How to Calculate Your Food Cost Percentage

How to Calculate Your Food Cost Percentage

 

 

 

 

Video Transcript.

 

Following on from the menu costing spreadsheet that we sent out recently or you may have downloaded with regard to working out what your food cost percentage is, I’ve had a couple of questions from people about asking “how can we work out what our current food cost percentage is based off the P&L?”

 

So in this quick video I’m going to walk you through a very easy calculation to work out where your current food cost percentage is, and show you how you can then take that and work out what your current cost of goods is as well.

 

Two fairly important metrics that you should be looking at all the time, although there are quicker ways of doing it than going through the P&L, this is a good way of looking at it.

 

The thing to bear in mind with this is if there’s cash coming out of the business, you need to have a record of that. You need to know how much has come out in order to add it back into the figures that you’re taking from the P&L to give you a true figure. So if you don’t have a record of that, I suggest you start keeping one or keep track of it so you can really have a clear idea of exactly how the business is doing. Otherwise you’re kind of flying blind.

 

We do have another spreadsheet that we use for that so if that’s something that’s of interest to you, just post in the comments below and we’ll make sure that we get one of those out to you. And there is a video accompanying that as well, just to walk you through how you can track all of the expenses and all of the income, cash and otherwise, to make sure you know exactly where your cafe’s at at any one time with those key metrics.

 

 

So moving on then, looking at the food cost percentage from the P&L perspective. For the purpose of this we’re going to be using this column here, so the actual June 18 column. And down here, what we’re going to do basically is we’re going to go through and from this, to start with, we’re going to be looking at what was the income?

 

What’s the net income for the business for the period that we’re looking at? So we’re going to take every line here, so the main sales line here. In addition to those you can see on this particular P&L there’s income from Uber and Menulog and so on, so we’re going to include that. We’re going to add all of those up.

 

 

Once we’ve done that, we’re going to look at what was the food cost in relation to generating those sales. And you can see there, in the cost of sales column there, we’ve got cost of goods, food combined, and also cost of goods sold. So that doesn’t necessarily need to be on two lines. It’s just the way that these people have decided to run things through for their accounting purposes. But it could all be under one line.

 

 

Basically what you’re looking for here is what were the food costs involved in generating the income in the top line. So once you’ve got those numbers, it’s just really a case of taking that number.

 

How to Calculate Food Cost Percentage

 

So to work out what the total food costs were and then you’re going to divide that by the net sales, what the total net sales were, and that was from both of those rows previously. That will give you a percentage figure or a figure here of 0.3567. You then multiply that by 100. It’ll give you 35.67. And that will then show you that your food cost is at 36%. So hopefully that makes sense.

 

Basically you’re making sure you’ve got all of your food costs captured and all of your sales captured.

 

Once you’ve got those figures, you’re going to divide the food cost by the net sales. And then when you get that figure, just multiply it by 100. That figure then is your food cost percentage. So in this instance for the figures that we just looked at on the previous sheet there, so on the P&L here.

 

So you can see with the takings there, all I’ve done is take out the interest income of $837 to give us the $701,000 of income. And in the row below you can see I’ve excluded the commission expense for the deliveries, so I’m just looking at the food costs for this purpose. So that’s where those figures have come from. Fairly straightforward calculation.

 

How to work out food cost percentage

 

Now, if you want to work out what the cost of goods are, which is obviously a very important metric as well, then in addition to the food costs you need to add things like packaging and Uber, any expenses for delivery partners or anything else. Any other costs associated with providing that product, that food to the end customer.

 

Calculate your food cost percentage

 

So at this point you’re not going to include things like wages, labour, rent, anything else like that. It’s purely the cost of the food, any packaging and any delivery costs associated with it. You take the same net sales figure and you do the same calculation, so you’re going to divide that figure by the net sales and that will then give you a cost of goods percentage.

 

So hopefully that all makes sense. If you do have any questions, feel free just to drop them in the comments below. Always happy to try and help out and make sense of this if I can for you. So feel free to let me know if there’s anything you’re not sure about. Good luck, and let me know how you get on.

Business Broker in Canberra

Business Broker in Canberra

 

My name is Robert Illsley,  I am a licensed business broker in Canberra that specialises in the sale of Cafes

 

I am originally from Somerset in the South West of England and in 2000 I married a Wagga girl and moved to Australia in 2007. In 2014 I opened my own café which I poured my heart and soul into and was able to establish it as one of the towns most prestigious and popular locations for coffee and food. When we decided to sell nearly 4 years later I realised how difficult it was to sell a business, although I felt that I was capable of handling the sale myself, I needed help. I wasn’t sure exactly how to evaluate my business, how to properly and discreetly market it and I found the process quite daunting.

 

After a number of bad experiences with agents I discovered GSE Business Consultants and it was at this point that I realised how valuable a good business broker can be. The right advice and preparation allowed me to properly prepare my business for market. After using the services of GSE I quickly found a potential buyer and found that I was in a competitive situation with another café. The buyer was in advanced negotiations with another café. Because of the way I was able to present my business the buyer felt more comfortable buying my business even though my competition had a bigger business with higher turnover.

 

I think that at this point a lightbulb went on in my head and I made the decision that I wanted to become a business broker myself. I approached the owner of GSE and thankfully he was looking to expand his business and when I sold Jardine’s I qualified as a business broker and setup my own business operating as a franchisee of GSE Business consultants.

 

Put simply a good business broker can be the difference between selling your business and having it languish on the market. Many brokers are happy to list a business without doing the proper preparation and do not always increase your chance of selling in a timely manner. In my role as a business broker I intend to bring the same level of service, quality advice and ethical standard as when I owned my café.

 

The difference between working with us at GSE compared with other brokers is clear. We only work with cafes, all the brokers at GSE have owned, operated and sold food businesses of our own and we understand the unique challenges that this industry faces. My regional knowledge as well as my background in hospitality means that I can help you to add significant value to your business during the sale process.

 

If you are considering an exit strategy then please get in touch with me as soon as possible on 0415 243750.