Part 6 of 6: Valuation and Control of Inventory
Inventory Valuation Made Easy
Daunted by the pros and cons of the various accounting procedures used in today's liquor, wine and beverage industry? No need. Choose the approach that best meets the requirements of your establishment. Keep it simple. The following methods are tried and tested. They are also known for their ability to control cash flow and to reduce overall costs.
- FIFO (first in, first out). This means that items in storage are valued at the level of the most-recently purchased items. FIFO helps maximize profits by extending inventory value, particularly when inflation is high. A word of warning, though: Make sure that all profits are accurately recorded and that all drinks are rotated on a strictly first-in, first-out basis.
- LIFO (last in, first out). Here, the most-recent items are recorded as the first ones used. This method is useful when prices are rising, fast. Rotate stock on a FIFO basis, but make sure that the value of the inventory reflects the oldest purchase prices. If your product valuation is keenly affected by inflation, use LIFO!
- Actual Method. With the Actual Method, the inventory is valued at actual cost. It's a bit time consuming, unless you have a computerized system - even then, the Actual Method is probably not the best choice for reducing costs.
- Last Price Method. Similar to FIFO, this is one of the most commonly used accounting procedures used in the beverage industry today. It involves using the last purchase price to extend inventory value.
- Computerized packages. Whatever your choice of method, a good-off-the-shelf package for calculating inventory values is a must.
Controlling Bar Inventory
Wastage, spillage, employee theft, oversights and inefficiency are most likely to occur in the working environment of a busy bar. Improved management of bar inventory can make a big impact on profits. Even one bottle of liquor represents a substantial profit - or loss. Introduce a few changes behind the bar. Small adjustments can make a big difference!
- Security-mark bottles. Security-mark every bottle of liquor destined for the bar when it is received into the storeroom. This identifying mark, stamp or nonremovable label (placed on the bottom or side of the bottle) proves that the bottle belongs to your operation. If you are using a computer-controlled inventory system, consider using a bar-coded label for better inventory control.
- Unauthorized sales. Empty bottles returned without a mark indicate that bar staff may possibly be serving liquor from unauthorized bottles. It is not unknown for employees to bring in their own bottles in the hope of making a fast buck!
- Control cards. All inventory requisitioned by the bar must be recorded in the perpetual inventory, usually by computer. A backup card system can act as an invaluable "double check." Don't make it complicated. All you need is a date and signature against the item.
- Bin cards. Bin cards give you extra control over high-value items. Fix small index cards (known in the trade as bin cards) to the shelves where such items are located. Keep a careful eye on the running totals.
- Backup liquor. Even on a typical busy night, one bottle of premium liquor and two to six bottles of well liquor is sufficient backup.
- Accurate records. Distinguish clearly between unopened and opened bottles when valuing inventory. Opened bottles should be measured to the nearest tenth of a bottle, using dipsticks or by weight.