1. Managing Revenue and Expense
Chapter 1
Managing Revenue and Expense

2. Main Ideas Professional Foodservice Manager
Profit: The Reward for Service
Four Major Foodservice Expense Categories
Percentages
Percentages in Foodservice
Profit Formula
Understanding the Income (Profit and Loss) Statement
Common Percentages Used in a P&L Statement
Understanding the Budget
Technology Tools

3. Professional Foodservice Manager
Management handles functions of product sales to product delivery.
Management of foodservice is more difficult than for manufacturing or retailing management counterparts.

4. Profit: The Reward for Service
If management focuses on controlling costs more than on servicing guests, problems will certainly surface.
Do not get yourself in the mind-set of reducing costs to the point where it is thought that “low” costs are good and “high” costs are bad.

5. Profit: The Reward for Service
Efforts to reduce costs that result in unsafe conditions for guests or employees are never wise.
The question is whether costs are too high or too low, given management’s view of the value.

6. Profit: The Reward for Service
Revenue - Expenses = Profit
Revenue is the amount of dollars you take in.
Expenses are the costs of the items required to operate the business.
Profit is the amount of dollars that remain after all expenses have been paid.

7. Profit: The Reward for Service
Revenue - Expenses = Profit
The following terms will be used interchangeably: revenue and sales; expenses and costs.
All foodservice operations, including non-profit institutions, need revenue in excess of expenses if they are to thrive.
Profit is the result of solid planning, sound management, and careful decision-making.

8. Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
Desired profit is defined as
Profit that the owner wants to achieve on that predicted quantity of revenue.
Ideal Expense is defined as
Management’s view of the correct or appropriate amount of expense necessary to generate a given quantity of revenue.

9. Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
Revenue varies with
Number of guests
Amount of money spent by each guest
Increase revenue by
Increasing the number of guests served
Increasing the amount that each guest spends
Or a combination of both

10. Four Major Foodservice Expense Categories
Food Costs
Costs associated with actually producing menu items
Largest or second largest expense category
Beverage Costs
Costs related to the sale of alcoholic beverages-beer, liquor, wine
May also include ingredients, mixers and garnishes

11. Four Major Foodservice Expense Categories
Labor Costs
Cost of all employees, including taxes
Labor costs are second only to food costs in total dollars spent
Some include the cost of management in this category. Others prefer to place the cost of managers in the Other Expense category.
Other Expenses
Include all expenses that are neither food, beverage nor labor, such as utilities, rent, linen, etc.

12. Percentages
Numbers can be difficult to interpret due to inflation. Therefore, the industry often uses percentage calculations.
You will be evaluated primarily on your ability to compute, analyze, and control these percent figures.

13. Percentages Percent (%) means “out of each hundred.”
There are three (3) ways to write a percent:
Common Form
“%” sign is used, as in 10%
Fraction Form
the part, or a portion of 100, as in 10/100
Decimal Form
the decimal point (.), as in 0.10

14. Percentages Part = Percent
Divide the number that is the part by the number that is the whole.
Part = Percent
Whole

15. Percentages in Foodservice
Percentage of revenue that went to pay for expenses:
Expense
Revenue = Expense %

16. Percentages in Foodservice
As long as expense is smaller than revenue, some profit will be generated
Modified profit formula:
Profit
Profit % = Revenue
Revenue - (Food and Beverage Cost + Labor Cost + Other Expenses) = Profit

17. Profit Formula Revenue (100%) - Food and Beverage Cost %
Put in another format, the equation looks as follows:
Revenue (100%)
- Food and Beverage Cost %
- Labor Cost %
- Other Expense %
= Profit %

18. Understanding the Income (Profit and Loss) Statement
Profit and loss statement (P&L) lists revenue, food and beverage cost, labor cost, other expense, and profit.
The P&L is important because it indicates the efficiency and profitability of an operation.

19. Understanding the Income (Profit and Loss) Statement
The Uniform System of Accounts is used to report financial results in most foodservice units. This system was created to ensure uniform reporting of financial results.
Published by the National Restaurant Association.

20. Common Percentages Used in a P&L Statement
Food and Beverage Cost
Revenue = Food and Beverage Cost %
Labor Cost
Revenue = Labor Cost %
Other Expense
Revenue = Other Expense %
Total Expense
Revenue = Total Expense %
Profit
Revenue = Profit %

21. Understanding the Budget
An estimate of projected revenue, expense, and profit.
The budget is known as the plan.
All effective managers, whether in the commercial (for profit) or non-profit sector, use budgets.

22. Understanding the Budget
Performance to budget is the percentage of the budget actually used.
The 28-day-period approach to budgeting
13 equal periods of 28 days each

23. Understanding the Budget
Percentages are used to compare actual expense with the budgeted amount, using the formula
Actual
Budget = % of Budget

24. Understanding the Budget
“in-line” with the budget vs. “significant” variation to the budget.
A significant variation is any variation in expected costs that management feels is an area of concern.

25. Understanding the Budget
If significant variations with planned results occur,
management must:
Identify the problem
Determine the cause
Take corrective action

26. Technology Tools
Most hospitality managers would agree that an accurate and timely income statement (P&L Statement) is an invaluable aid to their management efforts.
There are a variety of software programs on the market that can be used to develop this statement.

27. Technology Tools
Variations include programs that can compare actual results to budgeted figures or forecasts, to prior-month performance, or to prior-year performance.
P&L’s can be produced for any time period, including months, quarters, or years.
Most income statement programs will have a budgeting feature and the ability to maintain historical sales and cost records.

28. Technology Tools
Not all information should be accessible to all parties, and security of cost and customer information can be just as critical as accuracy.
To effectively manage an operation, a manager will need to communicate with employees, guests, and vendors. Thus, the software you will need includes office products for word processing, spreadsheet building, faxes, and .

29. Summary Professional Foodservice Manager
Profit: The Reward for Service
Four Major Foodservice Expense Categories
Percentages
Percentages in Foodservice
Profit Formula
Understanding the Income (Profit and Loss) Statement
Common Percentages Used in a P&L Statement
Understanding the Budget
Technology Tools