Watch our video or read our article below to learn what is Cost of Goods sold, how to calculate it, where to find it and why you should be monitoring this on a regular basis.
What is Cost of Goods Sold?
Cost of Goods Sold (COGS) is the figure which tells you the actual cost of food and drink to your business for a given period.
When calculating your COGS it is important to consider your closing stock. The stock you have on hand will not be an expense until you have sold it. Including any stock in hand as part of your COGS figure will not give you an accurate picture on the food and drinks cost of your Restaurant.
Lets work this out with an example...
Bob has set up a Restaurant and in the first month he has purchased £3,000 of food and drink. During that month he generated sales of £10,000. However at the end of the month, he also had £500 of food and drink in stock. So Bob's actual cost of food for the month was not £3,000 but was £2,500 (£3,000 - £500).
In Bob's second month of trading, he purchased £3,500 of food and drink. During the 2nd month, he generated sales of £12,000 and at the end of the month he had £300 of stock on hand. To get to the actual cost of sale, you start with the opening stock which was £500 (month 1 closing balance) plus £3,500 of purchases less £300 of closing stock. This leaves Bob with a COGS of £3,700 for month 2.
Now that you know how to work out your COGS figure you can also work out your COGS % by taking the COGS figure and dividing it by the sales figure and multiply by 100. So for month 1, the COGS% would be 25% (2,500 / £10,000)*100.
You can use the COGS% and compare it to other months to see check if your figures are consistent.
Where to find your COGS figure
Now that you know how to calculate the COGS figure, you need to simply keep an eye on it. The COGS figure will be found in your profit and loss account. The value of stock you are holding in the business can be found on your balance sheet, under inventory which is a current asset of your Restaurant.
Why calculate and monitor your COGS figure
Any business owner should put processes in place to ensure they have an accurate COGS figure because without calculating your COGS, you cannot see the true profitability of your business.
Calculating your COGS also allows you to work out your COGS% as explained above. These figures can then be simply used to compare to other months and getter a better insight to what is happening with your business.
Monitoring your COGS figure allows you to compare this with your your ideal plate cost and allows you to explore if there is a material difference between your calculations. Check our blog or click here to understand what your ideal plate cost is and how this can be compared to your actual cost.
Calculating your COGS accurately is important so you can work out the profit you are making on the sale of your dishes, known as gross profit. Without an accurate calculation, you don't know if your dishes are at the right selling price.
How we can help you
We can help you to work out your ideal plate cost and then compare this to your actual results by using real time data.
If you go over your cost % then we can pick this up immediately and work with you to finding solutions to keep your costs under control and allowing you to keep taking more money home.
If you would like to know more, you can contact us on 0121 227 6277.