Find out what are the five major food costing errors that restaurants frequently make and at the same time how to stay away from them. Make your restaurant gain new heights through effective accounting and financial strategies.
Introduction:
It is a tough task to run a restaurant in India which is neither losing its quality nor its glamour. All the money problems come and go, food costing still holds the highest stake in deciding whether your restaurant will survive or die. On the other hand, a number of restaurant owners out of their awareness simultaneously revenue food costing mistakes that directly slash the profit line have their establishments suffer in this way.
This blog is all about the five most common food costing that will be your guide to the financial health of your restaurant by avoiding them.
1. Not Tracking Ingredient Prices Regularly
The cost of food goes up and down depending on the season, the availability of goods, or the inflation rate. There are many restaurants that create a pricing model only once and then never update it, thus resulting in the incorrect calculation of the business margin.
How to Avoid It:
• Examine the prices of ingredients once a week or once a month.
• Do not restrict yourself to one supplier. The more you have the better is your position during negotiations.
• Save your costing templates in an accounting software or a cloud platform so that you can easily access and update them in real-time.
2. Ignoring Portion Control
Even if all of your recipes are priced correctly, inconsistent portion sizes can be one of the biggest things to kill your bottom line. Over-feeding is resulting in hidden costs that add up.
How to Avoid It:
• Make staff familiar with recipe standards as well as with the standard portion sizes.
• Conduct a check on portion consistency during peak service hours.
3. Not Accounting for Wastage and Spoilage
Food that has been spoiled or wasted is equivalent to money that has been lost. Most of the restaurant owners do not consider wastage while calculating food costs which result in incorrect profit margins.
How to Avoid It:
• Practice proper inventory rotation (FIFO – First In, First Out).
• Keep wastage records for every day of the week.
• Change the menu pricing or the portion sizes to take the average wastage into account.
4. Overlooking Hidden Costs
Proper food cost calculation is not limited to only the raw materials. The costs of transportation, packaging, cooking oil, and items that are complimentary (like sauces or chutneys) are also areas that lead to profitability. The ignoring of these can result in menu items that are underpriced.
How to Avoid It:
• Make a food costing sheet that accounts for all the direct and indirect costs of the concerned product.
• Revise pricing of the menu Every 12 -15 months from now.
• Install accounting software that is specifically for a restaurant business and that helps you track those expenses that are not obvious.
5. Failing to Analyze Menu Performance
Most of the time restaurants set prices for their menus by looking at their competitors instead of actually costing the products and focusing on the demand. Popular dishes are being undervalued most of the time without restaurants realizing it.
How to Avoid It:
• Use the high-margin products to attract more customers with combos or special offers.
• Keep track of the dishes that bring in the most profit not only the sales.
| Mistake | Impact on Restaurant | How to Avoid It |
| Not Tracking Ingredient Prices Regularly | Mistakes made by fluctuating prices.
| Reviewings prices weekly/monthly, shop around for suppliers, and use accounting software |
| Ignoring Portion Control | Over-serving leads to profit loss | Train personnel, standard recipes, portion control |
| Not Accounting for Wastage & Spoilage | Distorted profit margins, food loss | Use FIFO, waste register daily, pricing according to normal wastage |
| Overlooking Hidden Costs | Underpriced menu items, lower profits | Include packaging, transport & oil and adjust menu every 12 to 15 months. |
| Failing to Analyze Menu Performance | Popular dishes underpriced, profit drain | Engage in menu engineering, push high-margin items, and review performance on a regular basis |
Conclusion
Food costing errors might seem petty, but they can be quietly Conducting your profits. Instead you can optimize your margins and make your restaurant more sustainable by monitoring prices, portion sizes, waste and hidden costs, and evaluating menu performance.
At Paperwork e-Accounting, we offer restaurants to manage accounting, cash flow and profitability day to day with customised solutions like daily cash tracking services and bringing virtual CFO services to the restaurants.
