Given the importance of food and drink sales in the overall success of a club, it is little wonder that management and staff need to continually be focused on inventory management. Successfully managing your inventory can dramatically improve the financial performance of your club.
As an external auditor to clubs, I’d like to share those practical things that are done in successful clubs that may help improve your own club’s financial performance.
Get your purchasing right
Large amounts of critical working capital can be unnecessarily tied up in stock balances. While buying in bulk can be great for securing a better price on a stocked item, it could also be hurting your cash flows. There is nothing worse than having stock sitting on the shelf collecting dust that no one is likely to use. Think of some wines in your stock holdings – every club has at least a few old bottles lying around.
There is a fine line between having too much stock tying up critical cash flows and not having enough stock resulting in shortages and potentially missing out on sales
So how do you determine what is the right level of stock? For clubs that have a real time inventory system, it is generally easy to find a report which identifies stock items that have not been sold for quite some time. Such a report, often called an inventory turnover report, can highlight those stock items that have been sitting around too long and need to be moved on. This allows for staff to discount the item in an attempt to sell the stock.
Another way of monitoring stock purchases is to review the level of sales of particular items in order to minimise any future purchases. This can also involve setting a minimum purchase function within the accounting software that alerts staff when stock is almost out, limiting the potential of excess purchasing when stock is already held by the club.
In smaller clubs where the accounting system is not as sophisticated, stock levels tend to only be updated once a stock count has occurred.
If this is a situation which is all too familiar, managing your stock becomes even more critical, as information regarding sales and purchasing trends are not readily available. In such situations, practical approaches to monitoring stock include:
Conducting regular stocktakes
Reviewing holdings of your largest stock balances – the 80:20 rule applies here. Generally 80% of a clubs income will come from 20% of the stock lines. Ensure that unnecessary stock lines being held are either eliminated or held to a very minimum.
Comparing stock items to monthly sales: is the club holding more than a months’ worth of sales at any one time. Ensure that purchases are kept to a minimum.
Waste unfortunately occurs within most clubs. However, the key to minimising it is to monitor waste as much as possible.
Areas where waste occurs that you may not recognise include:
- Giving away free drinks: do you record how many of these are given away through promotions? Does your club know exactly the cost of such an offer, and factor these into your selling prices?
- Purchasing perishable foods before they’re needed. There is nothing worse than ordering in new stock only to realise that you already had some in the fridge/ freezer which was about to expire.
- Having old or inefficient bar taps/lines. Do you know the impact having inefficient bar taps/lines is having on your club? Are they being cleaned regularly to ensure optimal performance, minimise waste and ensure maximum taste for the beer?
Counting Stock Regularly
As we draw ever so close to the end of the financial year for many organisations, it is a timely reminder of the importance of having a regular stocktake. While conducting a stocktake can be a time-consuming process, there are many benefits to undertaking one regularly and not just due to it being the end of the financial year. These include:
- Highlighting any problems with stock shrinkages or obsolescence. This allows staff to address these concerns on a timely basis, minimising the potential impact to the club.
- Helping determine how well the club has performed and assisting with the calculation of your gross profit (which will determine whether or not you are charging enough for your food/bar stock items).
- Providing an accurate picture of your stock holdings and helping easily determine whether you are carrying too much of any particular items.
- Highlighting sales performance on products allowing staff to change sales strategies.
- Helping reduce the amount of stock levels held by your club, reducing stock purchases and freeing up valuable cash.
- Helping with your stock purchasing process. Ensuring that you only purchase those stock items that you actually need.
- Allowing accurate monthly financial information to be given to the Secretary/ Manager and the Board.
While undertaking regular stocktakes can be a somewhat time consuming process, the benefits associated with doing it regularly mean that all clubs, no matter what their size should undertake one regularly.
Safety of Stock
How safe is your stock? At any one time your club is likely to have large amounts of money tied up in stock, which can be located in multiple places, be it in the kitchen, multiple different bars, function rooms and bulk storage. Do you know who has access to your stock at any point in time? Can stock be accessed after hours? Do you have adequate controls around this process?
Amongst the most practical ways I have seen clubs secure their stock include:
- Locking high dollar stock items away with keys only given to managers or senior staff.
- Maintaining a log of those staff who have keys and access to stock after trading hours.
- Restricting access to stock items to only those employees that actually need access e.g. bar and kitchen staff.
- Having regular training sessions with staff regarding the importance of stock security.
- Having CCTV’s in areas where stock is stored.
- Conducting regular stocktakes
- Regularly reviewing the gross profit margins and any variations in stock balances and seeking explanations from staff if regular variations occur.
By undertaking some of the above practical procedures, you can ensure that your club achieves the maximum financial performance out of its food and beverage operations.