Ever wondered why your bar's profits might be pouring down the drain? The answer could lie in the nuanced world of inventory management, which we're cracking open in this week's Bar Business Podcast. I'm Chris Schneider, and I'm here to walk you through the must-know strategies to keep your stock in check and your financials on point. We tackle the importance of running a tight inventory, digging into how it reveals the true cost of goods sold and ensures your prime cost percentage doesn't spiral out of control. It's not just about counting bottles; it's about mastering the balance between what you have and what you need, preventing money from stagnating on your back shelf.
In the thick of managing a bustling bar, the last thing you want is an inventory misstep to cloud your bottom line. That's why I'll share the best practices for monthly stocktakes, timing them just right for consistency without disrupting your service or sanity. Listen in as we break down the critical components of a foolproof spreadsheet, and don't worry, we'll even tackle the tricky business of those end-of-month variances. I promise it’s simpler than it sounds, and once you get a handle on this, you’re one step closer to running a well-oiled machine.
In this episode, I peel back the curtain on my own run-in with sneaky discrepancies and reveal how I turned the tables on theft at a country club. We'll also explore how essential data like inventory turnover and day sales in inventory can keep your cash flow healthy and your stock levels optimized. Whether you're a seasoned bar owner or just starting out, this episode will equip you with the insights to stay ahead of the game and ensure every ounce of profit is accounted for.
##### Welcome to the Bar Business Podcast, the ultimate resource for bar owners looking to elevate their businesses to the next level. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals. Tune in to learn everything from how to craft the perfect cocktail menu to how to manage your staff effectively. Our mission is to help you thrive in the competitive bar industry and achieve your business goals.
Special thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software by using AI to help you make smart data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
Ever wondered why your bar's profits might be pouring down the drain? The answer could lie in the nuanced world of inventory management, which we're cracking open in this week's Bar Business Podcast. I'm Chris Schneider, and I'm here to walk you through the must-know strategies to keep your stock in check and your financials on point. We tackle the importance of running a tight inventory, digging into how it reveals the true cost of goods sold and ensures your prime cost percentage doesn't spiral out of control. It's not just about counting bottles; it's about mastering the balance between what you have and what you need, preventing money from stagnating on your back shelf.
In the thick of managing a bustling bar, the last thing you want is an inventory misstep to cloud your bottom line. That's why I'll share the best practices for monthly stocktakes, timing them just right for consistency without disrupting your service or sanity. Listen in as we break down the critical components of a foolproof spreadsheet, and don't worry, we'll even tackle the tricky business of those end-of-month variances. I promise it’s simpler than it sounds, and once you get a handle on this, you’re one step closer to running a well-oiled machine.
In this episode, I peel back the curtain on my own run-in with sneaky discrepancies and reveal how I turned the tables on theft at a country club. We'll also explore how essential data like inventory turnover and day sales in inventory can keep your cash flow healthy and your stock levels optimized. Whether you're a seasoned bar owner or just starting out, this episode will equip you with the insights to stay ahead of the game and ensure every ounce of profit is accounted for.
##### Welcome to the Bar Business Podcast, the ultimate resource for bar owners looking to elevate their businesses to the next level. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals. Tune in to learn everything from how to craft the perfect cocktail menu to how to manage your staff effectively. Our mission is to help you thrive in the competitive bar industry and achieve your business goals.
Special thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software by using AI to help you make smart data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
You're listening to the Bar Business Podcast where every week, your host, chris Schneider, brings you information, strategies and news on the bar industry, giving you the competitive edge you need to start working on your bar rather than in your bar.
Chris Schneider:
Welcome to this week's edition of the Bar Business Podcast, your ultimate resource for bar owners. I'm your host, chris Schneider, and today's episode we're going to be talking all about inventory, and inventory is one of those things. I see a lot of folks in this industry that never do their inventory quite properly. There are a lot of people that don't actually do a physical count of everything every month because they base their cost of goods sold on their orders, which is great. Unless you have months where you order weird or you buy a bunch of wine one month and you sell it for the next four months, you're going to have wine purchases way too high in one month. In the next three months they're going to be way too low. So inventory, from an accounting standpoint, is what allows us to differentiate between what we've actually used and what we still have on hand. So in order to actually know your numbers, in order to know your real cost of goods sold, in order to be able to determine your prime cost percentage and a lot of other things about your business, you have to actually do a physical inventory. So as much as most of us and I am definitely guilty of this when I was an owner cheat on it as much, as it's probably the least enjoyable thing. I mean, the only thing to me that's worse than inventory is like cleaning a grease trap, maybe filtering a fryer but filtering your fryer, frankly, I like more than inventory. So inventory is something that people just don't like and we don't like to do, but it's crucial to understanding your numbers and understanding your business.
