managing financial resources Flashcards
the income statement is of more value to the foodservice director than the balance sheet, Why?
Summary comparison of the income in relation to expenses and profit for a given period
Foodservice director uses this statement to evaluate the financial status of an operation,
The Balance Sheet which provides an individual accounting of each asset and liability.
Budgets- what are they
Budgets are financial plans developed to help achieve the operation’s goals
Helps to set parameters for activities to be carried out during budget period
Provide managers with guidance about what financial resources are available
Acts as a control device for regulating spending in the operation/organization
Large variances from the budget can alert managers of potential problems
Based on data from past records of income, expenses, statistical data, profit goal
Operating budget
Budgets takes into account revenue, operating` expenses, direct labour and overhead
It is used to predict the income of an organization, and in allocating funds within the organization
i.e. Created for each fiscal year or calendar year
A guide for day-to-day operations
What are typical operating expenses of a food service operation?
wages, food
How do you plan an Operating budget?
Examine previous fiscal year’s budgets
Try to look at the past 2-4 years
Did expenses/revenues exceed expectations?
Where were your VARIANCES?
Were there particular areas that had variances?
Do you detect any patterns?
What is happening next year?
New services planned?
Are you hiring more staff/adding more beds, etc?
Do you know if the cost of a particular food is going to increase dramatically?
Capital budget
Usually for large expenses that are incurred on a ‘one time’ basis
i.e. purchase of a new dishwasher, renovations
Often qualifying dollar figure set in advance (e.g. items valued > $5,000) (not total amount , for example 100 pans and 100$)
Methods of establishing line item amounts
Fixed (going to get 2 million dollar, and this is how your going to spend it)
Flexible (based on the amount of people attending, in hospitals number of beds)
Zero-based (begin with blank sheet of paper and defend everything dime on the budget
Labour Costs
Almost always the MOST significant portion of your budget
Employee costs are higher than actual wage
Benefits
EI, CPP, pension, medical/dental, sick time/vacation
Actual costs are an average of 26% of above actual wage
FTE’s (Full-time Equivalent)
i.e. one FULL TIME position
1 FTE= 7.5 hours/day; 37.5hrs/weekly; 1950 hours/year
# FTEs does not necessarily correspond to # employees You can have 1 FTE but have 2 people each work 0.5 FTE
(financial position (statement of revenue & expenditures, balance sheet, budget variances, cash flow-fund balance)
Percent of cost – to total revenue (operating ratios)
meal cost (food cost/meal, labor cost/meal)
Productivity (meals/labor hour, revenue/variable costs)
Performance indicators are meaningful only when compared to other useful criteria.
Utilization of an internal and external benchmarking process for comparisons
Benchmarks are standards used to:
measure performance and
identify areas for improvement
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Operating Ratios
Success of the operation in generating revenues and in controlling expenses.
Performance indicators:
Analysis of revenue mix Average customer check Food cost percentage Labor cost percentage Food cost per customer Meals per labor hour Meals per full-time equivalents Labor minutes per meal
ways to Manage Food Cost
Product Costs (e.g. using high priced steak for stews)
Recipes & Specifications. If there is no recipe, there is no manageable cost
Production Accuracy. All recipes must be strictly followed, or budgeted costs have no chance of succeeding; requires training and management follow-
Waste (production) can increase costs considerably (an increase your cost by 20 percent)
Theft, still a major issue in our industry, many ways theft can occur
What may contribute to high labour cost %
Absenteeism
sick days
overtime
Other?
Meals per labor hour is a common operating ratio used.
Calculate MPLH if 7,000 meals are served by 35 full-time employees, working a total of 40 hours/week.
35 (employees) x 40 (hours) = 1400 hours
Meals per labor hour: 7000 (meals) / 1400 (labor hours) = 5 meals per labor
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Break-Even Analysis
Break-even point - point at which total revenue equals total cost
No profit, no loss
Fixed Cost $14,000
Variable Cost $30,000
Sales $50,000
BEP = (fixed cost/ 1-variable cost/sales)
BEP = 14000 / 1 – 30000 / 50000
` BEP = 35,000
How would a foodservice operation use this information?
