ch01 Managing Revenue & Expenses

Chapter 1
Managing Revenue
and Expense
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Main Ideas
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Professional Foodservice Manager
Profit: The Reward for Service
Four Major Foodservice Expense Categories
Percentages
Percentages in Foodservice
Profit Formula
Understanding the Income (Profit and Loss) Statement
Common Percentages Used in a P&L Statement
Understanding the Budget
Technology Tools
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Professional Foodservice Manager
 Hospitality managers controls product
production to product sales/ distribution.
 Management of foodservice is more
challenging than the management of a
manufacturing or retailing business.
 The food service operator must serve as a
food factory supervisor, and a cost control
manager.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.1 Management Task Checklist
Task
1. Secure raw materials
2. Manufacture product
3. Distribute to end- user
4. Market to end- user
5. Reconcile problems
with end-user
© 2015 John Wiley & Sons
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Foodservice
Manager
Yes
Yes
Yes
Yes
Yes
Manufacturing
Manager
Yes
Yes
No
No
No
Retail
Manager
No
No
Yes
Yes
Yes
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
 If management focuses on controlling costs
more than on properly servicing guests,
problems will certainly result.
 Managers should never feel that “low” costs are
good and “high” costs are bad. That is not true.
 Improvements in business operations should
yield more customers which, in turn, will yield
greater operational expense.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
 Efforts to reduce costs that result in unsafe
conditions for guests or employees are never
wise.
 The question is not whether costs are too high or
low, but whether costs are too high or too low,
given management’s view of the intended value
to be delivered.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.2 Foodservice Business Flowchart
Cash
reserves
Profits
Supplies
Accounts receivable
or cash
© 2015 John Wiley & Sons
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Purchases
Raw materials and
labor
Produces
Generates
Finished products
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
Revenue - Expenses = Profit
 Revenue is the amount of dollars an operation takes in.
 Expenses are the costs of the items required to operate
the business.
 Profit is the amount of dollars that remain after all
expenses have been paid.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
Revenue - Expenses = Profit
 The following terms will be used interchangeably:
revenue and sales; expenses and costs.
 All foodservice operations, including non-profit
institutions, need revenue in excess of expenses if
they are to thrive.
 Profit is the result of solid planning, sound
management, and careful decision-making.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
 Desired profit is defined as
 Profit that the owners of a business want to achieve based on
an estimated quantity of revenue.
 Ideal Expense is defined as
 Management’s view of the correct or appropriate amount of
expense necessary to generate the same estimated quantity of
revenue.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
 Revenue varies with
 number of guests served.
 amount of money spent by each guest.
 Operators can increase revenue by
 increasing the number of guests served.
 increasing the amount spent by each guest.
 increasing the number of guests served and the
amount spent by each guests
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit: The Reward for Service
 Environmental sustainability describes a variety of
earth-friendly practices and policies designed to meet
the needs of the present population without
comprising the ability of future generations to meet
their own needs.
 Positive benefits that accrue when businesses
incorporate green activities are significant and on the
increase.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Four Major Foodservice Expense
Categories

Food Costs
 Costs associated with actually producing menu items
 Largest or second largest expense category

Beverage Costs
 Costs related to the sale of alcoholic beverages:
Beer
Wine
Liquor
 May also include ingredients, mixers and garnishes
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Four Major Foodservice Expense
Categories

