As we mentioned in the past 2 blog posts, not everyone is trained in accounting or bookkeeping. Or to make sense of Balance Sheets and Profit & Loss Statements. However, knowing the basics of F&B accounting can help you understand your accountant or bookkeeper better and goes a long way to ensuring the success of your business. This month, we share the 3rd concept which we believe is important for you to grasp.
Concept 3: Cost-To-Sales Ratio
When analysing financial reports, an important fact to bear in mind is that there isn’t a single number on its own which can tell you everything you need to know about your business.
However, there is a ratio which is important for your business, and that’s the cost-to-sales ratio. Sometimes it’s referred to as the ‘efficiency ratio’.
Example: Food Cost-to-Sales Ratio = (Food Cost / Food Sales) x 100%
In the F&B industry, this ratio is approximately 1/3 but could range from 26% to 36%.
(Click here for more: Restaurant benchmarks.)
Why should you care about Labour Costs, Occupancy Costs & Operating Expenses?
Calculating Cost-to-Sales Ratio allows you to benchmark your F&B business with other F&B businesses without sacrificing accuracy. It gives you a good indication how your business is really faring.
So instead of seeing (scary!) high overheads/costs or deceptively encouraging high sales revenue on their own, the cost-to-sales ratio will give you a good idea of whether you have kept a tight rein on expenses.
Contact us today regarding a fixed monthly fee bookkeeping package that will suit your needs, and more importantly, free up your valuable time so that you can focus on building a profitable F&B business.