FINANCIAL MANAGEMENT

FINANCIAL REPORT Compiled by calendar month, reporting

period, predetermined Serves as a check on the financial control of

the entire operation Affords basis of comparison for preceding

and future periods Provides statistical source for compilation of

annual reports Gives information for preparation of budget Provides means of comparison with like

operations

FINANCIAL REPORTS

Provide information Enough money to pay bills Too much money tied up in inventory Food cost higher or lower than expected

ESSENTIALS OF ACCOUNTING Recording Classifying Summarizing and reporting Analyzing

INCOME STATEMENT Shows business’ operating results – revenue,

expenses, and income Financial status over period of time (month,

quarter) – profit and loss indicated Revenue – sales, income, money generated Cost of goods sold – COGS – cost of meals

served, food cost, money spent for goods Gross margin/profit – money left after paying

for COGS Operating expenses – rent, utilities,

depreciation (12-18%) of total

BALANCE SHEET Shows relationship between a business’ debts and

the items it owns Balance sheet equations:

Liabilities + Owners equity = Assets

Assets – Liabilities = Owners equity Assets

Current – converted to cash within one year

Fixed – long term, used to operate business Liabilities

Current – paid within one year

Fixed – long-term, due beyond one year Equity – capital and stocks

FINANCIAL DATA SHOWS Need to implement better controls Reduce costs Improve budgeting process Increase profit and the return of owners

investment Help prevent theft and fraud – point to

areas for controls Allows you to plan and control the

business

FINANCIAL ANALYSIS

Break even point – sales are equivalent to fixed costs plus variable costs

Fixed costs – stable regardless of sales (rent, depreciation)

Variable costs – vary due to sales amount and volume (food cost)

Other costs – indirect (utilities) or direct (paper goods)

INFORMATION INCLUDED

NUMBER OF MEALS SERVED Patient census – count, NPO Nourishments Supplements Snacks Cafeteria meals Special meals to groups Tube feedings

MEAL COUNT

Inflate meal count cost per meal too low

Meal count too low inflates meal cost $0.05/meal off X 400,000 meals =

$20,000

CALCULATE RAW FOOD COST

BEGINNING INVENTORY

+

PURCHASES (FOR REPORTING

PERIOD)__________________________

TOTAL WORKING INVENTORY- CLOSING INVENTORY

COST OF RAW FOOD USED

30-40% OF DOLLAR SALES

FOOD COST

Food is the most expensive and/or variable cost

Unexplained increase in food cost should first evaluate possible theft

LABOR COSTS Payroll – salaries and wages vacation, holiday, personal day Social security taxes Workmen’s compensation Health and life insurance Other fringe benefits: retirement plans dental/eye plans day care free meals profit sharing plans, etc., etc.

FULL-TIME EQUIVALENTS

FTEs 1 FTE = 40 hour work week 1 FTE relief can cover 2.5 FTEs Compute FTEs: Add ALL man-hours for period of time (week,

day, month) Include part-time and full-time Divide total hours by 40 to get FTE

Each full-time employee = 16 hours / week off2 X 16 = 3240 - 32 = 8 or ½ employeetherefore each relief = 2.5 FTE

TURNOVER

Employees lost + replacement

total staff

So: if total staff = 50

Terminate = 4

Replacement = 2

4 + 2 = 6

6/50 = 0.12 (12% turnover rate)

LAWS WITH A FINANCIAL IMPACT

MINIMUM WAGE

Bureau of Labor Statistics – current information on federal minimum wage

Fair Labor Standards Act of 1938- sets minimum wage

annual gross income of <$500,000 exempt from paying min. wage

can pay teens a temporary training wage

IMPACT

For every 10% increase in minimum wage = 1.2-1.6% increase in hamburger or chicken

WORKMEN’S COMPENSATION ACT

1908 & 1911 Provide medical costs for those injured on job

Encourage employer interest in safety Reduce court delays

OCCUPATIONAL SAFETY AND HEALTH ACT

(1970) Enforced by Occupational Safety and Health

Administration (OSHA) Assure safe and healthful working conditions Meet standards through training Keep records of incidents

SOCIAL SECURITY ACT

1935 Federal Insurance Contribution Act

(FICA) Compulsory Many expansions Medicare 1965

OTHER EXPENSES

Paper goods

PRODUCTIVITY

Defined by Spears: ratio of output to input or the ratio of goals to resources of food service system

MEASURE PRODUCTIVITY

QUANTITY

Quantity – focuses on amount of a product produced or service rendered

Meals per patient day Meals per labor hour Minutes per meal Labor cost per day Food cost per patient per day ETC – see Spears

QUALITY

Focuses on accuracy and quality of the product produced

Food temperature Sensory characteristics Safety and sanitation of work area Seven principles of HACCP

OUTCOMES

Measures whether product met the proposed outcome – did we accomplish what we set out to do

Satisfaction surveys Plate waste Service parameters such as time,

accuracy and lack of crisis management

PRODUCTIVITY INDICATORS Acute care facilities 3.5 meals/labor hour Extended care facilities5.0 meals/labor hour School foodservice13.0-15.0 meals/labor

hour Cafeteria5.5 meals/labor hour Healthcare institutions with 3 meals + snacks 7

days/ week14 minutes/meal can be used

BUDGETS

DEFINED

A plan for operating a business expressed in financial terms

A plan to control expenses and profit in relation to sales

Provides an organized procedure for planning and for development of standards of performance in numerical terms

BUDGET TYPES

OPERATING

Forecasts level of service to be provided

Projects costs necessary to support this level of service

Formulate plan for making management decisions

Control department activities

IMPORTANT TO FOOD SERVICE Standard for comparing actual with

forecasts = FEEDBACK Financial plan for allocation of

resources Organizational plan for meeting

departmental objectives Represents forecast for coming year

CAPITAL BUDGET

Finances major purchases or improvements

Multiple years – up to 5 years Item not consumable Cost level and usable time period is

defined

PREPARATION

Main objective is to formulate a carefully delineated plan for making management decisions and controlling department’s activities

Timetable Objectives Financial feasibility

REVIEW OF DATA

Incremental budgeting – based on previous year and % of increase (food, labor, etc), % of decrease

Flexible budgeting – prepares for level of service at both higher and lower end of original estimate

Zero based budgeting – justification for each item, expenditure

COST CONTROLS

DEFINED

Planned goals and objectives are accomplished with most efficient and effective use of resources

Closely linked to planning

COMPONENTS

Strategic plans – ultimate results are provision of goods and services to satisfy client needs and wants with increased revenue and decreased expense

Policies and Procedures – written statement of goals and objectives with written procedure of how to reach them

EFFECTIVE CONTROL CHARACTERISTICS Extension of planning process Provide accurate up-to-date information

about plans and standards – predetermined targets against which future performance will be measured

Should be flexible to deal with changing environment – within and outside organization

FEEDBACK

DEFINED

Any process that compares the operation’s actual performance, as documented in output reports, with standards of performance, established in control documents

FUNCTION

Evaluates financial performance Evaluates operational performance Identifies potential problems Identifies potential opportunities Should be:

objective based on fair observations of actual data, activities and conditions

FEEDBACK PROCESSES

FINANCIAL STATEMENT ANALYSIS Trend analysis

compare financial/nonfinancial results from several accounting periods

Ratio analysis mathematical relationship between any 2 items

Common size analysis report each line item as a %

Variance analysis difference between actual and projected

FINANCIAL INDICATORS

Based on volume planning What level of revenue necessary to

make desired profit

SENSITIVITY ANALYSIS

Electronic spreadsheets Impact of 5% increase in cafeteria

revenue on net income (example)