costs, and see if you can identify any trends
• Review Historical Trends: Analyze YOY trends to highlight areas of opportunity 

Note, it’s critical to understand what took place at the time of your trend comparisons (holidays, parties, weather, etc.). This knowledge will help paint the picture in the long run so you can understand if you’re comparing apples to apples or apples to oranges.

What Tools Can Help Forecast Labor & Schedule Accordingly?

• Sales & Labor Analysis Report: Utilizing a tool like a SLA Report (a Sales & Labor Analysis) helps provide you with key metrics to better understand what you’re currently doing in Sales and Labor compared to what you had forecasted in those areas. This report not only shows what you’re doing well, but more importantly, it’s a yellow highlighter on your areas of opportunity within proper forecasting. Forecasting and adjusting based on actual sales allow you to hit your budget goals continuously.

2. Take Control of Your Inventory & Optimize Your Menu

Counting inventory is the best way to get an accurate representation of your true usage. Your inventory should be a total of all the food product, nonalcoholic beverage, beer, wine, liquor (Note: For QSRs, we suggest including your packaging in this as well), etc. 

Additionally, when you count inventory, you touch everything inside the restaurant; including, all equipment, storage areas, walk-in freezers, etc. So, while you’re counting, you can simultaneously perform a facility maintenance check. In doing this, you can catch any maintenance issues before they become a bigger problem.

Furthermore, keeping tight inventory control helps you alleviate issues like waste, error, portioning issues, or theft – all simple areas to reduce costs by spending the extra time to manage them properly.

We recommend you engage your management team in the process. By doing so, you create a baseline for which the team can make meaningful decisions. Ultimately you’re going to save more money with the impact they can have rather than the actual labor dollars it costs for them to perform inventory. Check out this list of best practices in counting inventory to learn more!

When you know your restaurant’s actual usage, you can compare it to your actual costs. By utilizing that data and comparing it to your sales, you can then establish the optimal steps to maximize your menu’s profitability.

What Tools Can Help Manage Inventory & Optimize Your Menu?

•  Weekly Spend Forecast: Just like the name reflects a weekly spend forecast puts you in a position to evaluate and optimize daily spending with a weekly spend forecast. Check out our Declining Budget to learn more about how you can stabilize your costs and increase your cash flow.

• Menu Item Velocity Reporting: Menu Item Velocity Reporting shows daily operational data that identifies sales volume per menu item or category. You can then view which items have positive sales and a positive contribution margin to optimize profitability within your menu. Additionally, it’s critical to ensure you adequately train your staff in merchandising those particular items. Merchandising is how restaurants continue to evolve and sustain permanent, long-term growth. The first step here is to educate your team members on which menu items have the highest velocity and most significant margin. Equally as important, train your team to recognize which items, while still necessary to your menu balance, aren’t the ones that are going to provide your business with the greatest margin contribution.

• COGS Audit Reporting: In a restaurant, COGS is where the managers can make the most impact. When analyzing COGS, you’re looking at your big-ticket items – anything that’s significant in getting food to the customer. With COGS Audit Reporting, you can review and approve item and purchasing variances in real-time to ensure impactful business decisions are being made based on real-time data. Additionally, just like reviewing labor, operators should review COGS for trend analysis on a period basis as well as a YOY basis. Doing so provides you with opportunities to leverage relationships with your vendors – Example: Is there an opportunity for price negotiations or product discounts?

3. Leverage Relationships with Your Vendors

Building relationships with all of your reps from your food and beverage vendors can help you maximize savings. Creating a partnership between your restaurant and your vendors is vital to deepen the level of engagement you have to strategize together.

Be prepared before you sit down with your key vendor partners to ensure you know purchasing trends and price volatility. This way, you can ask about applicable programs or discounts specific to your goal and what you need.

What Tools Can Help You to Leverage Relationships with Your Vendors?

• Manufacturer Rebate Program: If you’re not currently involved in any manufacturer rebate programs, you might be missing some cost savings that could help decrease your overall cost. A manufacturer rebate program leverages the purchasing power of all its members to negotiate contracts with suppliers that end up benefiting everybody in that organization. As part of a larger group, you’ve got strength in numbers, which leads to lower product costs that you couldn’t attain on your own.

• Invoice Analysis Tool: An invoice analysis enables you to track key inventory price changes and quantities purchased over time. Utilizing this tool provides you with the data to speak intelligently with your vendor partners about various strategies for your franchise players. Examples include the possibility of product substitutions, recipe enhancements, or raising menu prices.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

The post How to Calculate Your Restaurant Prime Costs appeared first on Restaurant Accounting Services, Inc..

The issues begin all the way at the top; from the growers/farmers facing labor challenges. It then travels down through the manufacturers. The manufacturers are having trouble with the roller coaster opening and closing of the economy, making it difficult to forecast properly.

Next, it reaches the distributors who are dealing with limited truck drivers with new routes. This domino-like effect continues to rip its way through almost every industry.

Business owners are having to pivot and adapt to ensure they can satisfy their clientele. With proper and strategic planning, there are ways to mitigate the impacts of supply chain issues.

