How to Run a Bar: Cost of Goods Sold Reports Creation - dummies

How to Run a Bar: Cost of Goods Sold Reports Creation

By Ray Foley, Heather Dismore

A cost of goods sold (COGS) report measures your actual food and beverage cost percentages in your bar, rather than an estimate. It helps you figure out how much of your food (in dollars) turns into actual sales (in dollars). It shows you how much you’re spending on inventory items compared to your sales, which is the ultimate test of how well you manage your inventory.

Write COGS, but say “cost of goods sold.” No one really says “COGS.”

Here is a sample COGS report.

Beginning Inventory (A) Purchases (B) Ending Inventory (C) Sales (D) COGS
Food 957 1,200 876 7,500 17.08%
Liquor 2,400 2,745 1,296 18,942 20.32%
Beer 895 1,200 910 9,426 12.57%
Wine 674 350 297 3,242 22.42%
Total 4,926 5,495 3,379 39,110 18.01%

To create your own COGS report, follow these steps:

  1. Figure out your beginning inventory (A).

    If you’re just starting and had nothing on the shelf at the beginning of the month, your beginning inventory is $0. If you’ve been in business, just use your ending inventory number from the previous month’s report.

    You can break down your inventory categories in as much detail as you want.

    The more detailed you are, the better you’ll be able to spot trends within larger categories (so you could split beer into multiple categories like Draft and Bottled, or even further into Bottled–Domestic, Bottled–Import, Bottled–Microbrew). Just make sure that you track both your inventory and purchases in a consistent manner so you can get accurate numbers.

  2. Tally your invoices for the products you purchased during the time period you’re reporting on (B).

    Help yourself by keeping an invoice log (list of invoices). Assign each invoice to a category that matches with a category on your COGS report. If you make this a habit, you’ll save yourself a ton of time when you go to create the report. And you’ll make sure you don’t miss any invoices.

    If several items from different categories are listed on a single invoice, make sure you put the correct amount in each category, rather than just assigning the total invoice amount to a single category.

  3. Figure out your ending inventory (C).

    For this report to be truly accurate, you must do a full and accurate physical count of your inventory and determine the full dollar value it represents.

  4. Figure out your sales for the inventory period (D).

    Your computer system should track this total for you regularly. If not, add up your daily sales totals from each day during the inventory period to get this total.

  5. Add your beginning inventory and your purchases (A + B). Then subtract your ending inventory (now A + B – C).

  6. Divide that total by your sales (D), [(A + B – C) ÷ D] to get your cost of goods sold.

Your POS system (computerized cash register and sales system) may have much of this reporting built in. Having your menu items, sales, ordering, reporting, time clocks, and other systems connected through a single program (or a connected suite of programs) is extremely helpful.

Plus, these always-on programs can give you a level of data granularity that you can’t get by simply adding up the totals at the end of the night. POS software can tell you things like

  • How often you turn which tables

  • Exactly which hours (or half hours) are your busiest or most profitable

  • What time of day/night you sold that surprise ½ bottle of $500 tequila

  • When you’ll likely be busy next week, to help you schedule staff and order products successfully

If you’d rather use separate forms, you can create your own or purchase spreadsheets and forms from websites like Free Restaurant Forms offers a few less-robust forms for, um, free.

You can use whatever tool works for you. Our point is this: Use it. You need this information to manage your business successfully. After all, that’s the point, right?