Inventory Management

Every month chefs hunker down in the walk-in refrigerator and dry-storage room to count what’s on hand.  It’s not a particularly pleasant task and, unfortunately, it’s often put off until the end of a long Saturday night when the all they can think about is a cold beer and collapsing in bed.

Regardless of how daunting it may be, creating effective inventory management procedures (and sticking to them!) is essential to running a profitable business. Careful food inventory tracking can help you track:

• Food Costs
• Waste and Potential Theft
• Turnover

Food Cost

If you are like most chefs and farmers, managing your accounting software, like QuickBooks, is right up there with taking inventory as your least favorite task in the business.  You want to enter in your receipts and sales data and be done with it.

If you’re entering invoices as food or beverage costs, then kudos to you. You’re on the right track.  But there’s more to do. For example, as I was reviewing a client’s books a few weeks ago, I noticed that his food cost was higher than his sales.  No, his business was not going down the tubes; he just had not taken inventory.  He recorded all the purchases, but did not back out what he had yet to sell. His food cost looked uncharacteristically high.  Though he knew the cause, he had no way of knowing if the true number was in-line or not.

When calculating your food cost, use this simple formula:

(Beginning Inventory + Purchases – Ending Inventory) / Sales

Waste and Theft

After a few months, you may notice that your inventory is pretty constant.  When I worked at Sebastians, I consistently had $1,000 worth of inventory.  I could easily save myself a step with the above formula, since I knew that Beginning Inventory – Ending Inventory would equal zero.

But it was important that I still took inventory every month. If there was a drastic (and unexpected) change, then I knew I had an issue.  Either someone was stealing, or I was mismanaging my inventory by over-ordering.

Turnover

From a more practical standpoint, taking inventory can remind you what you have on hand.  It can remind you that, “oh yeah, I bought that case of bee pollen…. I better use that up” or, “oops, I’m about to run out of flour.”  With this simple tool, you can easily avoid those last-minute-runs-to-supermarket-during-a-Friday-night-rush panics that we’ve all experienced and are usually a clear sign of poor planning.

What are your inventory practices?