Food operators often tend to focus on sales alone and neglect other factors that actually contribute to the overall income flow. Here are the top 5 common mistakes in managing finances that lead to monetary loss for your business.
1. Failing to plan a proper menu
Variety is undoubtedly a crucial factor when it comes to attracting potential customers, but you also have to be smart about your menu. It ideally should be cohesive enough to produce several dishes. Besides that, a budgeted list for grocery shopping avoids impulse purchases of unnecessary items that may not even be utilised during food preparation.
2. Failing to identify the shelf life of ingredients
During menu planning, it’s best to identify short-term and long-term ingredients. Store them accordingly with date of purchase, expiration, and quantities available clearly displayed for easy reference. Stock checks should ideally be conducted once every two weeks, and may increase in frequency if your business utilises a huge supply of short-term ingredients. Be sure to practice the “first in, first out” method, in order to bring food wastage to a minimum.
3. Failing to keep an eye on fluctuating food prices
Fluctuating food prices is often unavoidable, especially when it's a low-yield harvest season. When setting menu prices, one has to take into account the frequency and significance of these price fluctuations for ingredients in order to ensure a consistent profit, without constantly altering the prices and possibly creating a negative impression of your business.
4. Failing to anticipate the flow of customers
Predicting the day’s customers can help you cut down on financial loss. For instance, you could consider preparing less quantities of food during the middle of the month – on the general assumption that people tend to spend less due to budget constraints. Conversely, you can prepare a higher volume when it’s a paid salary week, which usually falls on the last week of the month.
5. Failing to distinguish cash and accrual spending
There are two key methods when recording your business’ cash flow: cash-basis and accrual-basis. Many small business owners opt for cash-basis as it simply records what goes in and out; transactions that are paid and received. On the other hand, accrual-basis jots down the precise moment when a service/product has been delivered or received, regardless of whether cash has been exchanged. This requires more complex bookkeeping but gives you a better portrait of your finances for future decision-making.