Restaurant and Foodservice Budgeting and Cost Control

A lecture focusing on costing and pricing in foodservice.

1. Restaurant and Foodservice Budgeting and Cost Control

2. Cost Control Overview 2

3. Cost Control Overview Cost control is a business’s efforts to manage how much it spends. 3 Every business needs to make more money than it spends in order to survive. That is, its sales , or revenue , have to be higher than its costs .

4. Revenue vs Cost Cost is the price an operation pays out in the purchasing and preparation of its products or the providing of its service. 4 Revenue is the income from sales before expenses, or costs, are subtracted .

5. Types of Costs A successful restaurant or foodservice operation needs to manage and control many costs: Food costs Beverage costs Labor costs Overhead costs All of which can fall under the categories of: Variable costs Controllable costs Fixed non-controllable costs 5

6. Types of Costs Variable or semi-variable costs can change based on sales. These are controllable costs because the operation has a certain amount of control in how it spends on these aspects of the operation. 6

7. Types of Costs Fixed Cost Overhead cost is a fixed or non-controllable cost , meaning it needs to be paid regardless of whether the operation is making or losing money. Fixed costs do not change based on the operation’s sales. List some fixed costs a restaurant will always be responsible for 7

8. Operating Budget

9. An operating budget is management’s plan for generating revenue and incurring expenses over a period of time.   Operating Budgets 9

10. Operating Budget Breakeven point Sales = labor + overhead + food costs. Labor for a week is $3000, overhead is $2000, and food cost is $4000. Therefore, the breakeven point for sales occurs at $ 9000. Profit P rofit = sales − ( labor + overhead + food costs)

11. Forecasting Operating Budgets A forecast is a prediction of sales levels or costs that will occur during a specific time period. Most forecasting techniques rely on having accurate historical data for the operation . 11

12. Historical Data

13. Projected Sales Let’s assume that a restaurant’s sales rose by 10% last year. We can use that as a guideline for this upcoming year.

14. Let’s assume that a restaurant’s costs are also going to rise by 10 %. Projected Costs

15. Projected Budget

16. Cost Percentage Cost %  = cost ÷ sales Must be carefully controlled by a restaurant to ensure profit. Projected and real percentages can be compared.

17. Profit and Loss Statements

18. Profit-and-Loss Report A P&L shows whether an operation has made or lost money during the time period covered by the report . The income statement is essentially the monthly budget with actual cost and income figures inserted. Helps managers gauge an operation’s profitability as well as compare actual results to expected goals. Helps determine areas where adjustments must be made to bring business operations in line with established financial goals . 18

19. Profit-and-Loss Report A profit-and-loss report (P&L) is a compilation of sales and cost information for a specific period of time. 19

20. POS Systems

21. POS Information POS information is a powerful tool that permits you to analyze menu performance. POS systems have the ability to generate Sales reports Labor reports Employee hours, wages, credits for meals, numbers of guests served per server, gross sales per server, and average check size per server. Inventory data Daily revenue