The key to your future profitability and control
As you read this article a number of you may be wondering why, given your current daily tasks, you need to understand the stock taking document that arrives on your desk periodically showing only a slight surplus or deficit.
Whilst I fully understand the demands made upon your time this document, if interpreted and acted upon immediately, can and will save your and your organisation many lost hours and compounded anxiety in wondering why your F & B operation consistently only breaks even and provides little or no positive contribution to your outlet.
To help you I am going to explain how this wonderful document can help you. Let me make one assumption. Your job role requires you to undertake on a monthly basis, (approx) a full-blown stock result analysis! My experience tells me that the following may occur too regularly:
- The stock taker arrives and, after a coffee counts the stock
- The paperwork, once rounded up from all the individuals that have it, is checked, collated and recorded
- The stock taker has another coffee, quickly whisks you verbally through the result and departs for the next job.
- 1 week later you receive the result, and the bill, with little or no detailed analysis
- You review it and as the gross profit and margin are within 2% of last months results and the variance is within 1% either way you file it because the other demands on your time are more pressing!
Forgive me if I have offended anyone it was not my intention. It is however human nature to not ask questions when faced with technical data given that we are supposed to understand the information anyway as we are after all responsible for the profitability of the F & B. Let me re-assure you if your reading this thinking that the above description sounds like you, that you are not alone. Let me first of all illustrate how stock results should be carried out.
- ALL documentation relating to this stock period should be dated and number filed and on hand for the stock taker on the day of the visit
- ALL saleable (and return) stock must be clearly identified to be counted. Records must be kept of any transfers to other units or areas of the business.
- Full access must be given to the stock taker to download all relevant sales, refunds and discounts, from your till technology that will affect the result.
- Your steward and bars supervisors should accompany the stock taker on every step of the journey
- Your stock taker will have organised their reporting system in the same pattern that your stock is laid out, to save time
- The result will be calculated on site – not 7 days later when more abuse and inefficiency has been allowed to occur!
- A hard copy will be printed off for you on site and a full and detailed explanation of what
has or may have occurred, will be given, together with a range of options of how to reduce inefficiency and waste plus recommendations on how to better control your stocks (security, bar staff working practices etc).
- An added extra would be a flow chart, on a single A4 piece of paper showing you this months results against the last 5 so that comparisons can be quickly made highlighting any significant changes
Now if scenario 1 sounds like your current personal experience then I strongly urge you to sit down with your current providers and tell them how you expect them things to change in the future.
How much does your current stock taker charge you?
Current rates suggest that charges range between £80 to £250 dependant upon the complexity of the job. I would normally expect a visit to range from 3 hours (£80) to up to 1day to incorporate both food and beverage (£250). So what precisely should your stock taker be advising you about?
This powerful document will help to re-assure you and your staff that you are operating in a very professional manner – if you use it properly!
Lets look at your illustration in more detail.
- Duration – I strongly urge you for at least the next 12 months to have a regular monthly stock take. This will have the benefit of enabling you to monitor any changes of personnel and the introduction of new control systems for the ineffectiveness on your outlet.
- Section – Simply identifies this as a ‘wet’ as opposed to a ‘dry or food stock’. You will note that tobacco, snacks and containers are included. This is normal as these sales and container deposits relate to the bar. On the subject of food stocks it would not be usual to undertake an extended stock result such as this due to its complexity. It is fairly usual to undertake an external food stock every 2 months but this does not stop you organising a food stock count every week – and you should!
- Days Stock – A great indicator that shows you by product category how well products are or are not selling. The higher the number the worst in theory the problem. High numbers can be caused by a series of events such as; stock delivered the day before the stock take seasonal variations, a special event (a wedding) or taking advantage of stocking up due to discounts from suppliers or being aware of impending price rises. If your figures are high and the above are not the reason then you have a lot of dead stock in the cellar. An industry norm and good target for days stock is an overall 15 days but always query any big jumps. If you hold lots of functions this figure could easily jump from 20–25 days
- Ratio Cost – Simply an indication in percentage terms of the amount of money spent on purchases by product line.
- Ratio Selling – This is your product mix. An important guide to you as it reflect changing patterns of trading and therefore where stocks need to be increased or decreased. It is also a great indicator if anyone is bringing in their own stocks and selling them leaving your own stocks unsold. This would also be reflected by your days stock figures rising due to lack of sale.
- Gross Profit – More correctly this is a Gross Margin or Percentage. This illustrates how well you have performed in the period against your own GM targets and the norms for the industry. These should be checked for major variations, as again it is an indicator for
issues such as incorrect retail pricing and failure to increase retail prices following a wholesale price rise. Typically this is an issue the stock taker should pick up on.
