Pubs are no different to any other business where stocks are concerned. Controlling and managing your stocks is one of the key elements to maintaining positive cash flow and profitability. Whether you are an “old hand” or this is a new business you are starting up then the principles are the same.
The first sign of a stock problem is often a reduction in net profit while the ultimate is severe negative cash flow. Sound accounting procedures will produce financial control information on stock levels, creditors and financial investment to provide early warning systems of impending cash flow problems.
Larger businesses have whole departments producing financial information reviewing and monitoring financial influences within the business. Smaller businesses often do not have these details and controls and put themselves at risk. As the economy at large shrinks (as is evinced by the austerity measures now in place) the businesses that are most at risk are those which fail to manage their liquidity until it is too late.
What are the different types of stock?
Most of your wet stock is “finished stock” i.e. ready for immediate sale, without further processing (the notable exception being cask ales which require a certain amount of attention). Your food stocks will be, by and large, made up of raw materials, work in progress and finished stock.
Finished stock (meals frozen for use later etc), raw materials (fruit and veg, dry stores etc), work in progress (prep for your Sunday lunch service for instance) and consumable stock (sauces, cruets, napkins) all require attention to ensure adequate stock levels are available to the business and overstocking is eliminated.
All stock has to be financed and funded from either the working capital of the business (cash in hand or overdraft) or external funding (cash injected into the business from savings or loans).
If your business has the resource to fund stock purchases from available cash, then high stock levels may be advantageous in obtaining better supplier discounts when purchasing (except for tied products, such as beer, where pricing is not influenced by volume purchased).
When the value of stock has to be financed then it is important the stock levels are managed to use up the minimum financial resources (the only exception being to service peak demand or to take advantage of significant saving from suppliers’ promotional deals).
Stock management not an art, a science
Good stock management is about balancing the need to keep the minimum level of stocks on hand but always having just enough for the level of sales without stock shortages. Large businesses employ specialist accountants (stock managers) to set and enforce a stock policy while this duty is left to the business owner in small businesses.
The first step to effective stock control is to carry out a stock audit through a physical stock take. There are numerous stock taking programs available for you to carry out your own stock takes if you have the time and discipline to do so. For the majority of us time (and discipline in some cases) is in short supply so you may prefer to use an external stock taker.
Whichever you choose you will need to produce financial statistics of the sales volume for each item in the business. Whichever accounting system you choose, it should produce easily accessible stock figures so the situation can be constantly monitored. The best way to do this is to invest in an Electronic Point of Sale system (EPOS).
EPOS – the essential tool in modern stock management
There are EPOS systems to suit all pubs and all pockets whether they are purchased, leased or rented. The thing they have in common is that they will produce detailed information on all the items you sell. How many sold, how much for, when sold, staff member sales figures, wet or dry, how much in the day/week/period/month.
Monitoring stock quantities by including sales and purchases can also provide indications of abnormal stock losses through loss and theft. Valuable stock, especially with a potential resale value (such as tobacco, wines and spirits or steaks), should be kept separately from your main stocks and access restricted.
Once you have the stock levels and turnover figures you will be able to manage your stocks, eliminating or reducing those items over stocked. Increasing the stock levels of those items under stocked to maintain maximum sales volume by eliminating shortages.
See my separate article on EPOS systems for pubs.