The 3 Keys to Inventory Success: Without These, You're Losing Money

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For all the love that is holy, why don’t bar and restaurant operators conduct inventory on a regular basis?

It has to be the stupidest move out there. Seriously, if you don’t know your numbers, you’re not running a business—what you have is a hobby.

Now, if you want to change that, take note: This is going to be a discussion of why you must be obsessed with inventory.

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We asked industry leaders to weigh in on what metrics they were tracking to ensure proper cash flow, increased profit margins, and operations setup for future growth.

Let’s look at the three critical keys to a solid inventory system.

Stop the Hate

When it comes to running a bar or restaurant there are so many cool things that you get to do. Inventory isn’t usually counted among those “cool” things, however. We tend to think of it as a necessary evil, that dreaded activity that sucks out a few hours of our lives.

Stop the whining and hate you have toward inventory. Staying on top of your numbers is your duty when you run a bar or restaurant. Yes—your duty. When you took on the responsibility of opening or running a business in this industry you accepted the responsibility making it profitable. Successful restaurants are a vital part of the economy.

There are so many poorly run businesses that give this industry a very tarnished reputation. They contribute to the stigma that 80 percent of bars and restaurants close in the first year. Let’s be crystal clear: only poorly run restaurants and bars close. If your bar sucks, if your restaurant is terrible, there’s a good chance that it’s because you suck at running it. Sorry, someone had to say it.

Now, if you want to change that you need to take a fresh look at inventory. It’s a safety net that allows you to see where the leaks are within your profit and loss statement (P&L). It’s baffling when inexperienced restaurant owners just lump all their food and beverage costs into one line on the P&L and then wonder why costs are high. It’s like looking for a needle in a haystack: good luck finding the financial bleeding and even more luck trying to stop it.

An accurate inventory allows you to continue to do all the other “cool” stuff that you really like. Sometimes you have to embrace the things that suck in order to get a taste of those things you truly love. Let me give you an example: I really, really, really love to speak on stage for a keynote or workshop. It’s a perfect Zen moment for me! Now, I don’t like traveling to the airport, changing planes, long layovers, flight delays, Ubering to the hotel, finding a gym, being away from home and my girlfriend, and all the other little things that it takes to get up and do an hour-long keynote.

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However, when I get to get up on that stage none of that matters because that’s what I truly love! I’ll take all those unpleasant tasks for a slice of Heaven. Inventory is a means to get you to that same magical place where you get to do what you love. It’s a simple transaction: a few hour of inventory for a dose of those endorphins that light you up inside. Totally worth it.

The Keys to Inventory Success

If you’re going to take responsibility for running a profitable business you have to understand that making sure your inventory is tight is a foundational skill. You would be shocked by how many bar and restaurant managers and chefs don’t know how to do inventory! It’s like not knowing how to balance your checkbook (don’t worry, we won’t go there in this article).

Accurate Count. You would think this is a no-brainer and common sense. Well, if you’ve been in the industry for any time you also know that common sense is anything but common. I believe this first key gets messed up because many aren’t invested in doing inventory, so they half-ass it. If that’s you, that’s okay—I won’t tell anyone. Just stop it and stop it now!

Being able to conduct an accurate inventory is more about your character. What? Inventory is a sign of character? Yes, because how you do anything is how you do everything! If you can’t count product accurately on a shelf, what chance do you have of making more money or increasing your restaurants profits? Not much of one.

So many young managers, bartenders, and chefs complain about their long hours and how hard they work yet they can’t manage their inventory. Making amazing food or drinks is a great skillset. Being able to make money with that amazing food or drink is a bankable skill. Here’s a career tip: If you want more salary, prove you can make a profit for the brand. You’re not paid for hard work, you’re paid for results.

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That being said, taking an accurate count starts with setting up your inventory for sheet-to-shelf. That means your list needs to be in order so you don’t have to flip back and forth from page to page. If you’re not set up for sheet-to-shelf inventory the potential to miss something becomes much greater. This is simple in theory, yet many find it difficult to execute. Why? Laziness.

Accurate Pricing. Here’s another common sense one that is often not done properly. Without the correct pricing, your costs are going to be like a roller coaster on your inventory sheet. This, too, can be chalked up to just being lazy.

With advancements in technology there’s really no excuse to have inaccurate pricing for your inventory. Most major foodservice distributors have food cost and inventory software that they’ll give you for being a customer. If you buy most of your product from one distributor, this is a great benefit of a foodservice partnership. To maximize this you’ll want to get on what’s known as a prime vendor agreement (PVA). This is a simple contract that locks in your pricing at a certain percentage.

You may not know this: foodservice companies have different pricing structures for different customers. The best customers are those who buy most of their products from one vendor in a PVA (about 80 percent), consolidate their number of deliveries to just a few per week, and carry payment terms as short as possible. In exchange, the vendor can provide software and other services (menu design, culinary innovation, and business consulting services). If you’re not willing to partner with a foodservice distributor and prefer to buy from multiple vendors, or if you do what’s called “spreadsheeting” (calling everyone and gathering prices on everything), you’re going to be placed in the “street pricing” category. Here, you’re going to pay anywhere from 10 to 40 percent (sometimes higher) above what those on a PVA pay. It sucks to not partner with a distributor.

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The sweet bonus of your prime distributor’s food cost and inventory programs is that they update your pricing with each delivery, so your pricing is always accurate. All you need to adjust is for the stuff you don’t buy from them. Talk about working smart!

Consistency/Frequency. If your food or beverage costs are out of control, you need to take inventory once a week. Don’t roll your eyes! You’re in this situation because you haven’t been on top of this, so time to cowboy the hell up.

You’ll want to establish a consistent day each week when you can do this. It should also be at a consistent time, either in the morning or at the end of the night. Many choose the latter but I’m going to suggest the morning. You’re more likely to be wiped out by the end of the day and that makes it easier to make mistakes or just not pay attention.

You should also have the same person count inventory each week. There always tend to be discrepancies when multiple people take turns doing inventory: I say the case is half-full, you say two-thirds. Those little pluses and minuses can wreak havoc on the bottom line of your inventory.

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The last part of this is to clearly explain and lay out your expectations when conducting inventory. It’s mission critical to have an accurately counted and costed inventory if you ever want to maximize your profits. No inventory, no profits for you! Not knowing your costs is not an option in today’s market—it’s your duty if you want to stay in business.

Want more content like this? Want to learn from the best in the bar and restaurant business, in person? Set yourself and your business up for a long, successful future: come to the 2019 Nightclub & Bar Show in Las Vegas. You’ll have the opportunity to listen to the Clover team talk about the latest technology trends that will make your day-to-day easier and help you earn more revenue in their session “Need-To-Know Technology Trends and Case Studies.” David Scott Peters, one of the undisputed kings of costing, will break down the how to determine your own numbers and costs, including prime cost, during his “Your Operation is NOT Average: Stop Using a National Average Food Cost to Run Your Bar & Restaurant” session. Don’t get left behind by your competition—register now!

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