Inventory signifies all food, beverages, serving supplies and cleaning supplies you have in the restaurant. Every piece of inventory should be counted at least once every week so that you can prepare menu items for your customers and stay in control of the goods you have on hand.
The Purpose of Conducting Inventory
The main purpose of conducting inventory counts is to measure the amount of food, supplies and other products your restaurant uses over time. This usage can be converted to a cost, which is then compared to total sales for a given period. This way, you can get a feel for how much profit your business makes from the product sold.
Taking inventory affects your ordering processes as well. It lets you know how much you have as well as how fast it is being used, and thus how much you need to order each week. After all, if you have too much fresh food in the refrigerator, it will go bad. If you do not have enough, you risk running out of food and disappointing your guests.
Critical Control Items
In the restaurant, there are likely a few items that are top sellers or especially important to your menu. These are also called key items, or “center of the plate” items. These items should be inventoried every day before doors open for sales. Daily critical control counts will help you keep better track of those important items, and help you keep your kitchen staff accountable in case something is spilled, overcooked or stolen.
How to Count Inventory
Total inventory is typically counted once a week. To avoid problems with counting, it is good practice to have the same manager, or better yet, pair of managers, count the inventory every time. Since it is physically counted by hand and by sight, it is important that the same hands and eyes are counting it every week so that counts are consistent. If possible, have two managers to count the inventory in case one manager is unavailable one week, as well as to have two pairs of eyes consistently verifying the counts. This can be done with the general manager and the kitchen manager, for instance.
Follow these steps to conduct an inventory count:
- Start a new inventory report in your accounting software.
- Print an inventory count sheet (see example below).
- Take a physical inventory and write down the amounts of all food and supplies on your count sheet.
- Enter your counts into your accounting software.
- Run variance reports to find any discrepancies between theoretical and actual usage.
Example of an Inventory Count Sheet:
In the count sheet above, the item and unit of measure is constant. The “inventory” column is where the manager taking inventory writes in the numbers of every product counted. The “unit price” column is included to show the worth of the individual item, and the “total cost” shows how the total worth of the entire stock of that item.
Use Accounting Software
Using accounting software makes taking inventory ten times easier. The software installs in your back office computer and keeps track of all your counts, even creating weekly reports so you can easily see any changes or discrepancies from week to week. If you do not have financial software, seriously consider making the purchase for the sake of convenience and accuracy.
Variance and Usage
Variance is the difference between theoretical usage and actual usage. Theoretical usage, also known as ideal usage, is the amount of inventory your restaurant sells according to your Point of Sale (POS) system. Every time a cashier or server enters a sale, the POS records the food and other supplies needed to make the product, thereby recording the amount of inventory used. Theoretical usage is also made up of any wasted or spilled items that are recorded and entered into the POS or accounting software.
Actual usage is determined by your inventory count. Basically, the inventory you count should be the same as what the accounting software tells you that you have left after your sales. Ideally, there should be no variance between the theoretical usage and the actual usage, meaning that the menu items are prepared correctly and use no more or less product than what the POS records. In real life, actual usage and theoretical usage are rarely exactly the same. A variance could be the product of poor counting, food product that was spilled and not accounted for or employee theft, to name a few common reasons. To locate any variance, you can run a report comparing actual and theoretical food cost. The report might look something like this:
Sample Actual vs. Theoretical Usage Variance Report:
In the sample section of the variance report above, you can see that two items are being analyzed: blueberry muffins and banana muffins. For blueberry muffins, the actual usage, or the amount of muffins sold off the menu, exceeds the theoretical usage, or what was entered into the POS, by seven muffins. That means that more muffins were sold (or eaten, or spilled, etc) than the POS accounted for. This results in lost money—$3.78 to be exact—due to those seven mystery muffins that were never tracked. For banana muffins, the opposite is true. This is likely due to a counting error or keystroke error in the POS.
There are a number of reasons why your restaurant might experience a loss in inventory. The following are the most common reasons why restaurants lose product:
It happens in every restaurant. A server accidentally spills a plate of food, or a kitchen worker burns several pieces of steak. No matter how it happens, restaurant staff should get into the habit of recording all wasted items. An easy way to do this is by handwriting the item, the amount wasted, and the reason it happened on a clipboard sheet. This way, any missing inventory is accounted for when analyzing usage. Additionally, managers need to learn why food is being wasted and how they can rectify the problem. It could be that employees are working irresponsibly, or perhaps they are unaware of how to correctly prepare the food, in which case the employees may require further training.
Poor Food Handling
Although typically another way of wasting food items, poor food handling is one of the biggest contributors to depleted inventory. Commercial kitchen operators would do well to implement a mantra of “label, date, rotate and consolidate” with kitchen staff. When food is properly labeled and correctly dated, workers know what to use and when. Proper first-in, first-out (FIFO) rotation is essential for reducing food spoilage, and proper consolidation from large, unwieldy containers to small, manageable ones will keep food fresher and more visible for use.
Sometimes, restaurant workers have an important reason to give a customer a complimentary item. Perhaps a customer is valued for his return business, or a pair of customers are celebrating a special occasion at your restaurant. Even for situations where free items are given as rewards rather than compensation for an unpleasant experience, managers need to approve all comped items. This is to verify the legitimacy of the transaction, as well as to appropriately account for the depleted inventory.
Insider theft is an unfortunate reality in many restaurants. Although this is not the norm, theft can be a reason for lost inventory. Theft involves anything from eating restaurant food outside of employee meals to stealing full bottles of alcohol. Keep an eye out for behavior that may point to restaurant employee theft. » Learn More About How To Prevent Employee Theft
Transfers involve moving inventory from one department to another, such as from the bar to the kitchen. It can also mean sending an item from one establishment to another, a common occurrence in restaurant chains. Just make sure any transfers are accounted for so they do not negatively affect your P&L.
Use discretion when submitting food orders and avoid purchasing more than your restaurant needs. An excess of product might signal to workers that wasting food or making mistakes is no big deal. Invariably, more food ends up burned or on the floor. With less product to work with, food is handled more responsibly and less is wasted.
Often, the best defense against lost inventory is simply recording any food that is wasted, any complimentary items given and any product transfers in or out. To do this, you need to enter the items appropriately into your accounting software systems, or manually record the costs as expenses. For instance, if you comp a customer’s meal, you can typically enter it into the POS system as such, which then translates to your P&L. » Learn More About the Profit and Loss Statement