chapter 17 managing revenue and expense. main ideas professional foodservice manager professional...
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Chapter 17Chapter 17Chapter 17Chapter 17Managing Revenue and Managing Revenue and
ExpenseExpenseManaging Revenue and Managing Revenue and
ExpenseExpense
Main IdeasMain Ideas Professional Foodservice ManagerProfessional Foodservice Manager Profit: The Reward for ServiceProfit: The Reward for Service Four Major Foodservice Expense CategoriesFour Major Foodservice Expense Categories PercentagesPercentages Percentages in FoodservicePercentages in Foodservice Profit FormulaProfit Formula Understanding the Profit and Loss StatementUnderstanding the Profit and Loss Statement Common Percentages Used in a P&L Common Percentages Used in a P&L
StatementStatement Understanding the BudgetUnderstanding the Budget
Professional Foodservice ManagerProfessional Foodservice Manager
Handles functions of product sales to Handles functions of product sales to product delivery.product delivery.
Management is more difficult than for Management is more difficult than for manufacturing or retailing manufacturing or retailing management counterparts.management counterparts.
Profit: The Reward for ServiceProfit: The Reward for Service
If management focuses on If management focuses on controlling costs more than on controlling costs more than on servicing guests, problems will servicing guests, problems will certainly surface.certainly surface.
Do not get yourself in the mind-set Do not get yourself in the mind-set of reducing costs to the point of reducing costs to the point where it is thought that "low" costs where it is thought that "low" costs are good, and "high" costs are bad.are good, and "high" costs are bad.
Profit: The Reward for Profit: The Reward for ServiceService
Efforts to reduce costs that result Efforts to reduce costs that result in unsafe conditions for guests or in unsafe conditions for guests or employees are never wise.employees are never wise.
The question is whether costs are The question is whether costs are too high or too low, given too high or too low, given management’s view of the value.management’s view of the value.
Profit: The Reward for ServiceProfit: The Reward for Service
RevenueRevenue is the amount of dollars you is the amount of dollars you take in.take in.
ExpensesExpenses are the costs of the items are the costs of the items required to operate the business.required to operate the business.
ProfitProfit is the amount of dollars that is the amount of dollars that remain after all expenses have been paid.remain after all expenses have been paid.
Revenue - Expenses = ProfitRevenue - Expenses = Profit
Profit: The Reward for ServiceProfit: The Reward for Service
The following terms will be used The following terms will be used interchangeably: revenue and sales; interchangeably: revenue and sales; expenses and costs.expenses and costs.
All foodservice operations, including non-All foodservice operations, including non-profit institutions, need revenue in excess profit institutions, need revenue in excess of expenses if they are to thrive.of expenses if they are to thrive.
Profit is the result of solid planning, sound Profit is the result of solid planning, sound management, and careful decision-making.management, and careful decision-making.
Revenue – Expenses = ProfitRevenue – Expenses = Profit
Profit: The Reward for ServiceProfit: The Reward for Service
Desired profitDesired profit is defined as is defined as profit that the profit that the ownerowner wants to achieve wants to achieve
on that predicted quantity of revenue on that predicted quantity of revenue
Ideal ExpenseIdeal Expense is defined as is defined as management'smanagement's view of the correct or view of the correct or
appropriate amount of expense appropriate amount of expense necessary to generate a given quantity necessary to generate a given quantity of revenueof revenue
Revenue – Desired Profit = Ideal ExpenseRevenue – Desired Profit = Ideal Expense
Profit: The Reward for ServiceProfit: The Reward for Service
Revenue varies with Revenue varies with number of guestsnumber of guests amount of money spent by each guest.amount of money spent by each guest.
Increase revenue by Increase revenue by increasing the number of guests served increasing the number of guests served increasing the amount each guest increasing the amount each guest
spends spends or a combination of bothor a combination of both
Revenue – Desired Profit = Ideal ExpenseRevenue – Desired Profit = Ideal Expense
Four Major Foodservice Four Major Foodservice Expense CategoriesExpense Categories
Food costsFood costs Costs associated with actually producing Costs associated with actually producing
menu items menu items Largest or second largest expense categoryLargest or second largest expense category
Beverage costs Beverage costs Costs related to the sale of alcoholic Costs related to the sale of alcoholic
beverages – beer, liquor, wine beverages – beer, liquor, wine May also include ingredients, mixers, May also include ingredients, mixers,
garnishes garnishes
Four Major Foodservice Four Major Foodservice Expense CategoriesExpense Categories
Labor costs Labor costs Cost of all employees, including taxes Cost of all employees, including taxes Labor costs are second only to food costs in Labor costs are second only to food costs in
total dollars spent. total dollars spent. Some include the cost of management in this Some include the cost of management in this
category. Others prefer to place the cost of category. Others prefer to place the cost of managers in the Other Expense category.managers in the Other Expense category.
Other expenses Other expenses Include all expenses that are neither food, Include all expenses that are neither food,
beverage nor labor, such as utilities, rent, beverage nor labor, such as utilities, rent, linen, etc. linen, etc.
PercentagesPercentages
Numbers can be difficult to interpret due to Numbers can be difficult to interpret due to inflation. Therefore, the industry often uses inflation. Therefore, the industry often uses percentage calculations.percentage calculations.
