1. FINANCIAL MANAGEMENT

3. FINANCIAL REPORT
Compiled by calendar month, reporting period, predetermined
Serves as a check on the financial control of the entire operation
Affords basis of comparison for preceding and future periods
Provides statistical source for compilation of annual reports
Gives information for preparation of budget
Provides means of comparison with like operations

4. FINANCIAL REPORTS Provide information Enough money to pay bills
Too much money tied up in inventory
Food cost higher or lower than expected

5. ESSENTIALS OF ACCOUNTING
Recording
Classifying
Summarizing and reporting
Analyzing

6. INCOME STATEMENT
Shows business’ operating results – revenue, expenses, and income
Financial status over period of time (month, quarter) – profit and loss indicated
Revenue – sales, income, money generated
Cost of goods sold – COGS – cost of meals served, food cost, money spent for goods
Gross margin/profit – money left after paying for COGS
Operating expenses – rent, utilities, depreciation (12-18%) of total

7. BALANCE SHEET
Shows relationship between a business’ debts and the items it owns
Balance sheet equations:
Liabilities + Owners equity = Assets
Assets – Liabilities = Owners equity
Assets
Current – converted to cash within one year
Fixed – long term, used to operate business
Liabilities
Current – paid within one year
Fixed – long-term, due beyond one year
Equity – capital and stocks

8. FINANCIAL DATA SHOWS Need to implement better controls Reduce costs
Improve budgeting process
Increase profit and the return of owners investment
Help prevent theft and fraud – point to areas for controls
Allows you to plan and control the business

9. FINANCIAL ANALYSIS
Break even point – sales are equivalent to fixed costs plus variable costs
Fixed costs – stable regardless of sales (rent, depreciation)
Variable costs – vary due to sales amount and volume (food cost)
Other costs – indirect (utilities) or direct (paper goods)

10. INFORMATION INCLUDED

11. NUMBER OF MEALS SERVED Patient census – count, NPO Nourishments
Supplements
Snacks
Cafeteria meals
Special meals to groups
Tube feedings

13. MEAL COUNT Inflate meal count  cost per meal too low
Meal count too low  inflates meal cost
$0.05/meal off X 400,000 meals =
$20,000

14. CALCULATE RAW FOOD COST
BEGINNING INVENTORY +
PURCHASES (FOR REPORTING
PERIOD)__________________________
TOTAL WORKING INVENTORY
CLOSING INVENTORY
COST OF RAW FOOD USED
30-40% OF DOLLAR SALES

15. FOOD COST Food is the most expensive and/or variable cost
Unexplained increase in food cost should first evaluate possible theft

16. LABOR COSTS Payroll – salaries and wages
vacation, holiday, personal day
Social security taxes
Workmen’s compensation
Health and life insurance
Other fringe benefits:
retirement plans
dental/eye plans
day care
free meals
profit sharing plans, etc., etc.

17. FULL-TIME EQUIVALENTS
FTEs
1 FTE = 40 hour work week
1 FTE relief can cover 2.5 FTEs
Compute FTEs:
Add ALL man-hours for period of time (week, day, month)
Include part-time and full-time
Divide total hours by 40 to get FTE

18. Each full-time employee = 16 hours / week off 2 X 16 = = 8 or ½ employee therefore each relief = 2.5 FTE

19. TURNOVER Employees lost + replacement total staff
So: if total staff = 50
Terminate = 4
Replacement = 2
4 + 2 = 6
6/50 = (12% turnover rate)

20. LAWS WITH A FINANCIAL IMPACT

21. MINIMUM WAGE
Bureau of Labor Statistics – current information on federal minimum wage
Fair Labor Standards Act of 1938-
sets minimum wage annual gross income of <$500,000 exempt from paying min. wage
can pay teens a temporary training wage

22. IMPACT
For every 10% increase in minimum wage = % increase in hamburger or chicken

23. WORKMEN’S COMPENSATION ACT
1908 & 1911
Provide medical costs for those injured on job
Encourage employer interest in safety
Reduce court delays

