I Know I’ve gone through this before, but as I was explaining the lay out of your Profit and Loss (P&L) statement, Sales and Cost of Sales are everything. Without Sales you have no business. But in this paper I’m talking about Cost of Sales. Because without a thorough knowledge of this aspect of your business, those sales dollars you fight so hard to secure, will slip through your fingers like flour in a sieve.
As I mentioned last week, you want to track separately the categories of what you sell. For us at Colorado Boy Brewery, we sell Beer, Wine, Food, Beverage, and Merchandise. When we sell a tee-shirt, it goes in that category. A flight of tasters go in the Beer category and so on. But to track the Cost of Sales, you need to understand how inventory is handled and the math behind it. So, let’s start at the beginning.
Let’s say you start June with 2 cases of beer. A case of beer cost $25. So the value of the inventory June 1st is $50. Then, as you go through the month you purchase another 5 cases of beer, which cost you $125 (5x$25). for June the entire value of your inventory is $175 ($50 you began with, plus $125 you bought). Got it? OK, now you take an inventory the morning of July 1 to see what you had on hand at the end of June. You count 4 cases of beer, or $100. What is the value of what you sold?? I know this sounds like a horrible word problem. Here is the solution.
Beginning Inventory plus Purchases minus Ending Inventory equals Cost of Sales. In other words, $50 + $125 - $100 = $75. Now take this cost of sale and divide this number by your sales number in this category (Beer). Let’s say your beer sales in our example are $288. By dividing the cost of sales ($75) by sales ($288)will give you a percent. In this case 26%.
For your purpose, with beer you have lots of types of Malt, Hops, and maybe yeast -by the way, we only consider the ingredients in beer as cost of sales. We don’t add water (too hard to figure out) chemicals, finings and the like. Those are just expenses. I would rather just concentrate on the basic ingredients in beer.
When you are doing an inventory, there is a line for each type of ingredient, and how much each ingredient cost. The spreadsheet does the calculations. I also include a symbol for how it is to be counted, like # for pounds, ea. for units, etc. when counting food items. The beer inventory sheet however looks like this.
The last section of the inventory sheet does all the calculations for you. The cells have the formula, Beginning Inventory + Purchases - Ending Inventory = Cost of Sales, inside.
Here is an example of a food Inventory
Why Again Are We Doing This??
If you have established a target beer cost of 10% and then your monthly inventory turns out a 13%, you’ve got a problem. It could be the cost of grain has gone up and you need to adjust your prices you charge. It could be a problem in your point of sales system by categorizing happy hour beer into food sales. It could be the person taking inventory made a mistake in counting. Or, it could be you have a bartender ripping you off. The point is, you need to know these numbers to properly manage your business. You may think 3% higher than your target level is not that bad, but if your yearly beer sales are $300,000 then you just threw $9,000 down the toilet ($300,000x3%).
If this all sounds difficult, it’s really not. Divide the inventories up between managers. Brewer does beer, bar manager does wine, kitchen manager does food, and so on. Do it at the beginning of every month. Your beginning inventory number is the previous months ending inventory number. Purchases come from your accounting software, and sales from your point of sales systems. This is also covered in my book The Brewery Operations Manual , truly a work of brewing genius.
I’d love to hear your comments and if you have questions email me at tom@coloradoboy.com. I wouldn’t go through this with you if I didn’t think it was really important. I could sure think of things to spend that $9,000 on that were more fun than flushing it down the toilet.
Two questions Tom: 1. Are there any benefits to go into detail about the style of beer or the dish to determine which you are making/losing money on? and 2. How do you handle beer samples and complementary beer/food - "essentially there is no way to get an accurate figure on cost of sales without having a sales figure that includes what we gave away"? Thanks and keep the posts coming.
Fred, excellent questions! 1. Yes! I do cost out sheets on all menu and beer items and track the best cost items. For menus, place your best food cost items at the top, middle and bottom of your menu. That's where eyeballs first go, and most people make eating decisions off their first glance - bwahahaha. 2. If you point of sale doesn't allocate splits, then create new keys that ring them up separately. You do need to track everything to be accurate!
Two questions Tom: 1. Are there any benefits to go into detail about the style of beer or the dish to determine which you are making/losing money on? and 2. How do you handle beer samples and complementary beer/food - "essentially there is no way to get an accurate figure on cost of sales without having a sales figure that includes what we gave away"? Thanks and keep the posts coming.
Fred, excellent questions! 1. Yes! I do cost out sheets on all menu and beer items and track the best cost items. For menus, place your best food cost items at the top, middle and bottom of your menu. That's where eyeballs first go, and most people make eating decisions off their first glance - bwahahaha. 2. If you point of sale doesn't allocate splits, then create new keys that ring them up separately. You do need to track everything to be accurate!