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The food and beverage industry is a tough nut to crack when it comes to generating comprehensive revenue. The competition in the industry is always increasing, which means you must come up with a differentiating strategy to up your percentage of revenue. However, it is still a lucrative industry for new start up’s and also for seasoned restaurant owners who have the expertise to cut labor costs and other overheads, which tend to take up most of the percentage in revenue.

 

The high percentage of labor costs in revenue is due to the high dependence on labor in the industry. From cooking to serving and then after-sale services, all jobs are labor-intensive. Even the back end of your operations highly depends on skilled labor and their efficiency to carry out the designated tasks. Check out America's Best Bookkeepers

 

Labor costs

According to research, labor costs in the food and beverage industry take up around 20 -40% in the percentage of revenue. The percentage varies from restaurant to restaurant as well as other factors such as level of automation, target market, location, and type of offered services. This is a high percentage when we observe that it is a single cost, and we have not added other costs, which would result in a higher number, leaving business owners with little margins.

 

Food and labor costs differ from the kind of food service provider. As a fantastic restaurant, you will incur and higher food and labor cost percentages than if you are running a fast food or casual dine-in restaurant. The product itself, quality, service, pricing operating hours will influence the percentage of revenue. States have minimum wage limits for jobs, so you will incur a minimum cost as soon as you hire a worker. The amount of beverage sales, as a part of the food mix, has a substantial effect on the cost percentage as a whole. Check out America's Best Bookkeepers

 

Calculating labor costs

The biggest and most obvious cost would include the wages paid to your workers for the work they are performing for your business. Some of them are paid on an hourly basis, while others would be permanent staff. Businesses often are careless about factoring in other labor-related costs, which are related to benefits, leaves, vacations, health care, and so on. It is not easy to calculate all these costs accurately, and you would require proper bookkeeping set up to account for them at their closest.

Labor costs as a percentage of revenue substantially rise as you add the obscured costs, which are not so obvious.  Check out America's Best Bookkeepers

 

Other costs

Once you have calculated all the costs, the job is not done because other costs are still to be calculated, which have complications of their own. The cost of acquiring the raw material for food before it is prepared and served or sold is another significant cost that cannot be ignored. Logistics, overheads, and utility bills are some other costs that you should keep in mind while operating in the food and beverage industry.

 

How to reduce labor costs?

The survival of your business depends on your ability to reduce costs and bring them to an optimum level. While reducing all costs is important, costs related to labor are perilous because they take up a significant share of the percentage of revenue. The staff for food and beverage businesses should be hired on a need basis. There will be instances when your restaurant would appear understaffed because it’s full, and at times it would appear to be overstaffed because there is no one to serve. Striking an optimum balance in between is the key to reduce labor costs. One way is to keep a specific number of permanent employees and hire the rest on an hourly basis if the demand arises. There are ways to work around the high costs and reduce its effect on the percentage of revenue. You need a bit of creativity and common sense.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

Businessman hand calculate bout cost with laptop for search data.
Expecting to achieve the right strategic balance in inventory in the beginning of a new business is not an easy task. Manufacturing businesses aim to minimize their work in process in order to maximize their profitability. Simultaneously, they also look for alternative routes to minimize their production and post-production costs as much as possible to increase their yearly profits. For small businesses, such as a bakery, it is hard to find the right WIP costs since you cannot anticipate exact labor and overheads costs where ingredients are easily transformed from raw material to a finished product. For big setups, you can easily calculate WIP through accounting/bookkeeping knowledge and wisdom.

Is There A Difference Between Work In Process And Work In Progress?

Work in Process

These terms are often used interchangeably because WIP is perceived as the same thing. However, there is a slight difference between these two terms that mostly lies in the context. Work in process refers to the production costs of partially-completed goods, which means the manufacturer’s inventory that is not yet completed. It includes different costs like raw material, labor, and overheads which need to be known for determining per unit cost of goods manufactured.

This indicates that work in process speaks more of the inventory side of things, whereas work in progress involves the construction of long-term costs as well. For lowering work in process costs, manufacturers need to play smart and make their raw material purchases from the most affordable vendors in their vicinity. Also, they need to hire labor for the production shifts at competitive rates and minimize overheads costs as much as possible. The final per unit price can only be determined if manufacturers know the exact level of output from the resources applied. In short, whatever is consumed on the factory floor for the production of goods such as the direct cost of raw material, direct costs of labor and factory overheads for the production period. This will give an exact per unit cost. The formula for calculating Work in Process is:

Work in Process = (operating inventory goods in process + raw material used + direct labor during the period + factory overhead for period) – ending inventory

Work In Progress

Work in progress involves the construction of long-term assets that will be used for the production of goods that are not yet completed. Until the time construction work is completed and the facility starts to manufacture goods itself, the amount spent on partially completed construction of long-term assets would fall under work in progress. In the balance sheet, the amount spent will be treated in long-term assets under the plant and equipment section. When construction wraps up, it will no longer be treated as work in progress. Depreciation of long-term assets starts as soon as the whole building and infrastructure is operational and starts to produce goods.

Cost Saving Benefits

The key cost-saving benefits of work in process and work in progress are efficiency, accuracy, traceability, and productivity. Obviously, every production house strives to minimize the work in the process due to lack of production or manufacturing knowledge and awareness. Businesses can’t survive for long if the per unit price of goods is only based on vague assumptions and mere guesses. Knowing the actual price of the manufactured product is absolutely essential for setting the correct price of the product with markup. For example, if you can determine the exact per unit price of the product to be $5 and if you expect to sell the product directly to the retailers for $7, which means a markup of $2, you will know exactly how much profit you are earning by selling each unit.

Work In Progress—Done Right!

You may be proficient at manufacturing goods in your production facility but not at costing. For ideal costing, you need to hire an in-house accounting expert for determining and revealing the exact per unit cost of production. Based on manufacturing and bookkeeping records, the expert will help you put the right production order in place for optimal results.


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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.