Chris Schneider:
One thing that's also very true about inventory is that in order to do inventory properly, your bar must be organized. You have to know where bottles go. There have to be certain places where those bottles should go. You have to be able to measure whether or not the bottles well, you have to be able to measure how many bottles there are, but you have to know where they should be. So an unorganized bar makes it almost impossible to do good inventory. And I'm saying this now because we're going to go all through inventory the benefits of doing it, how often you need to do it, how to take it and some of the pitfalls, and then talk about some of the potential data points that you can get from your inventory and how to analyze your inventory. But you have to be organized in order to do your inventory from the start. So organization precedes your ability to conduct a good inventory and to conduct inventory in a timely manner. Because, as much as we all hate it, like I said before, as much as it is time consuming and annoying, if you're organized, if you have the right tools in place, if you have the right systems in place, inventory, like anything else, becomes much, much easier to do.
Chris Schneider:
So we touched on this on the COGS piece. But what are the actual benefits of doing inventory? We don't like to do it, but why do we do it? Well, as we touched on, cogs is the biggest reason. Touched on COGS is the biggest reason.
Chris Schneider:
If you think about the cost of goods sold equation cost of goods sold equals beginning inventory plus purchases minus ending inventory. So there's no way to actually know what your cost of goods sold are without having a beginning and ending inventory. And again, like I mentioned earlier, if you have a bunch of purchases in a month and you're just basing your inventory off your purchase value, it's going to drastically throw your numbers around month to month and actually ruin your data. There won't be any meaningful data there to analyze and make decisions from. It cannot just be what you purchase, it has to be what you use, and the only way to measure what you use is to have a beginning and ending inventory every month. Now you should also probably do inventory more than once a month. We'll get into that in a second. But just realize that you cannot know what your food cost is, what your beer cost is, what your liquor cost is, what your wine cost is, what any of your costs are, unless you are doing at least a complete monthly inventory.
Chris Schneider:
The other benefits of doing inventory are you get to measure your waste and your spoilage and or theft. If you are not doing inventory and if you're not comparing what you did use to what you should have used, comparing your actual and theoretical costs and understanding why there's a difference between those two and there can be many differences or many reasons for there to be a difference in your actual and theoretical cost Maybe your pricing went up, maybe your recipe has changed, maybe you need to re-chain your team because they're not doing things properly, but also maybe things are just getting wasted and thrown out especially true with food, which is very, very perishable, as everyone knows or you could have a theft problem. So doing inventory helps you prevent both waste and spoilage and theft, and it helps you understand when those things are going on and gives you a way to determine that you have a problem and then analyze that problem. The other two big benefits of inventory are that you avoid having too little of an item and you avoid having too much of an item when we get into data analysis of inventory later in the episode we'll talk more about metrics and how many days of inventory you should have on hand.
Chris Schneider:
But inventory at the end of the day is your money sitting on a shelf. If you have $10,000 worth of inventory, it's the same as a stack of 100, $100 bills sitting on your shelf. It's still 10 grand, it's still on the shelf. And if you're not moving that inventory, if you have a lot of inventory that you're just holding on to, then you're not optimizing your business because you're just leaving money on the shelf and inventory does not earn interest. At least if you have that money in the bank, it might make two or three percent.
Chris Schneider:
But inventory on your shelf doesn't help you. And luckily, for most things that bars serve for our alcohol, for our wine, for our beer those have relatively long shelf lives, inventory on the shelf. We're not losing money but we're not making money, and so we just have our money tied up indefinitely in a bottle of vodka or a bottle of rum. But when you think about food having too much box stock, one of two things is going to happen You're going to freeze everything and your food quality is going to suffer so that you don't lose the money, or you're just going to lose the money because you throw it out. So you want to avoid having both too little of an item so that you run out of it, and too much of an item so that you just have all this money sitting around not being used.
