2: What Every Chef Should Know – The Balance Sheet

Show Notes

In this episode I discuss the balance sheet and how it impacts your inventory. I also cover the common misunderstandings that chefs have about how the accounting system works. A little bit of knowledge can dramatically increase your competence and confidence. Chef’s do after all, control upwards of 50% of most restaurants’ expenses.

1. 1. #1 misunderstanding among the chefs was the belief that high inventory hurts food cost
      1. Running inventory to zero
      2. 86’ed items at the end of the period
      3. Often most expensive menu items with the highest gross profit contribution.
      4. Skewing food cost & shooting self in the foot
   2. Chef’s who didn’t understand the financials were easy to dupe
      1. Regional manager pressuring chefs with  false labor target
         1. Logic – if they fight for 8% maybe they will hit 10%
      2. Threatening them, scared for their jobs
      3. Consequences
         1. Understaffed
         2. Poor quality
         3. 86’ed items
         4. Miserable and stressed
   3. Balance Sheet
      1. Tells the owner how much the business is worth
      2. The accounting equation: Assets = Liabilities + Owners Equity
      3. $100,000 value of the business = ($200,000) loans and debt + $300,000 equipment, inventory & cash
      4. It’s the same as Your House Equity = Mortgage + Value of The House
   4. Why This Matters is Inventory
      1. Nearly every chef misunderstood this one thing
      2. Inventory does not hurt food cost
      3. Inventory just moves the change in food  inventory on or off of the balance sheet
      4. Too little – can’t service the guest
      5. Too much – money sitting on the shelf
      6. Turn your inventory
      7. Talk about turnover in a later episode
   5. Summary
      1. Don’t be ignorant, you don’t have to be an accountant but you can’t afford to be ignorant.
      2. Ignorant gets you fired
      3. If you don’t understand a number, ask someone and keep asking till it makes sense to you
      4. Its a lot easier than you think
      5. Don’t waste time beating yourself up if you struggle at the beginning and don’t give up
      6. Sooner the better