That is a long title and it is fitting because F&B reporting in your financials is the longest part of your hotel financial reporting process. Every other department except for benefits is a single shot. In F&B you need allocations and a roll up of all outlets into a total F&B profit statement. This is the single biggest area where I see hotels get their statements wrong. In this article, I am going to lay out how to set up your statements and general ledger to provide you strong financial reporting for your food and beverage department.
Food and beverage is different
This is the first thing to grasp. In complete contrast is the rooms department where there is a single revenue and cost structure neatly wrapped up and standing alone. With F&B there are multiple revenue and cost centers.
On the revenue side there are banquets, room service and other outlets. Each is its own revenue center and a separate department within the general ledger. Inside the revenue centers:
…are types of revenue at a minimum.
Revenue from outlets should be recorded by meal period—at a minimum breakfast, lunch and dinner. Brunch is lunch and depending on the nature of the outlet, you may want to see cover charges, gratuities and miscellaneous revenue categories. In all the different food and beverage segments capture the number of customers and report the average customers spend. Today it is average customer revenue: total food and beverage sales divided by the number of customers. Within banquets, you will want to see group and local sales separated (see my post titled – Separating Group and Local Sales in Banquets). Additionally, in banquets capture revenue for receptions, coffee breaks, room rental, labor charges, freight/transportation, utilities, gratuities and miscellaneous.
After payroll in each outlet, you will want to see cost of sales next. Cost of sales for food, liquor, beer, wine and minerals are all separately recorded with the dollars of cost and a percentage. Here is where so many hotels get off the road and into the ditch. Many hotels try to capture the actual cost of sales by outlet. This a noble idea but not at all practical. Allocation is the way to record and distribute cost of sales. The most efficient way to produce food from a cost of sales and labor point of view is to have a main kitchen, banquet floor kitchen and satellite kitchens for the outlets. The main kitchen prepares the bulk of the base of food: soups, pastry, sauces, butcher, etc. The satellite outlet kitchens finish and assemble the food for their outlet at the time of service. Banquets are a little different as they often prepare the bulk of their protein and vegetables and assemble them en masse.
Having one food cost is efficient because the food in the hotel moves around more than the people. I recall a study that we did in one hotel I worked in. It was to study personal individual yogurt container portions. We bought a lot of these. We concluded they were being refrigerated and used in more than 2 dozen different locations. We had one vendor for the yogurt and one invoice. To try and capture this by outlet is sheer madness. The same principle that applies to the yogurt is the same with all dairy, bread, soup base, butchered meat, salad dressings, pastries, etc. If you do not believe me, just stand in your main kitchen by the service elevator and watch the food move.
Beverage is different when it comes to recording the cost of sales
You want to see the individual cost of sales by type: liquor vs. beer, etc. Doing this by outlet is much more practical than food, however, I also know from personal experience that it is largely a waste of time and effort. Why?
First, the booze moves around your hotel. Transfers between outlets are frequent because the par stocks are a single bottle for most liquors and expensive spirits unless you want a bucket of money sitting in inventory. From my personal experience of trying to track transfers in a large hotel this is a waste of time. Set up your par stocks, sticker your bottles, do bottle for bottle requisitioning on your spirits, insist on transfer forms and forget about tracking them. Blind controls. P.S. Do not tell anyone what you do with all that paperwork.
Second is the secret most people do not get. Your beverage cost does not depend on requisitions, transfers and potentials. It comes down to the total opening inventory, plus all the purchases for the month, less the closing inventory. NOTHING else you do is in any way part of the calculation. With beverage set all the controls that make sense, but know in the end it comes down to the cost of goods calculation. The basic calculation is also used for your food cost. Everything else is smoke and mirrors.
In a large hotel that is doing millions of dollars in F&B sales, allocating the cost of sales based consistently on revenue is the way to go. Having one reliable overall cost of sales is key. Chasing your tail with outlet costs is a waste of valuable resources because in the end it is all for not. To capture and allocate the cost of sales have a journal entry that captures your outlet sales by type and total for the entire hotel. Once the cost of goods calculation is done at month end the gross cost by category gets allocated based on revenues by outlet. Everyone knows banquets have a lower cost and fine dining is much higher. To that I say the efficiency of one cost and allocation far outweighs the alternative. If you want to understand the costs in the outlet, then do the analysis based on the food that enters the cost center by capturing all the food that comes to the outlet via the outlet’s kitchen door.
