Introduction:

There are four reasons I don’t teach restaurant inventory to my clients.

I know this is going to be controversial for some of you, and if it’s not then great! I hope I can influence you – even if for a little bit – into taking my side: I don’t believe in taking a inventory for cost of goods sold calculations. Also, go back and watch a previous video about Food Cost or Cost of Goods Sold to get some background before watching this one. If you’ve already seen those videos, awsome! 

Why take inventory in the first place?

It balances things out. For example, if you want to get your Cost of Goods Sold for a month, your month always ends on a different day. Some days you get a delivery; some days you don’t. Some days you have high sales; some days you don’t. If the month ends on a Saturday, you’re likely to have really high sales and your Food Cost might be artificially low. If your month ends on a Thursday, you might get a big delivery to prepare for the weekend and then not sell any of that food. That means your Food Cost or Cost of Goods Sold can be artificially high. Inventory balances all that out.

Inventory is valuable don’t get me wrong, I just don’t think it’s valuable for most independent restaurants. My general rule of thumb is, if you’re doing less than $5 million a year – don’t do it.

4 Reasons Why I Don’t Teach Inventory

1. It takes too much time. The amount of hours for you to do a proper inventory – one where you are updating line items of prices with every single order, properly counting, properly creating your recipes, and properly documenting everything. The amount of time that it takes you is just not worth it. It takes about eight hours in a day to do a really good inventory in a big restaurant, in a month that’s almost 30 hours of your time and you’re probably not doing it as accurately as you should be. For that amount of time you could be out selling more stuff, shaking hands, kissing babies, or working on new things like marketing campaigns or new recipes.
2. It’s too complex. The independents that I see taking inventory don’t really understand it fully. I’m not saying that to judge you or talk down to you, it’s just really complex stuff. If we’re just handing it off to a manager who claims to know how to do it properly, the chances of them doing it properly are so small. The recipes, the detail and the yield testing is so complex. There’s so much to deal with…I just say no.
3. Garbage in, garbage out. Since Inventory takes so long and is so complex, if you don’t do it perfectly, you are going to make decisions on bad data. I’d rather make decisions on accurate data that may not be as good as a perfect inventory, but at least we know it’s accurate. 
4. It’s only accurate for one moment in time. The day you take inventory is accurate whether if you take inventory on the 31st of the month, the last day, or the first day of the month. But every other day, your Cost of Goods Sold is not accurate. Also, what ends up happening is people will take inventory on the first of the month or the last day and then it takes 1-3 weeks for the bookkeeper and everyone to get all that data compiled. When you do get your information back, it’s already super old data. What I suggest is a rolling calculation which will be discussed later.

Inventory should not be the focus

This is not where your challenges lie. If you are having Cost of Goods Sold challenges, taking inventory is not where the magic is. The magic is getting your hands dirty, getting in the kitchen/bar and managing things. I like key item inventory. I like counting a few things everyday like bottled beer, steaks, shrimp, scallops or expensive stuff and comparing that day to day as compared to your sales and making sure that people aren’t stealing or it’s not being wasted. But I would rather see you put the systems and processes in place than just counting it and getting all of this old data. 

When I help restaurant owners lower their Cost of Goods Sold, Labor Cost or increase their profits, none of the people that I work with incorporate complex inventory systems to get the results. We incorporate dozens of other things, but inventory is not where your problems lie.

The two alternatives use a simple method, which is just Purchases divided by Sales. Just do it over a longer period of time like 3 months, 6 months or 1 year instead of one month – you’ll get more accurate data. What’s even better than that is to use a rolling calculation, so maybe the last six months and then every month we kick out an old month and bringing in the new month, but we do it over a rolling six months. 

My personal preference is a rolling four weeks, I love that method so much that we have created a software called clickBACON to help you manage this. It doesn’t require you to cost each recipe or extract purchase data for each line item (only category) and it does give you accurate information without taking inventory. It’s why I created the software, it’s why I love it. 

I look forward to bringing you another great video just like this next month. Don’t worry about the inventory, stop wasting your time on it.