Chris Schneider:
Now, obviously, how do we get between too little and too much? We come up with pars for our ordering. Pars for your ordering need to be based on how much of something you're using. The only way to know how much of something you're using is to do a regular inventory and to run the data and calculate that out. So there are a lot of benefits to doing your inventory. The only negative really to doing your inventory is it's annoying as all hell and it's time consuming. Now, the good thing is, if you don't want to do it, you can delegate it. We'll talk about that later on If you don't want to do it, you can hire people to do it. There are outside companies that specialize in inventory management. So there's no reason not to do your inventory and not to have an accurate count month to month, because either A you can do it yourself, b you can get an employee to do it, or, c you can get an outside service provider to do it. And regardless of which way you go, you have to do it.
Chris Schneider:
Now, how often do you need to do it? I've said multiple times already you need to do your inventory monthly and you absolutely must do your inventory monthly. That monthly count should take place on the last day of the month, and that is for your accounting and bookkeeping purposes. And that end of the month count should include every single thing in your bar that is a consumable item, that is part of what the customers get served, and that will be annoying because, yes, you do need to count how many straws you have. Yes, you do need to count how many paper or plastic cups you have. Yes, you do need to count how many limes you have. All of that has to be accounted for. It's not just bottles and pieces of meat, everything that is disposable, everything that is getting used for your customers and anything that's getting served needs to be in your monthly inventory Because, at the end of the day, that's the count that will determine how your financials look.
Chris Schneider:
And we're going to talk about weekly inventory here in a second. Weekly inventory is much more about ordering it and you can run some numbers off that, but it's not necessarily crucial. But your monthly inventory you have to include everything. You have to count everything that exists in your establishment, again that is consumable and part of the customer experience in which you're serving. Now you also need to do inventory weekly. And why do you need to do a weekly inventory? Well, for ordering purposes. Most bars we're ordering from at least our liquor suppliers at least once a week. Ordering from our food suppliers probably suppliers at least once a week. We're ordering from our food suppliers probably two or three times a week, depending on how many food suppliers we have. That might all fall on the same day, that it might all fall on different days, it doesn't really matter.
Chris Schneider:
But you have to do weekly inventory in order to put in an order, because one of the big benefits of inventory, as we discussed, is not overordering, not having too much stuff on the shelves and if you're ordering weekly, that means you're restocking weekly. That means that you should be doing inventory weekly, at least on those big items that you're ordering. Now you don't have to count every little piece of paper, every piece of plastic, everything that is a disposable item, piece of plastic, everything that is a disposable item. But weekly inventory for your ordering, in order to make sure you're not overrunning inventory, needs to be done every week and it needs to be done for that order. Also, in weekly inventory, something that I think is really important is to highlight your high cost items. So maybe you know that, hey, I bought a bottle of this high-end cognac last week. It should last me a year because that's how long the last one lasted. I don't need to inventory it on a weekly basis. Well, if it's Louis XIII and you're charging two, three hundred bucks a shot, yeah, you should inventory it on a weekly basis, because that is where theft and waste is going to hit you the hardest. So you need to include those things that you order every week and your high ticket items every week and you need to look at those. This also allows you if you're doing a more complete inventory.
Chris Schneider:
So let's say we're not counting our paper goods. Let's say we're not counting our retail merchandise. There are a couple categories that we don't count except on the monthly count. But on the weekly count we count all the beer, all the wine, all the liquor. Well, now for beer, wine and liquor I can have a weekly cost. So rather than waiting till the end of the month, say the month ends and you get the numbers to your bookkeeper or your accountant and they give you financials to review on the 15th. Well, by the time you get those financials on the 15th, you are 45 days past the beginning of the month. Right, you're 38 days past the first week of the month.
Chris Schneider:
If you were looking at those numbers weekly and looking at your costs weekly. Because again, inventory equation cost of goods sold, beginning inventory plus purchases, minus ending inventory, equals your cost of goods sold. That's not hard math to do. So if I count all my liquor every week, I can figure out my cost of goods sold for that week. I can compare that to my sales for that week and now I'm tracking my liquor cost percentage on a weekly basis. And you can do that with wine, beer, liquor and food. Again, don't have to do that with all categories. That's what monthly inventory is for. But if you cover those four categories every week in your inventory now you have six weeks to adjust and make sure that your numbers are in line, instead of waiting until your accountant, your bookkeeper, whomever finalizes the prior month's data and books and gives you that P&L and gives you those numbers from the P&L that are going to allow you to figure out your cost. So doing inventory weekly allows you to be a lot more nimble with your business and adjust how you're doing things quicker and, quite frankly, be more effective as a business because of it.