Labor Costs
 Cost of paying all employees, including payroll taxes
 Labor costs are usually second only to food costs in total
dollars spent in a foodservice operation
 Some operations include the cost of management in this
category. Others may prefer to place the cost of managers
in the Other Expenses category.
 Other Expenses
 Includes all expenses that are neither food, beverage nor
labor; examples include utilities, rent, and advertising.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.3 Renaud Hotel Operating Results
Revenue
Expense
Profits
© 2015 John Wiley & Sons
Hoboken, NJ 07030
This Year
$1,106,040
1,017,557
88,483
Last Year
$850,100
773,591
76,509
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Percentages
 Numbers can be difficult to interpret due to
inflation. Therefore, the industry often
uses percentage calculations.
 Operating results of businesses are most
often reported in both dollar amount and
percentage.
 Managers are usually evaluated on their
ability to compute, analyze, and control
expenses expressed in percentage terms.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Percentages
 Percent (%) means “out of each hundred.”
 There are three (3) ways to write a percent:
 Common Form
 “%” sign is used, as in 10%
 Fraction Form
 the part, or a portion of 100, as in 10/100
 Decimal Form
 the decimal point (.), as in 0.10
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.4 Forms of Expressing Percent
Form
1%
Percent
10%
Common
Fraction
Decimal
1%
1/100
0.01
10%
10/100
0.10
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100%
100%
100/100
1.00
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Percentages
 Divide the number that is the part by the
number that is the whole.
Part = Percent
Whole
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.5
Percent Computation
Possibilities
Part is smaller than the
whole
Part is equal to the whole
Part is larger than the
whole
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Examples
61
100 = 61%
35
35 = 100%
125
50 = 250%
Results
Always less than 100%
Always equals 100%
Always greater than 100%
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Percentages in Foodservice
 Percentage of revenue that went to pay for
expenses:
Expense
Revenue = Expense %
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Percentages in Foodservice
 As long as expense is smaller than revenue, some
profit will be generated
Profit
Profit % = Revenue
 Modified profit formula:
Revenue - (Food and Beverage Cost +
Labor Cost + Other Expenses) = Profit
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Profit Formula
 Put in another format, the equation looks as follows:
Revenue (100%)
- Food and Beverage Cost %
- Labor Cost %
- Other Expense %
= Profit %
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Income
(Profit and Loss) Statement
 A profit and loss statement (P&L) lists revenue,
food and beverage cost, labor cost, other expenses,
and profit.
 The P&L is important because it indicates the
efficiency and profitability of an operation.
 Managers are often evaluated on the basis of their
ability to meet established P&L targets.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Income
(Profit and Loss) Statement
 The accounting tool managers use to report an
operations’ revenue, expenses, and profit for a
specific time period is called the Statement of
Income and Expense.
 The Statement of Income and Expense is also
commonly known as the Income Statement; or the
profit-and-loss statement, which is shortened by
many food service managers to simply the P&L.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Income
(Profit and Loss) Statement
 A Uniform System of Accounts is used to ensure
consistency in reporting operating results for a
business.
 The Uniform System of Accounts for Restaurants
(USAR) is used to report financial results in most
foodservice units.
 The USAR is published by the National Restaurant
Association (NRA).
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Dan’s Steakhouse
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Dan’s Steakhouse
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Dan’s Steakhouse
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Common Percentages Used
in a P&L Statement
1. Food and Beverage Cost
Revenue
=
2. Labor Cost
Revenue
=
3. Other Expense
Revenue
=
4. Total Expense
Revenue
=
5. Profit
Revenue
=
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost %
Labor Cost %
Other Expense %
Total Expense %
Profit %
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget
 Budget
 A budget is an estimate of projected revenue, expense, and
profit for a defined accounting period.
 The budget is also known as the plan or forecast.
 All effective managers, whether in the commercial
(for profit) or non-profit sectors should utilize properly
developed budgets.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget
 Performance to budget is the percentage of the
budget actually used.
Figure 1.9
Weekday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Total
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Candy Purchases
Budgeted Amount
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$7.00
% of Total
14.28%
14.28%
14.28%
14.28%
14.28%
14.28%
14.28%
100.00%
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget
 The 28-day-period approach to budgeting
 13 equal periods of 28 days each
Figure 1.10 Common Foodservice Budget Periods
Budget Period
One week
Two-week period
One month
28 days
30 days
31 days
Six months
One year
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Portion
One day
One day
One week
One week
One day
One day
One day
One month
One day
One week
One month
% of Total
1/7 or 14.3%
1/14 or 7.1%
1/2 or 50.0%
1/4 or 25.0%
1/28 or 3.6%
1/30 or 3.3%
1/31 or 3.2%
1/6 or 16.7%
1/365 or 0.3%
1/52 or 1.9%
1/12 or 8.3%
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget
 Percentages are used to compare actual expense with
the budgeted amount, using the formula:
Actual
Budget
© 2015 John Wiley & Sons
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= % of Budget
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.11 Camp Eureka One-Week Budget
Item
Meals served
Revenue
Food Expense
Labor Expense
Other Expense
Profit
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Budget
3,780
$6,993
$2,600
$2,800
$ 700
$ 893
Actual
3,700
$6,993
$2,400
$2,900
$ 965
$ 728
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Figure 1.12 Camp Eureka Performance to Budget Summary
Item
Meals Served
Revenue
Food Expense
Labor Expense
Other Expense
Total Expenses
Profit
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Budget
3,780
$ 6,993
$ 2,600
$ 2,800
$ 700
$ 6,100
$ 893
Actual
3,700
$ 6,993
$ 2,400
$ 2,900
$ 965
$ 6,265
$ 728
% of Budget
97.9%
100.0%
92.3%
103.6%
137.9%
102.7%
81.5%
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget
 Managers must determine if they are “In-line” with
the budget or if there are “significant” variations from
the budget.
 A significant variation is any variation in expected
revenue, costs or profits that management feels are
areas of concern.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Understanding the Budget

If significant variations with planned results occur,
management must:
1. Identify the problem
2. Determine the cause
3. Take corrective action
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Technology Tools
 Most hospitality managers would agree that an
accurate and timely income statement (P&L
Statement) is an invaluable aid to their management
efforts.
 There are a variety of software programs on the
market that can be used to develop this statement.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Technology Tools
 Computer programs exist to compare actual results to
budgeted figures or forecasts, to prior-month
performance, or to prior-year performance.
 P&L’s can be produced for any time period,
including months, quarters, or years.
 Most income statement programs will have a
budgeting feature and the ability to maintain
historical revenue (sales) and expense (cost) records.
© 2015 John Wiley & Sons
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Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller
Technology Tools
 Not all information should be accessible to all parties,
and security of cost and customer information can be
just as critical as accuracy.
 To effectively manage an operation, a manager will
need to communicate with employees, guests, and
vendors. Thus, the software needed to operate a
business should include products for word
processing, spreadsheet building, faxes, and e-mail.
© 2015 John Wiley & Sons
Hoboken, NJ 07030
Food and Beverage Cost Control, 6th Edition
Dopson, Hayes, & Miller