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