- Sales at Cost Price – The value of the goods supposedly sold at cost price
- Sales at Retail Price – This figure is a calculation by the stocktaker of how much money each section should have generated in retail terms.
- Closing Stock – The value of stock still left in the cellar. Make sure your insurance is sufficient to cover the value.
- Value of Purchases – Simply a record of how much you spent on goods for each product category
- Value of Credits – Similarly a record of credits received (This column is not always included on stock result sheets)
So just to recap. We have established, through tried and tested stock taking procedures, (number 1 to 10) what the stock taker says occurred to money and margins during your trading period.
Adjustments – This section refers to any uplift in retail prices that you may have experienced during the stock take period say for a function held where bar or food prices were increased for the duration of the event. In these circumstances the stock taker would not understand how you had taken more money than they were expecting you to have from your published price list. This information may well be available to you from your till technology. Any additional amounts of money would be added to the Sales at Retail Price column to give you a total retail sales figure.
Allowances – This is incredibly important, not for the stock takers or HMRCs benefit, but for yours. This section should record all product lost together with other details and for this reason. Product is lost through either inefficiency, accident or theft! By identifying which if these it is we can construct control procedures that will reduce or eradicate their effect. We recommend that you record this in the following way:
Date / Product Name / Quantity Lost / Reason for loss / Retail Price / Server name / Authorised by
The above should be self-explanatory but please ensure that you involve two people always in the reporting process. Make your records specific not simply “waste beer,” you need to record each and every loss under one of the following headings:
- Pipe cleaning
- Drip tray waste (due to fobbing or over pouring)
- Faulty equipment
- Mis pours
- Bad Product
- Out of date stock
- Part full kegs being returned
- Transfers (stock moved to kitchen for use)
- Long pull (over measures given to customers)
- Pulling off product (clearing pipes first thing in the morning)
- Staff drinks (if allowed)
- Own consumption (if not paid for)
- Heavy bottoms (dregs left in the bottom of cask beer)
- Hospitality (drinks given to loyal customers)
This information needs to be given to the stock taker on their arrival. The total of all allowances are deducted from the total retail sales figure to give us an new estimated takings figure (vat inclusive).
Estimated takings – The VAT is deducted from this figure. It is at this point that the stock taker now calculates your estimated gross profit and margin. This is achieved in the following way:
Actual Gross profit – Armed with the detail of your actual takings the stock taker now calculates your actual gross profit and margin. NOTE: Reductions of over 3% from (5) to (19) may indicate possible inefficiency in the areas of Allowances. Further erosion from the estimated gross margin to the actual gross margin could indicate either fraudulent activity or poor control in the recording of waste.
Surplus or deficit – The next part of this analysis is to record the variance between actual taking (Inc Vat) and estimated takings (inc. Vat). This will give a surplus or a deficit. Again movements either way of more or less than 1% need to be investigated thoroughly.
Yield – This important calculation illustrates how effective you have been in turning purchased product into a profitable sale. It is achieved by dividing the actual takings by the total retail sales x 100. You should be looking to achieve no less than 99.5%. Lower than this requires a thorough investigation of your processes, seeking to reduce inefficiency or to close loopholes for fraudulent activity. Those of you that list, under allowances, the discounts you offer to members, will result in a massive decline in the yield percentage shown but to get a realistic figure simply added back the discounted figure into the actual takings (vat incl) and then re-calculate.
Note: Your stocktaker may well record a “liquor year to date analysis” showing you how your outlet is performing over a given and agreed period of time. In theory your deficits and surpluses over a period of 12 months will cancel themselves out. If you continue to experience large surpluses or deficits you may need advice as to how to counter them.
This advice can and should have already been forthcoming from your bars supervisors or your stocktaker at your regular meetings! If however they are unable to enlighten you then you may need to either review the performance of your control systems or your stock taker and their services.
Stock taking is not a precise science. Much of it is estimation. The process itself is foolproof but the results cannot be guaranteed. Variances to established norms are the key. Following the results you need to have answers to your queries. You need accountability. You need an audit trail and the stock result is by far the best management tool designed to do the job – that is of course apart from the best check of all – being on site at your bar or food outlet when you are not supposed to be! Surprise is a great weapon in the fight against inefficiency and fraud.
In conjunction with and on behalf of the CMAE, I have undertaken and continue to conduct, seminars around the country dedicated to this subject. We encourage attendees to bring their stock results to those meetings to receive free advice on any concerns they may have.