Now that we have our sales and have modified them from really good to much more realistic we need to start delving into the costs side of the equation. Since we are talking about opening a restaurant obviously our biggest cost is going to be food! And PS- if food isn’t your biggest cost something is probably wrong unless you are running a very unique operation!
The way to do food costs, which in the accounting world are called COGS, short for costs of goods sold, is to start with the price you will charge for the item and then compare that with the costs of the ingredients. This gives you the food cost as a percentage which is how you figure out the food cost for all your sales, not by counting it one plate of food at a time.
So, for example, we look at breakfast plate one. We are going to charge $6.95 for it on the menu. We put that in. Then we figure out how much the ingredients that go into it are going to cost. This part is a little more work, since the quantity we buy in is not the same as the quantity we sell it in. So suppose the breakfast number 1 is two eggs, two pancakes, two bacon strips and two slices of toast. We buy the eggs in flats and each egg in a flat costs us $.10 so that’s $.20. The bacon comes in packages and per slice it’s $.35 so the bacon total is $.70. The toast is $.25 per slice so that’s $.50.
So far we are up to $1.40. Now the pancakes are a little harder, because they themselves consist of multiple ingredients- the mix or flour, eggs, milk, maybe a little something extra for your own special mix. Figure out what a big batch is going to cost and then divide it by how many pancakes you can get out of a batch of mix. In our example, it comes out to $2.00 for the whole thing. Pancakes aren’t really that much but you might also use a little spray on the grill, and don’t forget the side of butter and side of syrup for the breakfast. All in $2.00 is a very reasonable food cost.
This is where it really helps to either have restaurant experience yourself or at least have someone on your team with restaurant experience so they can help you make sure your food costs are in line. Another good person to speak with is the sales rep from the food vendor or vendors you are going to use. Show them your menu ideas and ask for them to print out some current pricing sheets on the ingredients you’ll need. They will be happy to do it because they want your account when you open for business.
Now you will see there isn’t nearly enough room for everything to get entered that would be on a typical menu. That’s OK- we are trying to find your average food cost for each type of sales- food, beverage and bar. We don’t need every single item to get very close to your true average- just make sure you put a good cross sample of the types of food you will serve. Don’t put all the cheapest stuff or all the most expensive.
Once you’ve entered your info you can see the restaurant financials spreadsheet calculates your averages for each sales category. It also gives you the range that most restaurants fall into for each category. If you find yourself outside of these ranges you may want to go back and make sure you aren’t under or over estimating the costs.
The final box is to enter the amount of inventory you expect to keep on hand. This is determined mostly by the kind of restaurant you run, how often you get deliveries and how much storage space you have. Also, don’t forget that although you may get some things like fresh fruit and vegetables four or five days a week there will be other items you only get once every three months like seasonings and certain items that are on less popular menu items or that come in very large bulk sizes. A good estimate is generally 10-14 days inventory value is kept on hand at any given time.