It’s amazing how many QSR store level managers don’t seem to really dive in or understand their financial information. While we consistently provide this information and detailed cost reports to each store manager, very rarely do any of them ever question the information.
I often wonder if they are just not looking at it, or they don’t understand it. There are a few rare occasions when we receive questions, and it’s typically the same group of people. However, even when questioned, I recognize that the substance of the questions would likely be unfounded if the managers had some training on where the numbers were coming from and what they really mean.
Recently, a store manager emailed me to tell me that her monthly financials were clearly wrong because food costs were too high. Her comment? “I only purchased $10,285 in food during this time period, my food costs are overstated at $11,174”. For anyone familiar with how food costs are determined, this comment has no relevance, but all that she could see was that she had paid invoices of $10,285 for the time period so we clearly must have included something in error.
Actual food costs is a pretty straightforward calculation, but it includes more than what was purchased for the month. You must also account for your beginning food items on hand (beginning inventory) and what you had remaining at the end of the period as well (ending inventory).
Actual Food Cost = Beginning Inventory + Purchases – Ending Inventory. This is the number that will be represented on your financial statements.
Of course this number can be misstated if the inventory counts are not accurate, or if the purchases have not all been accounted for either, so It is definitely important to monitor and question the actual food cost number. There are many topics I could digress to as they relate to food cost, but the point I am trying to make is that this particular store manager has historically dug into the details more than most. I was somewhat shocked to see the question, and realize that she did not understand this basic concept.
Without that knowledge, how can a QSR manager effectively analyze the true food costs for the period? Or against ideal food cost? The short answer is they cannot.
If you are an owner of a quick service restaurant, or many, and you are relying on others to manage them, make certain that your managers understand the POS metrics, the monthly financials, and the detailed cost control reports that are being provided. Our outsourced accounting solutions provide significant detail, reconciliation, and transparency into transactions. However, if the end user does not understand it, the store is not being managed as effectively as it could be.