Chris Schneider:
So we need to do inventory weekly and monthly. But then the question becomes how do we take inventory? And the first thing I will say about how to do inventory and this is the most annoying part to me and I frankly didn't do this when I owned bars because I was never really on a tight schedule for myself. I should have been in this case particularly. But when you take inventory, you need to take inventory at roughly the same time every week, at roughly the same time every month Monthly inventory should be done on the last day of the month month.
Chris Schneider:
Monthly inventory should be done on the last day of the month, and it should be, whether it's the morning, the evening after close, whatever. It should be on roughly the same time every month. And the reason behind that is obviously throughout the day you're using things and so if you always do inventory at the end of the month, on the last day of the month after close, you're getting the most accurate count possible. And I don't know about you guys, but I'm not going to close down a bar at three in the morning, clean up until 430 and then do inventory until seven. That just ain't me. So I always like to do when I did monthly inventory which again I didn't always do and I should have I always like to do it in the monthly inventory which again I didn't always do and I should have I always like to do it in the morning of the last day of the month. Yeah, there's some variance there. We're not quite capturing everything perfectly, but because I'm doing it at the morning of the last day, it's somewhat consistent now, as that last day changes from a Monday to a Saturday, monday to a Friday, sunday to, because obviously what day the last day of the month is is going to change month to month. There was some more room for variants, but we're really talking about, quite frankly, a small variance that should not affect the numbers too much when we're comparing month to month numbers in the long run. But by doing it at the same time, you're minimizing that. And again, in an ideal world, a world where you don't need to sleep and have nothing else going on in your life inventory would always be done at the end of the month, after close, before you open the next day.
Chris Schneider:
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Chris Schneider:
Now, when it comes to physically how you take inventory, obviously you have to count everything. If you don't count everything, you're not getting the right benefit out of it. For weekly inventory, like we talked about, maybe you don't have to count everything, but monthly inventory you absolutely do. And so, just like you need everything in your bar organized in order to do inventory properly, because otherwise you're going to be chasing things and miss things you need a way to do inventory that's organized. And here, if you're doing it yourself, spreadsheets really become your best friend. It's very easy to set up a spreadsheet and if you think about that cost of goods sold equation beginning inventory plus purchases minus ending inventory equals cost of goods sold you can build that into your spreadsheets so you'll always have that number on there every month. Get all the calculations done for you. But you need to make sure you include enough data points on that spreadsheet to generate meaningful data.
Chris Schneider:
So, for every, if we're thinking about an item or columns on your spreadsheet, at a minimum you need the following column so you need to know the item. What is this item? Usually I like that to be column A, the first column on the spreadsheet. At a minimum you need the following column. So you need to know the item. What is this item? Usually I like that to be column A, the first column on the sheet. What are we looking at? Then you need to know what the units are for that item.
Chris Schneider:
So if we're talking about beer, it could be bottles, it could be cans, it could be kegs, it could be bottles, it could be cans, it could be kegs. If we're talking about liquor, it should probably be ounces, because just doing a bottle isn't terribly accurate. Now you could do tenths of a bottle and that gets you close. And, frankly, if you're just hand counting your inventory that's what I have always gone to I think it's close enough. You're going to have some variations, um, and we'll get into that a little bit later. So item, then units, then item cost.
Chris Schneider:
So I buy chris's vodka. It comes in a one liter bottle, but I'm measuring ounces or I'm measuring. You can do it by weight too, but in this case let's just say I'm measuring bottles and I'm going to just come up with a 10th, and that bottle cost me 20 bucks. So one liter or one bottle of Chris's vodka costs 10 bucks or 20 bucks. Rather, my beginning count is whatever. My ending count was the week prior. So that's our next column. So let's say last week I had five of them, cool, so I have five bottles at 20 bucks. I got a hundred bucks worth of Chris's vodka.
