Discussion:Gross Profit Restaurant

What would you be expecting as gross profit? I know this is a general question but i am just confirming my thoughts. and no its not because tons of cash are missing. it has a computerized order system.

Now, these are just guidelines and aren't hard and fast. I used to own a small casual dining wine and beer cafe. The food vendors will come in and do a food cost analysis for free to make sure that the ingredients in each item are within those guidelines. If not, then prices should increase. In my case, some were less, most were within the 35%, and there were a few that were close to 50%.

If the food to price ratio is correct, then there are other issues. One of the most important control factors in the restaurant industry is inventory control. It is very easy for food to walk out the door and for the cooks to use larger portions. If they are not doing inventory on a weekly basis to see where there is inventory loss, they should. At least in the short run to see why costs are 50%.

Now, with that being said, that is real world how things are done. Restaurants are a cash busines and not all the money hits the register. If that is happening, then yes, there would be higher cost ratios. Restaurants also order food, so some of that food can be walking into the owners fridge and so would increase food costs.

Seaside, didn't you see a problem with costs being so high. In my case the number includes alcohol sales. I did some internet research that agrees with fsteincpa of about 1/3. I will have to continue to do some checking on the supply chain control.

It really depends on whether the client is showing you the true revenues. Cash business. How experienced is the client? I would have discussion with them seeing if they know what the industry ratio's should be.

If they do and they say their food costs are where they are supposed to be, then, next question is inventory control. Are the sure that nothing is walking out the door and the cooks are cutting and preparing the right portion sizes.

Alchohol and food sales and associated COGS should be totally separate when recording. For one thing, insurance companies need that breakdown when calculating premiums. The data needs to be in a format that makes it useful to the user on a regular basis. I wanted to know my costs on a weekly basis so I could see fluctuations and spot any problems as soon as possible.

If he is positive that that is ok, then theft could be an issue. Once again. Conducting inventory on a weekly basis is the way to go. I have two specialists that I use here specifically to assist clients when they need it. The problem that clients have with these specialists is that to make sure things are kasher, it requires additional procedures to be done by an already overworked owner and staff.

this is why many of these owners feel they need to be at the business 24/7, because they don't wish to put these procedures in place. We know that the numbers don't lie. If there are fluctuations in the number, there has to be a reason. If these things done weekly, and the owner takes steps now to inplement the procedures, they will actually give themselves more free time as they will not need to use their own evil eye to prevent employee theft, they use the numbers evil eye to notice variances and to alert the ownere to issues that need addressing.

Start with having owner use their food purveyor to do a menu analysis. Very helpful and informative. They break down all costs of each menu item based on the portions given. they even calculate in spice costs and all incidentals.

Good luck.

fsteincpa, you bring up great points. The electronic register system keeps track of the food/liq sales. For purpose of taxes I am combining but can certainly keep them separate.

we don't think theft is an issue

and the big problem is when i sit down with the chef and talk about individual items on the menu and the costs then things don't match up. I am confident that cash is not walking out the doors and that all the sales are being reported. I am going to check if they are counting their inventory when it is delivered. Maybe the suppliers are shorting them.

Seaside, thanks for the response. It seems like you did have an explanation of why their cogs sold percentage was high and certainly your explanation is valid.

First order of business is having the menu analysis done. You may find that it is the ratio as reported. Without knowing this, it is difficult to proceed.

One of the major factors in creating a successful eatery is consistency. Customers want to know that the food they order tastes like the last time they ordered it. Consistency in portions as well. If there is a ribeye steak on the menu, then each cut should be, let's say 10 oz. One cut shouldn't be 12 0z and the next 10, then 13. KWIM?

Cooks are key to inventory portion control. Burgers should all be 7 oz, or whatever you decide. Processes and control.

pull a low profit seafood dish off the menu and cost is like 37%.

So something is definitely off. Will do more research and keep you updated. Thanks again.

not many comps at all. computer system is keeping track of comps.

How is portion size consistency maintained?

Along with inventory control, the initial check factor would be if my purchases for the week were in line with my revenue the previous week. My orders on Tuesday and Friday of the subsequent week are directly tied into revenues of the previous week. factor in in there were two fer sales or if higher priced items ranout and we had to re-load, then there would be differences that would be seen on the order form.

If yes, sounds like the above 'negative' suggestions of skimming, employee theft, supplier mistakes etc. may apply. Any chance the inventory vs the accounts payables are off due to timing? Or (really off base here) a COGS expense item is actually going to sales? Just had a client do that with a supplier payment and it threw off the sales tax computation until I tracked it down.

Keep us posted, I'm curious.

I had a client, food costs were 60%. She swore up and down that all money went into bank. SYSCO Foods came in and did menu analysis and the ratios were proper. She didn't understand. I told her my buddy is an inventory control specialist and he would be happy to give her a free consultation, showing her the proper way to calculate liquor inventory and food inventory and to help set her up with procedures.

She wasn't interested. She didn't last much longer. As my client or in business. Oh well.