Class NameInstructor NameDate, Semester

Foundations of Cost ControlDaniel Traster

A Discussion of Other Expenses

chapter 15

Controllable Expense Considerations

• Decisions about controllable expenses are often made infrequently, unlike food, beverage, and labor, which are made daily

• These expenses are no less important to control

• One bad decision can cause weeks of unnecessary additional expense

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Direct Operating Expenses: Utensils

• Range from very expensive to disposable• Choice based on business’s image and costs

for purchase and maintenance• Even “permanent” options must be replaced

periodically

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Direct Operating Expenses: China and Glassware

• Similar concerns to utensils• Range from expensive to disposable• Durability is important as some types break

easily• Types of pieces to purchase depend on menu

offerings

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Direct Operating Expenses: Linens and Uniforms

• Can own and launder in-house, own and send out for laundering, or just rent

• Linens and uniforms work similarly, but uniforms often have an upfront cost for embroidery

• Low cost options: use tables that don’t need cloths or use disposable toppers; have employees supply and launder uniforms

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Direct Operating Expenses: Cleaning

• Supplies can come concentrated or pre-diluted

• Dispensers help with portion control• Outsourcing of cleaning is an option

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Direct Operating Expenses: Kitchen and Bar Utensils

The right choice depends on how often each piece of equipment will be used and what is

needed to execute the menu

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Expensive, but labor saving Cheapervs.

Direct Operating Expenses - Decorations

• Flowers – live or artificial• Wall hangings – can purchase or display

pieces on loan and on sale from artists

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Decorations should always reinforce a restaurant’s theme.

Direct Operating Expenses: Menus

• Great variation in cost from leather-bound to disposable paper to laminated options

• Take-out menus should be available if take-out is offered

• Chalkboards or wall menus can supersede the need for individual menus

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Direct Operating Expenses – Licenses and Permits

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Must be purchased to comply with the law.

Other Direct Operating Expenses

• Should either support the business concept or aid marketing (e.g. promotional magnets or matchbooks)

• Fuel (not from utilities) – includes gas for deliveries and charcoal or wood for cooking

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Music and Entertainment

• Small royalty fees for recorded music• Bigger expenses for live performances• Options include

―Music―Television―Movies―live entertainers―A/V equipment for speakers, performers, or poets• Should always support the business concept

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Energy and Utilities

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Cannot control pricing, so control is best exercised by using energy-saving equipment and cooking techniques.

Energy creation technology (wind, solar, geothermal) is becoming more available.

Conservation: Refrigeration

• Do not block air flow• Keep doors closed as much as possible• Let hot items cool before refrigerating• Clean compressors and maintain gaskets• Use pass-through curtains• Locate freezer inside refrigerator

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Conservation: Lighting

• Use low-energy bulbs• Turn off lights when not needed• Use windows to brighten the room

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Conservation: HVAC and Hoods

• Maintain and clean HVAC and hoods• Keep thermostats at appropriate

temperatures• Insulate walls• Use energy-efficient window• Use hoods that use some make-up air as part

of their operation

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Conservation: Cooking Equipment and Technique

• Steamers and microwaves are more efficient than flat-tops

• Induction burners heat the room less than other cook top types

• Use ovens to cook multiple items at once and turn them off when not in use

• Cover pots for faster heating• Keep equipment clean

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Energy Creation

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Solar panels, windmills, and geothermal energy have high initial costs, but eventually pay for themselves over years.

Water

• Repair leaks quickly to avoid waste• Use a water softener in hard-water areas to

keep dishwashers working efficiently• Avoid wasting water in the cooking or

thawing process• Water reclamation can be employed in larger

manufacturing businesses

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Waste Management

• Sell fat instead of throwing it out• Recycling may allow for fewer paid trash pick-

ups (and recycling pick-ups may be cheaper)• Farmers may pick up food waste for free• Decomposing waste can be converted to

compost or fuel or both

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Administrative and General

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Includes lots of overhead expenses, some of which will vary depending on the type of restaurant.

Administrative and General

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Insurance:• protects a business against theft, loss from equipment failure, and lawsuits

Risk management• keeps insurance costs low

Security• lots of variety depending on business location, type and hours

Employee training• helps protect staff, guests, and property in case of theft or major disaster

Administrative and General

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Back Office•Accounting is often done by a manager or outsourced, but in multi-unit properties, a single back office manager can handle all units and save money•Back office manager requires salary and office space, but costs are shared across business units

Repairs and Maintenance

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Repairs are common to

keep equipment

running and customers

safe

Preventive maintenance

minimizes the number

of emergency

repairs

Preventive maintenance

is often contracted

out to a specialty company

Repairs and Maintenance

• Budget depends on age and condition of equipment

• Savings from buying used equipment may be used up in more frequent repairs

• Cash flow impacts decision of new vs. used equipment purchases

• Some equipment is provided free by purveyors for using their products

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Repairs and Maintenance

• Landscaping and exterior maintenance costs vary depending on business location and the extent of exterior landscape

• Large properties cost more to maintain but can be used for outdoor parties or miniature farms

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Repairs and Maintenance

• Parking lots require snow removal and lighting

• Parking may be contracted to valets or parking garages

• Facility upgrades may be needed every few years and should be budgeted in advance

• Major renovations may require closure and business loss for a period of time

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Fixed Expense Considerations

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Fixed expense decisions may only occur once a year, but they impact a year or more of budget.

Occupancy Costs

• Buying a property allows owner greater control of the property and savings once the mortgage is paid off

• Buying allows for equity in the property• Buying is also very expensive• Renting is easier on cash flow• In renting, certain expenses become the

landlord’s responsibility

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Capital Budgeting

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Capital Budgeting is a process for deciding between major investments whose expenses and returns span multiple budget cycles.

Capital Budgeting Process

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