24. OCCUPATIONAL SAFETY AND HEALTH ACT
(1970)
Enforced by Occupational Safety and Health Administration (OSHA)
Assure safe and healthful working conditions
Meet standards through training
Keep records of incidents

25. SOCIAL SECURITY ACT 1935 Federal Insurance Contribution Act (FICA)
Compulsory
Many expansions
Medicare 1965

26. OTHER EXPENSES
Paper goods

27. PRODUCTIVITY
Defined by Spears: ratio of output to input or the ratio of goals to resources of food service system

28. MEASURE PRODUCTIVITY

29. QUANTITY
Quantity – focuses on amount of a product produced or service rendered
Meals per patient day
Meals per labor hour
Minutes per meal
Labor cost per day
Food cost per patient per day
ETC – see Spears

30. QUALITY Focuses on accuracy and quality of the product produced
Food temperature
Sensory characteristics
Safety and sanitation of work area
Seven principles of HACCP

31. OUTCOMES
Measures whether product met the proposed outcome – did we accomplish what we set out to do
Satisfaction surveys
Plate waste
Service parameters such as time, accuracy and lack of crisis management

32. PRODUCTIVITY INDICATORS
Acute care facilities 3.5 meals/labor hour
Extended care facilities5.0 meals/labor hour
School foodservice meals/labor hour
Cafeteria5.5 meals/labor hour
Healthcare institutions with 3 meals + snacks 7 days/ week14 minutes/meal can be used

33. BUDGETS

34. DEFINED A plan for operating a business expressed in financial terms
A plan to control expenses and profit in relation to sales
Provides an organized procedure for planning and for development of standards of performance in numerical terms

35. BUDGET TYPES

36. OPERATING Forecasts level of service to be provided
Projects costs necessary to support this level of service
Formulate plan for making management decisions
Control department activities

38. IMPORTANT TO FOOD SERVICE
Standard for comparing actual with forecasts = FEEDBACK
Financial plan for allocation of resources
Organizational plan for meeting departmental objectives
Represents forecast for coming year

39. CAPITAL BUDGET Finances major purchases or improvements
Multiple years – up to 5 years
Item not consumable
Cost level and usable time period is defined

40. PREPARATION
Main objective is to formulate a carefully delineated plan for making management decisions and controlling department’s activities
Timetable
Objectives
Financial feasibility

41. REVIEW OF DATA
Incremental budgeting – based on previous year and % of increase (food, labor, etc), % of decrease
Flexible budgeting – prepares for level of service at both higher and lower end of original estimate
Zero based budgeting – justification for each item, expenditure

42. COST CONTROLS

43. DEFINED
Planned goals and objectives are accomplished with most efficient and effective use of resources
Closely linked to planning

44. COMPONENTS
Strategic plans – ultimate results are provision of goods and services to satisfy client needs and wants with increased revenue and decreased expense
Policies and Procedures – written statement of goals and objectives with written procedure of how to reach them

45. EFFECTIVE CONTROL CHARACTERISTICS
Extension of planning process
Provide accurate up-to-date information about plans and standards – predetermined targets against which future performance will be measured
Should be flexible to deal with changing environment – within and outside organization

46. FEEDBACK

47. DEFINED
Any process that compares the operation’s actual performance, as documented in output reports, with standards of performance, established in control documents

48. FUNCTION Evaluates financial performance
Evaluates operational performance
Identifies potential problems
Identifies potential opportunities
Should be: objective based on fair observations of actual data, activities and conditions

49. FEEDBACK PROCESSES

50. FINANCIAL STATEMENT ANALYSIS
Trend analysis compare financial/nonfinancial results from several accounting periods
Ratio analysis mathematical relationship between any 2 items
Common size analysis report each line item as a %
Variance analysis difference between actual and projected

56. FINANCIAL INDICATORS Based on volume planning
What level of revenue necessary to make desired profit

57. SENSITIVITY ANALYSIS Electronic spreadsheets
Impact of 5% increase in cafeteria revenue on net income (example)