FINANCIAL MANAGEMENT. FINANCIAL REPORT Compiled by calendar month, reporting period, predetermined...
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Transcript of FINANCIAL MANAGEMENT. FINANCIAL REPORT Compiled by calendar month, reporting period, predetermined...
FINANCIAL MANAGEMENT
FINANCIAL REPORT Compiled by calendar month, reporting
period, predetermined Serves as a check on the financial control of
the entire operation Affords basis of comparison for preceding
and future periods Provides statistical source for compilation of
annual reports Gives information for preparation of budget Provides means of comparison with like
operations
FINANCIAL REPORTS
Provide information Enough money to pay bills Too much money tied up in inventory Food cost higher or lower than expected
ESSENTIALS OF ACCOUNTING Recording Classifying Summarizing and reporting Analyzing
INCOME STATEMENT Shows business’ operating results – revenue,
expenses, and income Financial status over period of time (month,
quarter) – profit and loss indicated Revenue – sales, income, money generated Cost of goods sold – COGS – cost of meals
served, food cost, money spent for goods Gross margin/profit – money left after paying
for COGS Operating expenses – rent, utilities,
depreciation (12-18%) of total
BALANCE SHEET Shows relationship between a business’ debts and
the items it owns Balance sheet equations:
Liabilities + Owners equity = Assets
Assets – Liabilities = Owners equity Assets
Current – converted to cash within one year
Fixed – long term, used to operate business Liabilities
Current – paid within one year
Fixed – long-term, due beyond one year Equity – capital and stocks
FINANCIAL DATA SHOWS Need to implement better controls Reduce costs Improve budgeting process Increase profit and the return of owners
investment Help prevent theft and fraud – point to
areas for controls Allows you to plan and control the
business
FINANCIAL ANALYSIS
Break even point – sales are equivalent to fixed costs plus variable costs
Fixed costs – stable regardless of sales (rent, depreciation)
Variable costs – vary due to sales amount and volume (food cost)
Other costs – indirect (utilities) or direct (paper goods)
INFORMATION INCLUDED
NUMBER OF MEALS SERVED Patient census – count, NPO Nourishments Supplements Snacks Cafeteria meals Special meals to groups Tube feedings
MEAL COUNT
Inflate meal count cost per meal too low
Meal count too low inflates meal cost $0.05/meal off X 400,000 meals =
$20,000
CALCULATE RAW FOOD COST
BEGINNING INVENTORY
+
PURCHASES (FOR REPORTING
PERIOD)__________________________
TOTAL WORKING INVENTORY- CLOSING INVENTORY
COST OF RAW FOOD USED
30-40% OF DOLLAR SALES
FOOD COST
Food is the most expensive and/or variable cost
Unexplained increase in food cost should first evaluate possible theft
LABOR COSTS Payroll – salaries and wages vacation, holiday, personal day Social security taxes Workmen’s compensation Health and life insurance Other fringe benefits: retirement plans dental/eye plans day care free meals profit sharing plans, etc., etc.