Chris Schneider:
Our next column is purchases. So what did I buy? I know I started with five. Did I buy any? No, I bought none. How many do I have left? I have four bottles left. Did I buy any? No, I bought none. How many do I have left? I have four bottles left. So I went through one bottle of Chris's vodka. Conveniently. They just drank one bottle, not a single bit more or less than that, and so my ending value is $80 because I have four bottles at 20 bucks. I started with five bottles at 20 bucks, so my cost of goods sold on Chris's vodka is 20 bucks.
Chris Schneider:
And again, you can set this all up in a spreadsheet. It's really not that bad and it at least gives you organized enough and gives you enough help that you're not manually doing the calculations. You have an organized way to do it and you have an organized system to put this all in, to help generate your data. Now, another way that you can go with doing your inventory is to use software. There are tons of programs out there. Some of them weigh bottles, some of them just help you count bottles. Some of them tie into your POS system and generate what is your theoretical cost, and then you can put it in your inventory and it's going to say well, your theoretical cost is X, your actual cost is Y. Here's the variance. The software out there. There's all sorts of different softwares that do all sorts of different things. Some integrate more, some integrate less. Some are more manual, some are less manual. Now I will tell you right now if it's harder than doing the spreadsheet, you shouldn't use it. But a lot of them allow you, with the same amount of work, to get a lot more depth and information, and a lot of these numbers run automatically for you.
Chris Schneider:
Now a few other things. When it comes to taking inventory and this becomes important. Like I said with liquor bottles I always went to the closest 10th. Now the thing is, a 10th is a lot easier to figure out in a Tito's bottle, because it's all one shape up and down, compared to, say, a Patron bottle because the volume at the bottom is going to be much greater than the volume towards the top because of the shape of the bottle. It means it's really hard.
Chris Schneider:
Now one way that we can alleviate that and actually, before I get into that, let's also point out kegs are the worst to do inventory on. You can grab it, you can shake it, you can't see where the actual level is. You're just kind of taking a stab in the dark kegs. I always inventoried to the closest quarter barrel or, I'm sorry, quarter of a half barrel. So eighth of a barrel technically, but quarter of a keg, and that gets, you know, a little messy. But you're getting in the neighborhood, Obviously, with both liquor bottles and kegs.
Chris Schneider:
If you weigh them, you will get 100% accurate results as long as you know the weight of the empty bottle. And I'm just going to assume that if you're weighing your bottles, weighing your cakes, you're using some sort of software that tells you what those numbers are, because there's plenty of it out there. Again. Now your other option with inventory if you don't want to do it yourself at all again, I mentioned this you can outsource it. There are plenty of companies. Barmetrics comes to top of mind, because that's the one that most people have heard of, but there are tons of other companies that also help do bar inventory for you, and they weigh things, they scan, they produce very, very accurate counts, because that's their business and you don't have to deal with it at all.
Chris Schneider:
Obviously, it'll cost you some money compared to using a spreadsheet on google sheets or something that you already own, but you'll get more accurate results and you don't have to do any of the work. Especially if we're talking something high volume. There is no reason not to use these folks. The amount of time that that you're going to save more than covers the cost, and the accuracy gives you so much better data than I think. That's a tent this week versus I think that might be a two tents next week when you're looking at the same amount in the same bottle. Using an outside service if you're high volume always pretty much makes sense.
Chris Schneider:
Now, obviously, as an owner, I'm going to say doing inventory yourself is great, because then you're actually interacting with the product, you're seeing it. Most of us, though, don't want to do it, so you can have a manager do it. But one thing when you're delegating inventory, especially when you're delegating it to your own team. Consistency matters. So the way to avoid having someone see one-tenth of liquor in the bottle this week and two-tenths of liquor in the bottle next week is to have the same person do the count every week. Having the same person always do your inventory will produce more accurate counts, or at least more consistent counts, than having different people do your inventory and, frankly, even if their number's off a little bit right, they say it's three tenths and it's really one tenth, but they consistently say it's three tenths. Our costs haven't increased. Our costs are actually being measured properly. Our inventory is off a little bit. It's not the end of the world. So I like the idea of doing inventory myself, except I hate it. If you don't want to outsource it, find a manager and have it be the same manager every single week.
