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Inventory or Not?

I think we can all agree that taking a weekly inventory has to be one of the most time-consuming tasks and one that none of us look forward to.

Without question, it is a necessary evil that will often make the difference between the success and failure of an operation.

There are plenty of excuses of why not to take inventory, no time, too busy, no staff, and even, “We’re making a good profit, so we’re doing fine.” While these may sound like good reasons to forego the inventory process, the reason for conducting a weekly inventory far outweigh these excuses to not.

I recently asked a question in a Restaurant Forum that I follow, “Do you take a weekly or a minimum of a monthly inventory to calculate your food cost for the period.” I found it interesting to learn the number of people who didn’t conduct a weekly inventory or even fully understand the concept or process of completing an inventory. A few people even mentioned that they use a program to track their inventory and update prices in real-time which eliminates the need to conduct a weekly inventory. I’m not fully sold on that concept, but that’s another topic for another day.

Why Do Inventory?

The purpose of doing a weekly or monthly inventory is to calculate the relationship between the value of products used and revenue for a particular period. This number is a percentage that shows how much of each dollar of revenue is spent on product costs. It is an indicator of how effectively and efficiently the operation was managed, with a lower number being more desirable.

Food Cost as a Percentage of Sales is based on the value of the product used for the period and not on the amount of product purchased. While reducing your purchases can help control your cost, it does not impact your food cost as long as all of the products in-house are accounted for.

Food Cost as a Percentage of Sales is calculated by using the following formula.

(Beginning Inventory + Purchases) - Ending Inventory ÷ Sales = Food Cost %

Completing a weekly inventory provides significantly more information than just telling you what your food cost as a percentage of sales was for the week. Understanding what your inventory is telling you is important to running a successful operation.

This simple number indicates whether you controlled your products properly, and helps to identify product usage, spoilage, or even potential theft problems.

Your weekly food cost as a percentage of sales number may be an indication that you need to revisit menu pricing and adjust prices due to increasing product prices.

The process of conducting a weekly inventory is an opportunity to better know your operation and what you have on hand and what needs to be used. It is a great time to more thoroughly examine your products on hand to ensure you haven’t missed any items for ordering. Additionally, your inventory values are an indication of whether you have too much product on hand that is tying up your cash flow, or too little inventory that might be costing you sales.

As stated, the inventory process is a necessary evil. It’s time-consuming and tedious but is necessary to better run your operation and improve profits. We would all like to find a way to never have to do inventory again and still get an accurate food cost as a percentage of sales. Sometimes getting the right information can only be obtained by doing a little work.

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