Restaurants, catering services, or cooking schools are sometimes expensive and complicated businesses to run. To ensure your business continues to run, you must make accurate and regular food cost calculations. There are three main calculations you should always do, namely the maximum food cost allowed (the cost you can afford), the potential food cost (how much the dishes on the menu cost), and the actual food cost (how much food you order for the business). Comparing these three numbers will help you make adjustments and changes to ensure long-term business success.
Step
Part 1 of 3: Calculating the Maximum Allowable Food Cost
Step 1. Understand why you need this calculation
The max figure can tell you what percentage of your operating budget can be allocated to food costs to keep your business profitable. Without knowing this figure, you will not be able to know whether the actual food costs (to be calculated in the next section) are on target to generate the desired profit margin.
Step 2. Start by calculating the operating budget
The company's operating budget is the sum of current and projected future expenses, as well as the estimated profit. To calculate your month-to-month operating budget, you should consider the following figures:
- Profit target
- Wages of daily workers (waitress, dishwasher, etc.)
- Wages of permanent employees (manager, owner, head chef, etc.)
- Utilities (gas, electricity, water, Wi-Fi, etc.)
- Fixed expenses (rent, credit payments, insurance, etc.)
- Fees and permits (taxes, liquor licenses, business licenses, food processing permits, etc.)
- Supplies (cleaning product supplies, uncooked food supplies, plates, wrappers, etc.)
- Marketing
- Maintenance
Step 3. Determine the amount of money you can afford to spend each month
Opening a small business comes with big risks, even for experienced restaurateurs. In order for your restaurant or catering company to compete, you must be willing to invest, but you must also protect profits to avoid bankruptcy. Take advantage of loans and grants for small businesses, both from private banks and government programs. Consider partnering with others to increase investment. Partners can work in the business actively with you or just invest funds and receive profit.
- Review your own personal finances. Make a household budget per month including rent / home loans, vehicles, food, personal insurance, and all other personal expenses. Don't sacrifice your personal stability for the sake of business.
- Check out various loan repayment options. In addition to basic knowledge of interest rates, you should also know whether you plan to make minimum payments, or start paying off your loan as soon as possible. How much personal money and business income will be allocated for loan repayments? How much is left?
- After considering personal finances and loan payments, determine the amount of money you can invest in your business per month.
- Compare this amount with the operating budget. If not met, you have to adjust the operating budget, not downsize.
- Consider enlisting the help of an accountant or banker so you can see how far you can save.
Step 4. Calculate the budget percentage for each of these costs
Now that you know the amount of money you can spend each month, find out the percentage of your monthly budget allocated to each monthly expense calculated in Step 2.
- For example, you could spend $70,000 per month on a restaurant.
- You and your manager's salary is IDR 3,500,000 per month each. Combined, the cost for salaries is IDR 7,000,000 per month, or 10% of the budget.
Step 5. Calculate the maximum allowable food cost per month
Once you know the percentage of each point in your budget, add them all up. Whatever percentage you have left in your budget is the maximum amount you can spend on food to reach your profit target.
- Salary (10%) + Daily Wage (17%) + Inventory (5%) + Utilities (6%) + Marketing (4%) + Fees and Permits (3%) + Maintenance (4%) + Fixed Expenses (21%)) + Profit Target (5%) = 75%
- In this example, 75% is the maximum budget allocated to all costs except food costs.
- To calculate the maximum allowable food cost, subtract that amount from 100%
- 100% - 75% = 25%
- If your monthly budget is IDR 70,000,000 it means you can spend up to IDR 70,000,000 x 0.25 = IDR 17,500,000 on food costs to achieve 5% profit (IDR 70,000,000 x 0.05 = IDR 3,500,000) every month.
Part 2 of 3: Calculating Actual Food Cost
Step 1. Choose a date that will start each monthly assessment period for you
As rent, utilities, etc. are paid on the same date each month, you should calculate the cost of food based on a regular period of time. You should analyze inventory at the same time each week, perhaps every Sunday, before the restaurant opens or after it closes.
Always count supplies outside of business hours, so no food is removed or cooked
Step 2. Define “starting inventory”
On the start day of “fiscal week”-in this example, Sunday-conduct a thorough inspection of all food products in the kitchen. You need to be as accurate as possible, so look at your receipts to see how much you paid for each type of food. For example, maybe you pay IDR 48,000 for 5 liters of cooking oil, and at the beginning of the fiscal week you have 1 liter of cooking oil left. Calculate exactly how much 1 liter of cooking oil cost at the beginning of the inventory calculation period, that is ($48,000 5 liters) = (X 1). Once you figure out what X is worth, you'll notice that there's $9,600 worth of cooking oil at the start of the fiscal week. Repeat this counting procedure for each type of food in storage.