Chris Schneider:
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Chris Schneider:
Now, what are some common inventory issues? And these are the ones that will sneak up on you and really frankly, interfere with your inventory and cause problems with your data. That means you won't be able to make great decisions based on it because your data is just isn't as reliable. So one of the biggest issues is items get missed, and this is why I started this whole podcast talking about you need to be organized, because if you have bottles in random places and things do get missed, that is not helpful. That is not going to produce good results for you. So you need to count everything. Your inventory needs to be organized. Where things go in your bar needs to be organized.
Chris Schneider:
Not updating your costs on your spreadsheets as prices change is another common inventory issue. So, as we all know, costs change all the time and, in a perfect world, what you're going to get with a lot of software is actual FIFO inventory. So you bought 10 bottles at 20 bucks a bottle. Then you bought and you used eight of those. You had two bottles left. You bought another case so you got 12 more bottles, but these are 22 bucks a bottle. It's still going to call the new bottles 22, the old bottles 20 and use those old bottles first. So your inventory is perfect.
Chris Schneider:
And there's FIFO, there's LIFO, there's weighted averages. There's actually just individual item inventory. There's different inventory methods that can be used and the accountants that hear this are going to hate me, but it's okay not to track it that closely unless you have software. It's really not something that's reasonable or that. You're going to hate me, but it's okay not to track it that closely unless you have software. It's really not something that's reasonable or that you're going to do. But you always need to update your prices. The worst case scenario the worst case scenario doing that, is that you put that some small number of items cost more than they actually do, so your costs on paper will be a little bit higher than your costs in reality. That's okay and, if we're real honest at all, more or less wash out by the end of the year because of the way that the cost of goods sold, equation works and the fact that you wrote checks for specific amounts of money. But absolutely you must, without a doubt, update your spreadsheets as prices change. Now the other thing that can happen with inventory and this is an issue that unfortunately, I got to see firsthand is if your manager is stealing from you, they can fake your inventory.
Chris Schneider:
So quick story for you all when I was working at a country club uh, first inventory I ever did, I had just started the job. It was like two or three days in I'm supposed to do a complete inventory the last manager had just walked out one day and so zero training, zero knowing what was going on. I was just handed an inventory list, played with it to make it more organized and went to go do inventory and my inventory count was about $10,000 short of the week prior, which, seeing as it was a $40,000-ish inventory because we had a lot of nice wines, that's still 25%. That's a huge hit on cost of goods sold. That was not accounted for and the reason behind this was, as I was counting bottles, I, when I do inventory, physically touch and pick up every bottle and what I found is a lot of the bottles that were in liquor storage. The first five or six bottles in a row were good, full, normal bottles. In the back, two or three were empty. So someone I don't know if this was the manager that left. I frankly have no clue who it was. So I don't want to disparage anybody, but someone had been drinking those bottles and putting them back. And if you just went and did a quick check and said, well, there's supposed to be 10 bottles in this row, there are 10 bottles, boom done. You would have never seen it. But by picking up each bottle and double checking that it was a closed bottle, the problem became apparent.
Chris Schneider:
So if your manager is doing your inventory, your manager could also be stealing from you. They shouldn't be. We should all have managers we trust, but it's the bar business. Things happen and so, as an owner, what does that mean? That means whether you are, if you're not, doing your inventory yourself, whether it is a third party service doing it, whether it is your management doing it, whomever is doing your inventory, you need to go spot check and you need to spot check things carefully and randomly to make sure that the inventory accounts, people are getting actually match what you're seeing. Now. If you have a big establishment with multiple levels of management, maybe your assistant general manager is the one doing the inventory and your general manager is spot checking. But someone needs to spot check inventory and to make sure what is written on that paper, what is being included in your inventory, actually exists, because it's very easy for it not to, especially with somebody doing tricks like hiding empty bottles behind full bottles and keeping those in the inventory cabinet.
Chris Schneider:
So once you have your inventory done and once you've avoided the issues with inventory, what can we do with the data? Because one of the main reason to do inventory is so that we get proper food costs, liquor costs, beer costs, wine costs. Our cost of goods sold is right, our assets on our balance sheet are right, it makes our financials work, and if that's not accurate, then well, our financials are wrong. But what other data can we get from our inventory? And the data point I really like when it comes to inventory is day sales and inventory. How much inventory do I have to sell?
