No Recent Menu-Costing to establish the cost of sales or food cost.

The item and plate cost of your menu items must be updated daily. Every time that food and beverage items are purchased the price can differentiate. If you have a special arrangement with a specific supplier to keep the pricing stable for a pre-determined period I still recommend that you check every invoice for the weights, price, and total cost as people do make mistakes!

You do not only want to detect other people’s mistakes, you have to know what your costs are to determine the profit you should be projecting to generate.

Your restaurant food cost percentages are one of the biggest accounting red flags you’ll come across.

What is costing or food cost?

When you sell a dish/plate, you have to account for all of the ingredients that go into the recipe to prepare and manufacture the dish. If a dish costs R10.50 to make, you need to sell it at a sustainable profit. Ingredient prices vary regularly based on availability, seasons, import tariffs, etc.

When prices decline, you make more money on a dish, but you need to make sure that the item is sufficiently priced to maintain profit margins when they rise. Items should have their costs updated daily so that you can

• Fish dishes have a 35% profit margin. This seems adequate.
• Steak dish profit margins are 2%, so we better increase the menu price!

There is restaurant and hospitality specific software that can be used to help you maintain a complete daily operating expenses view.

Fixed Operating Expenses.

When operating expenses exceed your gross sales, it’s one of the biggest red flags while analyzing your business’s financial statements. There are occupancy costs for restaurants and general percentages of costs that owners can follow.

Depending on your style of operation roughly around 78% of every Rand income goes towards:

• Value Added Tax of 15%
• Food/beverage purchases about 38%
• Labor expenses about 15%
• Rental 10%

Variable Expenses.

You’ll consider these variable costs that will vary, so it’s important to keep track of them at all times. Below some variable expenses a restaurant also needs to account for:

• Occupancy Costs namely:
• Electricity
• Water
• Ops Cost
• Shared water and electricity costs
• Refuse Removal
• Gas
• Stationary
• Banking
• Interest on loans
• Linen
• Cleaning
• Uniforms
• Marketing
• Legal and Licenses
• Insurance premiums
• Maintenance

Above are only a few of a long possible list of real costs. If the variable expenses exceed 22%, it is going to be very difficult for an eatery to stay in business. 

With proper reporting and healthy accounting principles, when you have control over all of the variable expenses, it’s easier to make key adjustments to stay in business.