There are many factors that play into a restaurant’s profitability. Driving more sales is the obvious way to increase profits, which can be done in a number of ways – raising prices, increasing table turns or turning to delivery services such as Waitr or Uber Eats. But focusing only on those involves an element outside a restaurant’s control.

The basic formula for profitability is a restaurant’s revenues minus its expenses. And while some expenses, such as rent and insurance, are fixed and beyond an owner’s control, a major component of the profitability formula is cost of sales and food costs.

Understanding and controlling food costs has long been a challenge for restaurants. Factors such as spoilage, waste and theft play a big role in addition to kitchen staff historically struggling with proper ingredient measurements. Restaurant owners have settled for trying to manage food costs as a percentage of sales with a target range in mind. But that process is reactive rather than proactive and not always effective if an owner wants to help drive profits by controlling those costs.

One method is using cloud-based accounting technologies, such as Restaurant365, to establish the theoretical food costs for each recipe. With a mobile inventory component that contains product and unit of measure flexibility, all items can be tracked by quantities that can be easily converted to the amounts used in each recipe. As menu items are ordered, the integrated point-of-sale system tells kitchen staff what item to prepare and how much of each ingredient to use. The inventory items are converted to cost of sales on a real-time basis and are reflected in the daily sales reports. Daily or weekly inventory counts using mobile apps can reconcile the theoretical food costs to hard costs based on the physical inventory much faster and more easily than traditional methods.

The resulting reports can provide a real-time stream of information to the restaurant owner, which enables management to understand the correlation between inventory, food costs and profits in a timely manner not usually available with more traditional systems.

Cloud-based accounting can allow a restaurant owner to view these reports a customized online dashboard, which provide detailed information on food costs for the week. Such timely information reduces spoilage by allowing for more accurate quantities to reorder. It also reduces waste because of the precision of the recipe information and the conversion feature from inventory to cost of sales. And knowing inventory is reconciled real-time can deter theft once staff understand the restaurant owner can monitor those amounts daily.

Beyond spoilage, waste and theft, all this information provides the restaurant owner information to use in decisions on popular or slow-moving menu items and even components of recipes, which all factor in to a restaurant’s control of food costs and the resulting profits.

Whether it’s accounting or audits, tax compliance or planning, outsourced CFO and advisory services or litigation support, including business interruption claims assistance and valuation services, we’re here to help put your numbers to work for you so providing top-quality service remains priority No. 1. Contact us today to see how we can help you achieve your goals!

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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