Your supplier invoices show what you spent on food last week. They don’t show your food cost, because some of that food is still in the coolroom, and some of what went out on plates came from the delivery before.
Food cost is the food you used, divided by food sales, with the GST taken out of both. We think every cafe should work it out weekly and keep coffee on a line of its own. A monthly figure tells you about a price rise four weeks after it started.
This cafe’s week comes out at 30%
Take a cafe that sold $13,200 of food last week. All of it was eaten in or taken away hot, so all of it carried GST.
- Opening food stock, from Monday morning’s count: $2,600
- Plus food purchases without GST: $3,800, which makes $6,400
- Less closing food stock, from Sunday night’s count: $2,800
- Food used: $3,600
- Food sales: $13,200 less $1,200 of GST, which is $12,000
- Food cost: $3,600 ÷ $12,000 = 30.0%
Sunday night’s $2,800 is next week’s opening stock, the same way the ATO carries one year’s closing stock value into the next year’s opening value.
Two shortcuts give this cafe a different answer:
- Purchases with no stock count: $3,800 ÷ $12,000 = 31.7%, and next week it swings the other way
- GST left in sales: $3,600 ÷ $13,200 = 27.3%
The second does more damage, because it reads 2.7 points low every week. On $12,000 of sales that’s $324 of food. A supplier could put prices up by that much and the wrong number would still read under 30%.
Take the GST out of both sides
If your cafe is registered for GST, the GST in your sales goes to the ATO and the GST on your purchases comes back to you as a credit. Neither belongs in food cost.
On the sales side, food eaten in and hot food to take away are taxable. You find the GST in a taxable sale by dividing it by 11, as the ATO’s BAS worksheet does. Don’t divide the week’s takings by 1.1, though. That goes wrong once you sell GST-free lines, like a plain loaf of bread to take home. Take food sales without GST from your POS or Xero.
On the purchases side, a lot of what a cafe buys is GST-free: unflavoured milk, cream, cheese and eggs, fresh fruit and vegetables, raw meat, and tea and coffee. So use each invoice’s total without GST. On this cafe’s week:
- Supplier invoices paid: $4,000
- GST-free milk, eggs and produce in that: $1,800
- Taxable lines: $2,200, or $2,000 without GST
- Purchases without GST: $3,800
- The whole $4,000 divided by 1.1: $3,636, which is $164 short
Count your stock at prices without GST too. If you’re entitled to GST credits, you generally leave the GST out of your stock’s value.
Count the same lines on the same day each week
A cafe often gets milk, bread and produce several times a week. Most businesses do a stocktake monthly or quarterly, and even a monthly count leaves four weeks of food cost you can’t see.
We’d count the expensive perishables every week (proteins, dairy, avocados, coffee beans) and do a full count, dry stores included, once a month. Count on the same day, at the same point in the delivery cycle. A delivery that lands before the count one week and after it the next will move the percentage on its own.
If you’ve been told you don’t need a stocktake, that’s a tax rule. Under the ATO’s simplified trading stock rules, an eligible small business that reasonably estimates its stock changed by $5,000 or less over the year doesn’t have to do one. Your weekly margin still needs a count.
Keep coffee on its own line
Put coffee and food in one number and food can cost $240 more in a week while coffee costs $240 less, and the total won’t move.
In Xero, set up purchase accounts for food, for coffee and milk, and for drinks. On the POS, report food and coffee sales separately. Then decide where milk goes and stick to it. If most of it goes into coffee, put all of it there.
A two point jump starts with the invoices
Two points on this cafe is $240 a week, or about $12,500 a year. With the same menu and the same sales, a jump like that usually means a price rise, a portion creeping up, or waste.
Check the bookkeeping first. A missing invoice, an invoice in the wrong week or a miscounted shelf can explain a one-week jump.
Then look at unit prices. We see supplier price rises turn up on the invoice with no warning, which is why we flag them the week they happen. When a main supplier moves, recost your best sellers that week.
If prices haven’t moved, compare what your dishes should cost with what the count says. A $22 smashed avocado eaten in has $2 of GST in it, so $5 of ingredients is a 25% plate cost on the $20 that’s yours. If your recipes add up to 27% for the week and the count says 31%, those four points are food that never made it onto a docket: waste, heavy portions, staff meals, comps or theft.
What we would do
- Count opening and closing food stock on the same day each week
- Use each invoice’s total without GST, never the week’s spend divided by 1.1
- Divide by food sales without GST, straight from the POS
- Keep coffee and milk on their own line
- If food cost jumps two points, pull your main supplier invoices before you touch the menu
If we do your cafe’s books, we code each invoice as it arrives and cost of goods sits on the one page we send every week.