Episode Transcript
[00:00:00] Inventory is a necessary evil. And please, please, please don't turn off the podcast just yet. I'm going to make it painless. Simple, Straightforward. There's two reasons we do inventory in our restaurants. Both of them are to make you more money. That's what we're going to talk about on today's episode of Restaurant Strategy. There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, A PODC answers for anyone who's looking.
[00:00:50] Hey everyone, thanks for tuning in. My name is Chip Close and this is Restaurant Strategy Podcast dedicated to helping you build a more profitable restaurant. Each week I leverage my 25 years in the industry to help you build a more profitable and sustainable business. I wrote a book, right? It's called the Restaurant Marketing Mindset. I travel all over the world giving talks and keynotes. I run a mastermind, the P3 mastermind. But here's something very, very important. I have released a 10 video playbook. It's called the Server Playbook. Our servers are our greatest asset. This is available to you totally for free. And anyone who gets this playbook also gets a free month of my membership community. It's called Restaurant Foundations. At the end of that month, it starts billing at $97. If you want to canc at the end of that month, it's totally fine. If for no other reason, go to get these 10 server playbooks. They are scripts. They are server tactics that will help make you more money and therefore your servers more money. You get that totally for free. It's such a great time to take advantage of this just as you're starting to look at the year ahead. The link is in the show notes. Go grab your copy right of the server playbooks absolutely for free and get a free month of my Restaurant Foundations membership community. Again. You do that by clicking the link in the show notes.
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[00:03:58] Okay, so today, short, sweet, to the point, we're talking about inventory. There's two main reasons why you take inventory. Two main reason why you need to take inventory. If you're not taking inventory, let me be the first one to tell you, you need to be taking inventory. Two main ways we do it. We're going to talk about the first, then we'll talk about the second. The first way that you need to take inventory is by doing monthly inventory. The easiest way to do this is on the first of every single month. You take stock of everything you have on hand. You do that for one very important reason. Number one, to manage a very tight inventory, all the things you've got on your shelves are revenue that is not yet revenue. It's money. I see a shelf full of product and I see money on the shelf. So you want as little on the shelf as you can possibly get away with. The main reason we do inventory is to make sure we know what we have on hand because that is value. There's dollars locked up there. The other main reason we do it, right, why we take inventory every single month on the 1st of every month is to get a solid COGS number. COGS cost of goods sold. Let's talk about profitability and let's talk about a P and L statement, right? So a P and L statement is just one of many of many tools we use for accounting, right? There's a statement of cash flows. There's a balance sheet. There's an income statement, otherwise known as a P and L statement, right? All of those together give us a really full picture of the health of a business. But the P and L statement, right, the income statement is something very, very specific. It shows us how much revenue was generated over a given period and what it cost us to generate that revenue. I'll say that again. A P and L statement shows us how much revenue is generated in a given period and what it cost us to generate that revenue, right? So now we've got product on hand. Now, what happens when you. When you get a delivery on, you know, August 30th and you use some of that product in August and the rest of that product in the beginning of September, what are you supposed to do? And what do you do? Because you don't pay for that stuff, right? You're on, you know, maybe a net 14 or something like that, so you can pay that invoice later. How do you calculate all that? Well, number one, the first thing I will say is you should be calculating. You should be recording your expenses when the deliveries hit your restaurant, because that's when you can begin generating revenue from those products. I think that's easy enough. But maybe you've never heard that before. Maybe it's the first time you're hearing it. So I'm happy to share that with you, right? You record the expenses when the deliveries arrive, basically when you can start using that product. Now, we take an inventory so that we know what we have on hand on, let's say, October 1st, and then we take inventory again on November 1st. And what happens is that becomes a beginning inventory for the next period and an ending inventory for the period that just closed, right? So on October 1st, that's your closing inventory for September, and it's your starting inventory for October. Hopefully, that that's easy enough. Now, here's the way to think about inventory, right? If you have more on hand at the end of a period, you need to back that out of your P and L. So if you begin. Let's keep it easy. If you begin the period. If you begin October with $5,000 worth of product on hand, that's in inventory, right? That is as of yet unrealized value.