FULL-TIME EQUIVALENTS
FTEs 1 FTE = 40 hour work week 1 FTE relief can cover 2.5 FTEs Compute FTEs: Add ALL man-hours for period of time (week,
day, month) Include part-time and full-time Divide total hours by 40 to get FTE
Each full-time employee = 16 hours / week off2 X 16 = 3240 - 32 = 8 or ½ employeetherefore each relief = 2.5 FTE
TURNOVER
Employees lost + replacement
total staff
So: if total staff = 50
Terminate = 4
Replacement = 2
4 + 2 = 6
6/50 = 0.12 (12% turnover rate)
LAWS WITH A FINANCIAL IMPACT
MINIMUM WAGE
Bureau of Labor Statistics – current information on federal minimum wage
Fair Labor Standards Act of 1938- sets minimum wage
annual gross income of <$500,000 exempt from paying min. wage
can pay teens a temporary training wage
IMPACT
For every 10% increase in minimum wage = 1.2-1.6% increase in hamburger or chicken
WORKMEN’S COMPENSATION ACT
1908 & 1911 Provide medical costs for those injured on job
Encourage employer interest in safety Reduce court delays
OCCUPATIONAL SAFETY AND HEALTH ACT
(1970) Enforced by Occupational Safety and Health
Administration (OSHA) Assure safe and healthful working conditions Meet standards through training Keep records of incidents
SOCIAL SECURITY ACT
1935 Federal Insurance Contribution Act
(FICA) Compulsory Many expansions Medicare 1965
OTHER EXPENSES
Paper goods
PRODUCTIVITY
Defined by Spears: ratio of output to input or the ratio of goals to resources of food service system
MEASURE PRODUCTIVITY
QUANTITY
Quantity – focuses on amount of a product produced or service rendered
Meals per patient day Meals per labor hour Minutes per meal Labor cost per day Food cost per patient per day ETC – see Spears
QUALITY
Focuses on accuracy and quality of the product produced
Food temperature Sensory characteristics Safety and sanitation of work area Seven principles of HACCP
OUTCOMES
Measures whether product met the proposed outcome – did we accomplish what we set out to do
Satisfaction surveys Plate waste Service parameters such as time,
accuracy and lack of crisis management
PRODUCTIVITY INDICATORS Acute care facilities 3.5 meals/labor hour Extended care facilities5.0 meals/labor hour School foodservice13.0-15.0 meals/labor
hour Cafeteria5.5 meals/labor hour Healthcare institutions with 3 meals + snacks 7
days/ week14 minutes/meal can be used
BUDGETS
DEFINED
A plan for operating a business expressed in financial terms
A plan to control expenses and profit in relation to sales
Provides an organized procedure for planning and for development of standards of performance in numerical terms
BUDGET TYPES
OPERATING
Forecasts level of service to be provided
Projects costs necessary to support this level of service
Formulate plan for making management decisions
Control department activities
IMPORTANT TO FOOD SERVICE Standard for comparing actual with
forecasts = FEEDBACK Financial plan for allocation of
resources Organizational plan for meeting
departmental objectives Represents forecast for coming year
CAPITAL BUDGET
Finances major purchases or improvements
Multiple years – up to 5 years Item not consumable Cost level and usable time period is
defined
PREPARATION
Main objective is to formulate a carefully delineated plan for making management decisions and controlling department’s activities
Timetable Objectives Financial feasibility
REVIEW OF DATA
Incremental budgeting – based on previous year and % of increase (food, labor, etc), % of decrease
Flexible budgeting – prepares for level of service at both higher and lower end of original estimate
Zero based budgeting – justification for each item, expenditure
COST CONTROLS
DEFINED
Planned goals and objectives are accomplished with most efficient and effective use of resources
Closely linked to planning
COMPONENTS
Strategic plans – ultimate results are provision of goods and services to satisfy client needs and wants with increased revenue and decreased expense
Policies and Procedures – written statement of goals and objectives with written procedure of how to reach them
EFFECTIVE CONTROL CHARACTERISTICS Extension of planning process Provide accurate up-to-date information
about plans and standards – predetermined targets against which future performance will be measured
Should be flexible to deal with changing environment – within and outside organization
FEEDBACK
DEFINED
Any process that compares the operation’s actual performance, as documented in output reports, with standards of performance, established in control documents
FUNCTION
Evaluates financial performance Evaluates operational performance Identifies potential problems Identifies potential opportunities Should be:
objective based on fair observations of actual data, activities and conditions
FEEDBACK PROCESSES
FINANCIAL STATEMENT ANALYSIS Trend analysis
compare financial/nonfinancial results from several accounting periods
Ratio analysis mathematical relationship between any 2 items
Common size analysis report each line item as a %
Variance analysis difference between actual and projected
FINANCIAL INDICATORS
Based on volume planning What level of revenue necessary to
make desired profit
SENSITIVITY ANALYSIS
Electronic spreadsheets Impact of 5% increase in cafeteria
revenue on net income (example)