During this week’s episode of The Tip Share, we break down 5 strategies in which restaurateurs can overcome the industry’s latest obstacle.

Restaurant Supply Chain Issues – The background

Where does it all begin?

Growers/Farmers

• Labor challenges

Product Manufacturers

• Labor challenges
  • In states across the Nation, employees could make more money being on Extended Unemployment because those wages were paying more than the state’s minimum wage
• Economy issues make it difficult to forecast properly how much product to carry
• Slimmed-down offerings due to market volatility

Distributors

• Manufacturer back-orders
  • Fill rates used to sit at 97% and now they’re down to 91% (6pt increase in backorders)
• Finding/retaining drivers
  • This was an issue even before COVID but has only gotten worse

5 Simple strategies to help curb supply chain disruptions

1.  If possible, consolidate to a single distributor

• Now is not the time to shop vendors – operators can leverage their current relationships
• This allows for a true partnership to form between operators and their distributor
  • You can create a deeper level of engagement with your distributor so they can help strategize WITH you so both parties can mitigate the impacts of the current operational challenges
• Distributors will be more willing to go the extra mile if they know that they are going to be delivering big orders consistently to certain restaurants

2.  Change your delivery day

• Distributors are busiest on the weekends, especially Fridays
  • Ask your rep about those Skip days – what’s best for the distributor?
    • If restaurants can re-strategize their ordering to work in a ‘skip day’ that will be most beneficial to the Distributors
      • For example, if you normally have a Friday delivery…consider a Tuesday/Thursday delivery and get your weekend inventory in early
      • What is the most available capacity day for drivers/deliveries?
      • What day/night makes the most sense?
      • Will a truck be in your area?
        • Driver routes have changed so it’s beneficial for operators to understand where in the route they’re at and can plan accordingly with their distributor

WATCH THE FULL VIDEO BELOW!

• Ordering early enables your distributor to react and produce possible substitution items if necessary
• Give your distributor as much time as possible
  • Orders that are filled first are typically the orders that are placed first
• If you are placing bulk orders, place them EARLY in the week so the distributor can plan for that

4.  Allow for flexibility in a less tightly run inventory

• When it comes to critical items that drive money for your business, consider keeping more of those items on hand
  • This works especially well for the less perishable items like dry goods

5.  Consider key drops and turnkey deliveries

• If you feel comfortable with it, provide your driver a code to the back door or a key to your restaurant
• Keep in mind, these deliveries generally must be 50+ cases (large orders) for it to make sense
  • The driver can bring your pallet off the truck, then place it where needed (i.e. dry with dry, cold in the refrigerator, and frozen in the freezer)
• This enables your distributor to service you at any hour; when it’s most convenient for their schedule

LISTEN TO THE FULL PODCAST EPISODE BELOW!

The post Top Strategies Restaurants Should Use To Reduce Supply Chain Impacts appeared first on Restaurant Accounting Services, Inc..

1) Restaurant Budget vs Actual

A Budget vs Actual enables you to see week over week how you’re performing against your goals.  Since the budget is your roadmap to success, you need to understand where you’re hitting the mark and where there are opportunities to improve within your 4 walls.

Without this tool, it’s difficult to make adjustments for unforeseen circumstances and maintain consistent profitability. Additionally, you’re more apt to run into a cash crunch situation due to a lack of knowledge on when to make larger purchases as well as miscalculating tax payments.

2) Declining Budget

A declining budget has proven to be one of the best ways to keep your purchasing in line with your sales.

Since revenues can vary on a week-to-week basis due to holidays, weather, local events, etc., so should your spending!

Being able to identify areas of over or under-spending daily and make adjustments to sales forecasts during the week will ultimately help with cost controls and cash flow.

For example — why would you spend the same amount on food on a projected 50K sales week as a 25K sales week?

3) Menu Engineering Tool

Having a solid Menu Engineering tool in place will allow you to identify the relationship between sales and profitability of each menu item.

Oftentimes, this is no easy task since most systems would require constant management to get the desired results.

Let’s face it, the price of commodities changes all of the time.

Having the ability to see the impact this has on your plate costs while also knowing the quantity sold over time are a huge tool to make proactive decisions to correct shrinking margins and improve overall food cost.

4) Report Card Tool

This tool enables restaurant owners/operators to interpret important POS information such as sales, labor, comps, and voids in ways so that performance can be evaluated each day.

Since we collect the raw data, we consolidate it into a centralized storage area where it is distributed using easy-to-understand reports and graphs.

Also, having the ability to identify trends and analyze the data in order to assist all operators inside and out of the store, directly influences decisions that ultimately impact profitability.

5) Query Reporting

Being able to track total spending over time is key for restaurant purchasing decisions.

Even more helpful is the visibility for price changes each time a product is ordered. This allows you to keep your vendors honest as well as highlight when there may be an area of opportunity to search for better pricing.

Having detailed usage reports can help determine if there is potential waste or theft within the four walls from week to week so issues can be addressed timely before more shrinkage occurs.

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