You will be evaluated primarily on your You will be evaluated primarily on your ability to compute, analyze, and control ability to compute, analyze, and control these percent figures.these percent figures.
PercentagesPercentages
PercentPercent (%) means “out of each (%) means “out of each hundred.”hundred.”
There are three (3) ways to write a There are three (3) ways to write a percent:percent: Common FormCommon Form
"%" sign is used, as in 10%."%" sign is used, as in 10%. Fraction FormFraction Form
the part, or a portion of 100, as in 10/100.the part, or a portion of 100, as in 10/100. Decimal FormDecimal Form
the decimal point (.), as in 0.10.the decimal point (.), as in 0.10.
PercentagesPercentages
Divide the number that is the part by Divide the number that is the part by the number that is the whole. the number that is the whole.
Part Part = Percent = Percent WholeWhole
ExpenseExpense Revenue = Revenue = Expense %Expense %
Percentage of revenue that Percentage of revenue that went to pay for expenses:went to pay for expenses:
Percentages in FoodservicePercentages in Foodservice
Percentages in FoodservicePercentages in Foodservice
As long as expense is smaller than As long as expense is smaller than revenue, some profit will be generated. revenue, some profit will be generated.
ProfitProfitProfit % = Revenue Profit % = Revenue
Modified profit formula:Modified profit formula:
Revenue Revenue –– (Food and Beverage Cost + (Food and Beverage Cost + Labor Cost + Other Expenses) = ProfitLabor Cost + Other Expenses) = Profit
Put in another format, the equation Put in another format, the equation looks as follows:looks as follows:
Revenue (100%)Revenue (100%)–– Food and Beverage Food and Beverage Cost %Cost %–– Labor Cost %Labor Cost %–– Other Expense %Other Expense %= Profit %= Profit %
Profit FormulaProfit Formula
Understanding Understanding the Profit and Loss Statementthe Profit and Loss Statement
Profit and loss statement (P&L)Profit and loss statement (P&L) lists revenue, food and beverage cost, lists revenue, food and beverage cost, labor cost, other expense, and profit.labor cost, other expense, and profit.
The P&L is important because it The P&L is important because it indicates the efficiency and indicates the efficiency and profitability of an operation.profitability of an operation.
Understanding Understanding the Profit and Loss Statementthe Profit and Loss Statement
The Uniform System of The Uniform System of Accounts Accounts is used to report is used to report financial results in most financial results in most foodservice units. This system was foodservice units. This system was created to ensure uniform created to ensure uniform reporting of financial results.reporting of financial results.
Published by the National Published by the National Restaurant AssociationRestaurant Association
2. 2. Labor Cost Labor Cost RevenueRevenue = Labor Cost % = Labor Cost %
3. 3. Other Expense Other Expense RevenueRevenue = Other Expense %= Other Expense %
4. 4. Total Expense Total Expense RevenueRevenue = Total Expense %= Total Expense %
5. 5. Profit Profit RevenueRevenue = Profit %= Profit %
1. 1. Food and Beverage Cost Food and Beverage Cost RevenueRevenue = Food and Beverage Cost %= Food and Beverage Cost %
Common Percentages Used Common Percentages Used in a P&L Statementin a P&L Statement
Understanding the BudgetUnderstanding the Budget
Budget Budget An estimate of projected revenue, An estimate of projected revenue,
expense, and profit.expense, and profit. The budget is known as the plan.The budget is known as the plan. Both commercial and non-commercial Both commercial and non-commercial
foodservice operators may use foodservice operators may use budgets.budgets.
Understanding the BudgetUnderstanding the Budget
Performance to budgetPerformance to budget is the is the percentage of the budget actually percentage of the budget actually used.used.
The 28-day-period approach to The 28-day-period approach to budgetingbudgeting 13 equal periods of 28 days each13 equal periods of 28 days each
Understanding the BudgetUnderstanding the Budget
Percentages are used to compare actual Percentages are used to compare actual expense with the budgeted amount, expense with the budgeted amount, using the formulausing the formula
ActualActualBudgetBudget = % of Budget= % of Budget
Understanding the BudgetUnderstanding the Budget
"in-line" with the budget vs. "in-line" with the budget vs. "significant" variation to the "significant" variation to the budget. budget.
A significant variation is any A significant variation is any variation in expected costs that variation in expected costs that management feels is an area of management feels is an area of concern.concern.
Understanding the BudgetUnderstanding the Budget
If significant variations with If significant variations with planned results occur, planned results occur, management must:management must:
1.1. Identify the problemIdentify the problem
2.2. Determine the causeDetermine the cause
3.3. Take corrective actionTake corrective action
SummarySummary Professional Foodservice ManagerProfessional Foodservice Manager Profit: The Reward for ServiceProfit: The Reward for Service Four Major Foodservice Expense CategoriesFour Major Foodservice Expense Categories PercentagesPercentages Percentages in FoodservicePercentages in Foodservice Profit FormulaProfit Formula Understanding the Profit and Loss StatementUnderstanding the Profit and Loss Statement Common Percentages Used in a P&L Common Percentages Used in a P&L
StatementStatement Understanding the BudgetUnderstanding the Budget