[00:07:49] Eventually you will sell those products and then you will realize the value. So they have value baked into them. It's just as of yet, unrealized, right? So $5,000 of inventory sitting on your shelves at the end of the period. Let's say on November 1st, we take our inventory and we have $7,000 worth of product on the shelves, meaning we probably had a Delivery hit on October 30th or 31st. We haven't used all that product. We haven't sold all that product. So it's still sitting on our she. We began with $5,000 in inventory, we ended with $7,000 in inventory. Now, this is very important. Remember I said a minute ago, a P and L statement shows us how much revenue is generated and what it costs us to generate that revenue. If you start with 5000, you end it with 7000. Then there's $2000 in extra inventory product that you brought in that you have not sold yet. So whatever sales have been made over the course of that month, right.
[00:08:51] There's an expense, a cost associated with that. Except for that additional $2,000, there's no revenue, there's no counterpart to it. It's just an expense that you've accrued, but you haven't turned it into revenue yet. So we don't even want to consider that because a P and L statement is interested in the revenue generated and the costs associated with generating that revenue. So the first really important reason for taking inventory is so we have a really good starting and ending inventory so we can get a really solid cogs number. You know, on the surface, cogs is how much revenue and how much expense, you know, in purchases. But that's not exactly right. Over the course of the year, most of this will even itself out. But what I'm really interested in, what you should be interested in, is having a profitable month every single month. Because if we can manage each period, right, we don't manage by the year. We have huge swings, right? Seasonality, we have sales are up, we have high season, low season, shoulder season. We want to manage for each period so each period is profitable.
[00:09:56] Understanding how inventory plays into this profitability is crucial. So if you're not taking inventory, this is the first way to do it. You should be taking inventory on the first of every single month. So you have a really good beginning and ending inventory number one. So you can make sure that what you bought and sold is clearly, you know, on the shelves or not on the shelves. Right. It's good to know that. But really it's so that you can get a really solid P and L. So you know, if you've got more on hand at the end of the month than you began with, then you have to back that overage out of your P and L. That will give you a really solid cost of goods percentage. That's the first way we're going to talk about the second way in just A second Pop Menu has reimagined the restaurant. They're breaking the mold of the menu, taking the kitchen doors off the hinges and serving up their most comprehensive technology solution yet. It's called Pop Menu Max. It comes with all the previous ingredients that we've mentioned here on the podcast. Right. So websites designed with SEO marketing tools to keep you top of mind with guests, and of course the patented interactive menu technology. But this new recipe brings automated phone answering to the table, third party online ordering, aggregation, wait listing and more. Pop Menu's phone answering, for example. That technology has your ringing phones covered. It uses AI, right? So artificial intelligence and makes the simple questions that keep your phone line tied up normally now can be handled by the computer without pulling a staff member from your in person hospitality. So no more missed reservations, no more people asking for your hours or missing out on revenue. And that's just the beginning. You have a passion for food. Pop Menu has a passion for technology. Together it's a recipe for restaurant success. And now even more digital ingredients are in that technology pantry. And Pop Menu is helping restaurants attract, engage, remarket and transact with their guests on a whole new level. Trust me, if you're a restaurant owner, you need Pop Menu to take your business to the next level. And for a limited time only, get a hundred bucks off your first month. Plus you get to lock in one flat unchanging monthly rate. Go to popmenu.com restaurantstrategy to claim the offer. Again, that's a hundred dollars off your first month by visiting P-O-P M-E-N-U.com RestaurantStrategy as always, you'll find that link in the show notes.
