Don’t Tie up your Beverage Profits in Dead InventoryAugust 11, 2014 By: Nightclub & Bar
Senior Core of Retired Executives (SCORE) is an international nonprofit association committed to educating, mentoring and growing small businesses. Whether it's a business plan or financial assistance, this organization is here to help with free and low-cost services. Ken Scholl, representing the Southern Nevada chapter of SCORE, seeks to educate business owners on lowering overhead via actuate awareness of their purchasing, receiving, issuing, inventory, preparation and shrinkage costs.
Scholl urges operators to ask about specials from distributors before making purchases, considering picking up inventory rather than having it delivered if the cost is lower, and using a hydrometer to make certain the proof of the spirits purchased is accurate.
"You've got to know what your inventory is and what your customers want," says Mr. Scholl. Indeed, an intelligent approach to controlling inventory costs is to make purchases that are actually desired by customers.
These purchases desired by customers should turnover 1.5 to 2 times a month. Don’t tie up your working capital in dead stock. If you don’t turn it over it’s not worth having at all.
The three criteria that you want to look at for your inventory turnover are:
1. Average Inventory = (opening inventory + closing inventory) / 2
2. Turnover Rate = Cost of beverages sold for a period / Average inventory for the period
3. Generally Accepted Turnover Rates:
a. Spirits – 1.5
b. Beers – 2.0
c. Wine – will vary by type of establishment and quality, age and price of products
Storage methods can also affect the average inventory turnover rate. If you don’t store your product at the appropriate temperatures you start to get a degradation of the product.
Proper Storage Methods
Dark Ale – 55-60˚F
Spirits – Cool dark place
Your biggest guard against excessive costs related to the preparation process is making sure that all drinks are prepared according to the recipe specifications. This will help you to come up with a theoretical beverage costs that you can compare to your actual beverage costs. If the costs are completely off then you need to ask yourself why?
For the past two year Ken Scholl has be a speaker at the Nightclub & Bar Convention and Trade Show. What more information on inventory control and operations advice? Subscribe for free to receive exclusive webinars and Nightclub & Bar Show information HERE.