Add up all the numbers to determine what your starting stock is, which is the dollar amount of food in the kitchen at the start of the fiscal week
Step 3. Record your purchases
Throughout the week, you'll order more food supplies than you need, depending on what's on the menu bestsellers. Keep all receipts neatly in your office to find out exactly how much money you spend on food in a day.
Step 4. Recalculate inventory at the beginning of the next fiscal week
Repeat the process described in Step 2. This calculation will produce a number that has two functions, namely, beginning inventory for next week and “ending inventory” for this week. Now you know how much the food cost up front, how much you bought, and how much is left.
Step 5. Know the amount of money you make selling food during the week
At the end of each shift, the restaurant manager must calculate total sales. View your sales reports for each day of the week and add them up to calculate weekly food sales.
Step 6. Calculate the actual food cost for the week
In Method 1 of this article, you have calculated the maximum allowable food cost as a percentage of the total budget. Now, you have to calculate the percentage of the budget that is actually spent on food. When you compare the two percentages, you can see if you're spending too much money on food for business continuity.
- To calculate the actual cost of food, do the following addition: Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) Food Sales.
- For example, let's say Beginning Inventory = $10,000,000; Purchase = IDR 2,000,000; Ending Inventory = IDR 10,500,000; Food Sales = IDR 5,000,000
- (10.000.000 + 2.000.000 – 10.500.000) ÷ 5.000.000 = 0.30 = 30%
Step 7. Compare the maximum allowable food costs and actual food costs
In the example, the maximum allowable food cost is 25% as calculated in Method 1, and the actual food cost is 30% in the previous step. It can now be seen that you spent too much money on food costs to reach your 5% profit target.
Adjust your purchases every week to maintain inventory. You need to lower the actual food cost to a percentage below the maximum allowable food cost
Part 3 of 3: Calculating Potential Food Costs
Step 1. Calculate your total cost
For each dish on the menu, find out how much it costs to make. For example, the ingredients for a cheese hamburger can be broken down as follows: Rp.210 for bread, Rp.60 for mayonnaise, Rp.60 for one slice of onion, Rp. 140 for two slices of tomato, Rp.800 for beef, Rp.20 for tomato sauce and mustard, Rp.40 for pickles, Rp.60 for lettuce, IDR 180 for two slices of cheese, and IDR 230 for fries. The food cost to make a cheese hamburger on the menu is IDR 1,800
- Multiply the cost of that meal by the number of servings you sell each week.
- Add up all the numbers to find the total cost. For example, let's say your total cost is $3,000,000. That is the amount of money you spend on dishes made from the kitchen that week.
Step 2. Find out what your total sales were
Now that you've calculated the amount of money spent serving dishes to customers, you have to figure out how much money you make for each dish in the process. Multiply the selling price of each dish by the number of servings sold in one week. Add the sales amount of each dish in the menu to calculate the total sales.
For example, let's say you receive $1,000 in total sales in a week
Step 3. Calculate the potential food costs
To calculate potential food costs, multiply the total cost by 100, then divide the result by total sales. Following the example above, calculate the following sum: (Rp 3,000,000 x 100) Rp 8,000,000 = 37. 5. Your potential food costs are 37.5% of the budget.
Step 4. Perform an analysis on potential food costs
Now you know the amount of money that can be made from the dishes on the menu in one week. Compare that amount to the maximum allowable food cost to see if your menu prices need to be adjusted. In this case, the maximum allowable food cost from Method 1 is 25%, and the potential food cost is 37.5%. You have a big problem! You should increase total sales so that the percentage of potential food costs decreases, and reaches the expected 25% figure. You can do this by increasing the price in the menu.
- You can slightly increase the price of all the dishes on the menu, maybe Rp. 500, - if the dish is quite expensive, maybe Rp. 2,000–Rp. 3,000 if it costs a little more to make.
- Look at the sales figures to find out what dishes are most popular with customers. You can increase the price of popular dishes, more so than less popular dishes. Customers will likely still want to pay for it.
- Consider eliminating dishes that don't sell well from the menu. The dish has no yield potential. Review the menu constantly to make sure you are moving all the products in stock.
Tips
- You can sell and buy on the same date.
- The final cost you pay for each dish is the storage fee.
- You may not sell anything during inventory count.