Next is payroll
I wrote a separate piece on setting up F&B labor using management and hourly positions and having outlet direct payroll as well as allocated departments for kitchen, stewarding and F&B management. See my post titled – Measuring Labor Productivity – Part II. It explains in detail how to set this up including the use of hours of work.
With payroll, it is the same scenario we want avoid in the hotel like the food chase described above. If you try to assign cooks, cleaners and F&B department management to an outlet, you are either way over staffed or splitting hairs again. The pastry kitchen, garden manager and butcher are examples of this—every large hotel has these departments in their kitchens. They produce a large part of the base food for the hotel and this includes handling the “brought in products.” The most efficient way to produce all of this is in the main kitchen. There might be outlet chefs but in large part food preparation payroll is all lumped together. Capture all food preparation payroll for the month in an allocated department on your GL and then portion it off based on food revenue mix. The same applies for cleaners and F&B department management.
In contrast to the allocation described above there is direct payroll in each outlet. Direct positions are defined as people contact positions:
- Outlet managers, etc.
Separate the outlet labor into two buckets: management and hourly.
The last area to set up is expenses. The best way to do this is to have the ability to direct expense and have a process in place to allocate expenses. You want to be able to allocate expenses in F&B because much of your efforts are pointed at driving efficiencies. Can you imagine if every outlet had its own china, glassware, and silverware? Can you imagine if each one purchased its own cleaning supplies and paper goods? On the other side, there is a unique single attribute you can capture for outlets. This is where the direct mechanism comes into play. You want to directly expense items like outlet specific entertainment, uniforms, specialty china, etc. Having a choice with each purchase to either expense it directly or allocate it is the way to go. You accomplish this by having expenses accounts set up in your GL by outlet as well as an allocation department that gets zeroed out at month end with a nice allocation based on total outlet revenue to each F&B revenue center. Note there is no transfer to the kitchen or stewarding as they are not a revenue center. Matching principle in action.
The final part to lay out is how statements will look. This is where things get exciting. First the order of things. You want a top-level food and beverage consolidated report. Inside your financial reporting system, you will need to design a report that pulls together all the revenues and costs for all F&B departments into one report. Here at glance you can see the food and beverage profit performance as well as the makeup of the result. You will be able to see the total sales for the entire hotel in each area outlined above. The total cost of food and beverage including the percentages. Payroll for both direct and allocated including hours of work and EFTE’s and total productivity. All payroll related benefits in total. Payroll as a percentage of revenues. Total food and beverage expenses by category and viola – food and beverage profit. All this on one page. In addition, you can draw out:
- Average wage rates by management and hourly, direct and allocated
- Average pricing by meal period per customer
- Total expenses by customer
- F&B revenue per room occupied
- F&B revenue per sq. foot
- F&B revenue per hour of work
- Food and beverage cost per customer
If you include the customers as well as the hours of work, plus a couple of other statistics you can produce an incredibly effective F&B total financial picture for your hotel.
The second thing you will see reporting on is each individual outlet performance. Your GL is set up with a department for each outlet and the beauty of this is you only need to design on chart with the appropriate accounts for revenues, cost of goods, payroll, benefits, expense and statistics. Once it is complete for one outlet you simply copy the same chart to the other outlets that have a different department number or dimension. Now each outlet reveals its actual revenues, direct labor, allocated labor, allocated benefits, expenses and outlet profit. The sum off these outlets ties back to the F&B consolidated statement and your top line profit and loss report. Each outlet will also reveal its sales and average pricing by meal period. Labor productivity for direct and allocated. Cost per customer for expenses.
The final piece is a cross-view report on your biggest expense in food and beverage: labor. By designing the labor with direct and allocated as well as management and hourly, you can generate a very effective report. This report details the dollars, hours, EFTEs and productivity by outlet, by hourly positions, and management positions.
There you have it. This is how you design and report F&B in a hotel in an efficient and practical way.
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