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Introduction. Prior to calculating menu prices, it is necessary to determine how much profit a foodservice operation must generate in order to cover operating costs. Profit is the portion of revenue that remains after all operating costs are paid. Costs are all expenses required to conduct business, including rent or mortgage, taxes, licensing fees, and contracts such as laundry, pest control, equipment service, and trash removal, plus food, labor, supplies, telephone, heat, electricity, water, advertising, and printing, to name a few..

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CONTENT. Topic 1 – Control Topic 2 – Cash Flow Topic 3 – Pricing the Event Topic 4 – Professional Service Companies Topic 5 – The Financial Component.

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CONTROL. Controlling the organization’s resources is an important management task required to ensure the financial health of the business. Control techniques must become a key component integrated into each of the other catering management functions to have a successful organization. Both internal and external control features must be developed for the catering management system..

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Internal costs are easy to see and explain. They are costs that a business bases its price on. They include costs like materials, energy, labor, salaries wages, employees benefits, plant, equipment and overheads..

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External costs are costs that are NOT included in what the business bases its price on.

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Prime costs are a firm's expenses directly related to the materials and labor used in production..

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PROCESS CONTROL. The process of control is the focus of Ingredients for Success 17: “ Cost control procedures are created for the acquisition of timely information to equip the caterer with data to scrutinize controllable costs and make appropriate operational decisions.

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Factors Affecting Cost ControL. Food Costs Menus Type of service Purchasing methods Receiving control Storage & storeroom control Production of foods Standardized portions and serving wastes Method of pricing Employee’s meal costs.

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2. Labor Costs Type of service Hours of work / service Menu pattern Physical plant Equipment & arrangement Personnel policies Supervision Fringe Benefits.

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3. Operating and Other Expenses 4. Record Procurement and Receiving Records Invoices Receiving record Purchase record Summary of purchases record Storage and storeroom control: Storage records Storeroom issue or requisition record Perpetual inventory Physical inventory.

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Production and service records: Menu Standardized recipes Production schedules Menu tally.

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Dining room and patient count records Census record Special meals record Cash Transaction Cash receipts record Operating & maintenance: Laundry records Other controllable costs Personnel cost control records Time card.

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Budget. Steps in planning budget 1. Record every source of income 2. Classify the items of expenses 3. Study the operations of the department based on previous records. 4. Set priorities and make decisions 5. Write the budget for presentation. 6. Use the budget..

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Topic 2 CASH FLOW.

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Cash Flow (CF) is the increase or decrease in the amount of money a business, institution, or individual has. In finance, the term is used to describe the amount of cash (currency) that is generated or consumed in a given time period. There are many types of CF, with various important uses for running a business and performing financial analysis..

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Payment Policies. 1. ensure the caterer will receive prompt payment for services rendered. 2. guarantees a positive, steadier cash flow 3. eliminates any unnecessary stress from the caterer worrying about when payment will be made 4. helps to ensure the business's success.

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three basic methods to arrive at the price for any function.

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Menu. Establishing the cost for the event begins with the menu. If the menu features one-half chicken, the caterer will realize a much different profit structure than if featuring a filet. The caterer will also have a much different profit structure if doing a breakfast event than if catering a sit-down dinner. Standardized recipe cost sheets (Figure 11–2) help establish menu costs..

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Expenses. The caterer must understand what expenses will be incurred from executing the event. If the caterer is doing a breakfast for thirty-five people at an off-premise site located five miles away, calculating total costs for the event must include the cost of transportation and the cost of labor to get the food to the location..

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SIZE Co-st t eve.

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7- 11- 14- SERV'CEOR EQUIPMENT NOTCOVERED'N-•SEUI NG PRICE— TOTAL COST ) Line-ns and pkins (b ) (candles. Other Chairs M prnervt C.a Pie Truck Extra or H•ours hrs x $ (c) Truck Labor hrs $ Rid Of Sub Ad r•nin - Cost no cove re.

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Financial Goals. To attain the profit objectives set for the business, the caterer must set financial goals for each event. These goals may be different for each event, depending on the function. The caterer must understand the financial aspects of catering in order to make a profit..

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Extraneous Factors. A caterer must also be aware that at times, based on extraneous factors, the anticipated profits do not materialize. If an event has experienced a financial loss, the caterer must very carefully study and analyze it..

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Contract Protection. One technique used to protect the caterer against unexpected price changes in the market and unforeseen circumstances, when negotiating with a client at least six months in advance, is the use of a contract. It is common to include a statement in the contract to protect the caterer and the client against this kind of change. Something similar to the following statement can be included. This is an approximate price. The finalized price will be given (15 or 30) days before the event. The caterer can then be assured of receiving a fair market price for the services rendered. If the price suddenly decreases, then savings can be passed on to the customer as well. Giving the customer a savings on the original price will definitely communicate the caterer’s dedication to building a solid reputation based on honesty, integrity, and a sense of loyalty built on mutual trust..

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Underlying Causes of Lost Revenue. When executing a catering event, one should always be on the alert for hidden costs that may suddenly reveal themselves and severely dilute the anticipated profit objectives. A caterer’s insurance costs or expense of labor may have increased. Sometimes the caterer may just misjudge, misquote, or unsuccessfully speculate on an event..

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Unethical Purchasing Behavior. One of the most important catering management tasks is the purchasing function. The caterer strives to build a positive relationship based on mutual trust with the suppliers..

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Code of Ethics. which is a formal statement written and communicated to each employee and each stakeholder. Stakeholders are the owner, employee, customer, supplier, competitor, and the community.

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Professional Associations. The Tips from the Trade in this text are situations that are experienced by real caterers. Because caterers often experience similar situations, memberships in professional organizations are recommended. Membership in a local catering organization, the National Association of Catering Executives, the National Restaurant Association, or the American Culinary Federation is important for networking with other professionals. They meet and discuss experiences: issues with clientele, problems they confront in their market, and creative solutions they have used to contribute to their success.

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FINANCIAL STATEMENTS. The two key financial reports prepared from the accounting system to summarize and provide an accurate and complete report of the caterer’s operation are called the balance sheet and the income statement. The balance sheet is a financial picture of what the organization is worth on a specific date, at the end of the month, or at a specific time during the year. The income statement reveals how well the operation is performing financially over a specific period of time.

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Balance Sheet. The financial condition of a catering business will depend on: 1. amount of personal investment incurred by the owners. 2. the ability to obtain credit or borrowed capital. 3. the ability of the caterer to enter and compete in the market. 4. the location of the catering business and the local economic condition.

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Main categories. Assets Liabilities owner’s equity).

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accounting formula. assets – liabilities = the amount of owner’s equity assets = liabilities + owner’s equity operating revenue – operating expenses = net income or loss.