Chris Schneider:
And so to get there, we first have to start with an inventory turnover. Now, inventory turnover is normally cost of goods sold for the year divided by average inventory for the year. I like to look at this on a month-by-month basis, so I just take cost of goods sold and divide it by the amount of inventory at the end of the month. It's not perfect, right, you're going to get more fluctuations month to month, but that's okay because it allows us to actually track this. And if that ratio is one so your cost of goods sold is 10 grand and your inventory is 10 grand that means that every month you're going through your inventory once. If it's more than one, you're going through inventory more than once a month. If it's less than one, you're going through inventory less than once a month. If we take the days in the month, so whether that's 30, 31, 28, 29, whatever it is for that particular month, and we divide that by that inventory turnover rate, that tells us how many days of inventory we have.
Chris Schneider:
And ideally, in my mind, because we're ordering once a week, because most of the stuff we're getting is not scarce. Now I know sometimes individual liquors have runs on them and you buy a case and you're going to hold it for two years because you are, and that's fine. But in general, you know if we're talking around the mill vodka, around the mill rum, run of the mill whiskey, we should be turning that over at least once a month when we're buying it. So I don't like to see more than 30 days in inventory. That gives you enough time if something crazy happens and there's a storm and there's a supply chain issue and you can't get deliveries for two weeks, you're fine, but at the same time you don't have too much money sitting on your shelf. Now, when it comes to food food normally most places are ordering more than once a week, so there are more trucks coming in and food is expensive and it spoils easily. So food, in an ideal world, carry about 14 days of inventory of that and you'd be okay.
Chris Schneider:
Now, a lot of times you're going to see numbers that skew in that 14 to 21 range because you're buying cases of paper goods or something that is being included in the monthly count, but not an item that you go through particularly quickly, but ideally liquor, beer and wine. We're talking days, sales and inventory, so the number of days you can continue your sales based on your current inventory of 30 or less, and for food, ideally 14, 15, 16 days, about two weeks. What you're looking for, if you're looking at this month to month, is that it stays relatively solid, relatively consistent. Wild swings in this number generally mean that something is wrong. Oftentimes it means you overpurchased. Sometimes it can be indicative of theft and different issues. But you're looking for the number of days of your inventory to be in that 14 to 30 range across all categories preferably lower for food and you're looking for that to say relatively consistent month to month, because that means your pars are right, your ordering is right and everything's just running as a smooth machine. Now some final thoughts for you guys before I let you go this week Inventory as I started with it's just money sitting on the machine. Now some final thoughts for you guys before I let you go this week Inventory as I started with it's just money sitting on the shelf. So excess inventory is not something you want. You want to have inventory that you burn through Again. Ideally you're burning through all your inventory every month and you're just purchasing on a regular basis. You need to make sure that you're counting everything consistently and accurately. If things are not being counted consistently, your inventory will be off and there's nothing you can do about it. It's absolutely key to maintaining your inventory properly to make sure that you're accounting consistently and accurately. This is absolutely inventory management, or counting. Inventory is something that you can absolutely outsource. Make sure it's worth it, though. Again, high volume place it's almost always worth it to outsource to a third party. Low volume it's usually not because you have time to count or you have an employee that has time to count. But if you're delegating it to an employee, make sure that they're doing it the same time, the same day, the same way, every week, every month, so that those numbers are consistent and meaningful. And the big thing here is that maintaining proper inventory, maintaining proper counts, is key to being able to generate meaningful data that will allow you to make data-driven decisions to move your business forward. Unless you have the right inventory numbers, unless you have the right cost of goods sold number, unless you can measure things like days, sales and inventory, it's very difficult to say if your inventory is high, it's low, what's going on there? So doing your inventory right, maintaining your records properly, are key to having that data to help drive your business forward. So that about wraps us for today. If you enjoyed today's insights, make sure to like, subscribe and leave a review If you want to gain more insights, join our Bar Business Nation Facebook group. You can go down in the show notes. There's a link right there. We're having some great conversations with bar owners. I'm in there, but a lot of fun conversations happening every week, a lot of tips and tricks being shared between everyone, which is just wonderful, and I love being able to help foster that community, as always. If you want to talk to me more about inventory or anything else, you can schedule a free coaching strategy session with me and we can look at how we can collaborate, what I can do to help you measure these things and to really master your data and your decision making. There's a link for that in the show notes as well. And with that guys, until next time, I hope you have a great day and we will talk again later.
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