[00:12:19] Okay, so now today we're talking about inventory. I'm trying to make this simple, straightforward and as painless as possible. If you are currently not doing inventory, the very first kind you need to do is a monthly inventory simply so you can get a really accurate cost of goods sold number on your P and L. That's your P and L is your gut check. That's your report card to tell how you are doing. The second kind of inventory is weekly or several times throughout the week. And that's to make sure that you understand what you have on hand, to make sure there's no theft, to make sure you're limiting waste and spoilage. Now, I worked in fine dining. Fine dining oftentimes would take inventory of proteins and produce numerous times throughout the week because the product they would bring in was so expensive that they couldn't risk Having anything go bad and they didn't want to order too much of something if they didn't need it. They needed to push through the stuff that they had on hand, right? So you need to know if you've got steaks or lobsters or, you know, fish that's gonna go bad. You need to know what you have on hand. I've seen places that take this, that take inventory every single night just to confirm what they have. Now, this is crucial while you're setting your pars and you're coordinating, right? Teaching someone how to do ordering, right? So understanding inventory and ordering and the pars that are required, knowing what you have on hand so you can really keep a tight inventory. You should have as little on hand. Like I said at the beginning of the episode, you should keep as little on the shelves as you possibly can. Obviously, we don't want 86s. We don't want to run out of stuff, right? We want people to have the things they need, right? We want to have the things that our guests order. But you do want to keep it as tight as possible, because the more that's on hand, the greater the chance of waste, spoilage, theft. So we want to run tight. The way you run tight before you just go placing your orders is to take a look back in the walk in and make sure you understand what's on hand. Likewise, if you're setting prep sheets, if certain people have to make certain things during the day, you got to get in the habit of knowing what is back there, what's already on hand. If we're supposed to have six quarts of, you know, such and such sauce on hand, and we only have two, you have to know what your pars are so you can set proper prep sheets for the team the next day so that they know when they come. And they have to make, you know, whatever, four quarts of whatever sauce. Because we're supposed to have six, we only have two. That's a delta of four. Be really clear on what they need to do. And if you in a leadership position can outline this for them, it's just going to help them get really efficient at their job. There's two main things, ways, two main reasons to take inventory. Number one is to get a really good cogs number so that we really understand the profitability of our restaurant. And the other one is to be really clear on our ordering so we can keep our pars tight and we can minimize waste and spoilage. This is ultimately going to help your cost of goods sold number. But the way we do that is by having our hands on the things, understanding what's in the walk in, right? So that's, you know, eggs don't go bad, milk doesn't expire, lettuces don't wilt, that we know what's back there, we know the state of the product and we know what we still need to order, what we need to bring in on hand. I can't stress this enough. You need the first kind. Everybody should be taking a beginning and ending inventory. But if you have high quality, expensive products, if you have a spoilage problem, then this is something you need to do maybe every night or every other night while you're getting control of the problem, then usually what happens is once you get control of your inventory and your ordering, once you have those pars tight and everybody understands them, you can back off a bit, you'll see. Maybe you have to take proteins and produce once a week, right? Maybe you just take dairy midweek, you can scale back once you get to that point. But to begin with, you need to right the ship. And if there are problems there, this is a way to rectify the problems. That's it. I told you, simple, straightforward, direct, easy. If you're not doing inventory, this is how you get started with inventory. I'll finish by saying this many hands make light work. If everybody is there taking inventory, recording what's on hand in the different parts of the restaurant, you can get done pretty quickly, right? So I've worked in places that have 2, 3, 4, 5 walk inside, right? One person does the proteins, one person does the produce, one person does the dairy, one person does the white wine, one person does the red wine. The bar director goes and, you know, counts the cage. You know, the bartenders are doing everything on the back bar and everything that's up behind the bar, all of that stuff can move quickly. If you've got a team that knows what they have to do and knows how to be efficient about it. And that's it, that's inventory. If you're not doing inventory, you need to be doing inventory. If you don't know how to do inventory, that gives you a way to get started. And if you need more, you get in touch, you email me chip close.com c h I p k l o s e dot com is one of the things that we certainly deal with in the P3 mastermind. If you need some hand holding, need some guidance, you want somebody in your corner, that's the best way to do it. I'll finish the way I began and remind you that we give away my book for free. You just have to pay shipping. The way to do that is to go to our Instagram page at restaurantstrategy and DM us the word book. B O. Okay, we have an automation set up that will automatically automatically send you the link where you can get a free copy of the book. Thanks guys. Appreciate you being here and I will see you next time.
