Why Track Your Cost of Goods Sold (COGS)?

Overview:

As a restaurant owner, keeping track of your cost of goods sold ("COGS") is essential for the success of your business.

COGS is the materials cost of producing the food and beverages you sell to your customers. In other words, it is the cost of the inventory used over a period of time to deliver the sales you generated over that same time period.

Actual Food and Beverage COGS:

The dollars spent on Food and beverage purchases are not representative of your true Cost of Goods Sold. This is because the items purchased during a period may not have been used (they are still in inventory). Taking an end of period inventory count will give you credit against your COGS for the value of items purchased but not used.

"As food and beverage costs are one of the largest components of the actual cost structure, it is imperative to have accurate, real-time analytics to monitor how things are going. The data tells a story - using a system that can help me interpret the story is invaluable". Joan Gilchrist, owner of Cherry Lane Ventures.

Inventory Control:

When you count inventory at the end of each period, track purchases, and track transfers (if you have restaurants that make or receive transfers) for COGS, you are also tracking your inventory usage for each inventory item in your restaurant.

Knowing your actual usage for each inventory item helps you isolate waste, order more efficiently, or even identify areas where you can cut costs without sacrificing quality. For example, you may find substitutes for your most highly used items or you may be able to negotiate better prices from your suppliers for high volume items.

Actual to Theoretical Variances:

When you are tracking your actual inventory usage and cost, you have the option to create recipes for your menu items to determine your theoretical inventory usage and cost. Your theoretical usage and cost are determined by importing the sales mix from your POS and then applying the sales count for each menu item to it's recipe ingredients.

COGS-Well will compare your actual inventory cost and usage to your theoretical cost and usage to determine variances. These variances can help you isolate potential waste, theft, or portioning issues. The opportunity to evaluate performance based on "what your cost and usage actually was versus what it should have been" provides entirely new insight.

Financial Statements:

Finally, calculating your COGS is an important step in preparing your financial statements. It allows you to accurately report your costs and expenses, which is essential for tax purposes and for obtaining financing if you need it.

“COGS-Well automatically creates balanced accounting adjustments for counts and transfers and this is saving us a great deal of time. We used to have to calculate these manually.” Cooper Thurber. Purchasing Manager, Pier 22 Restaurant Group.

Summary:

In conclusion, keeping track of your cost of goods sold is crucial for the success of your restaurant. By understanding your COGS and inventory usage, you will have more accurate financial reporting, you can make informed decisions about purchasing, and you can gain new insights into performance. All of which can ultimately lead to higher profitability and a more successful business.