Friday Financial Footnotes from Kevin Mclaughlin

Managing the cost of Table Top items

This week I want to share with you some effective strategies that will help you manage your Table top expenses.

Table top items typically are budgeted at .5 (1/2) percent of your total revenues.  The key to managing these costs is not to spend those dollars unless you absolutely need to.  In an account that has Managed volume of 1,000,000 the budget would reflect $5000 for China, Glass and Silverware.

To manage this cost to a minimum follow the attached strategies

·         Inventory all China, Glass and Silver in your /community

·         Once inventoried, determine a “par list” of what you will maintain in inventory

·         Take quarterly inventories of all Table Top items

·         Place a $$$ value on each item based on replacement costs

·         Par level should be set at 1.5 your service level census

·         Always keep items above par out of service until absolutely necessary

·         Take pictures of each Table Top item that you replace and assign the cost associated with that item, this helps staff understand the cost of breakage

·         Monitor and track breakage/loss weekly

·         Initiate a breakage tracking sheet to be filled out each time you have breakage.  Post for all staff to see

·         Monitor monthly costs and share improvements month over month with your TEAM

·         Reward the TEAM with a pizza party or something similar if the monthly totals improve from the prior months

·         Create a silverware drop station that is not near the plate scraping trash receptacle, you will be surprised how much silverware ends up in the trash receptacle nightly

Every $$$ saved from reducing costs will fall to the bottom line realizing a financial performance improvement

Friday Financial Footnotes from Kevin McLaughlin

Fiscal year 2016 is upon us and we need to be sure that we are prepared to drive innovation and support all budgeted expectations

The time in now to begin to launch your improved financial strategies that have been learned throughout the past year.  Financial engagement is

Just one small part of your operation, however it truly proves to be first line of information to detail how you are doing with your financial performance

To insure that you are a financial leader and ready to be successful in fiscal 2016, take a few minutes and ask yourself the following;

Financial performance preparedness, are you ready?

            Maximizing revenues

·         Have you identified all potential revenue streams within your account?

·         Do you fully understand how Revenues are defined beyond cash flow?

·         Does driving revenue have a significant purpose in your day to day management routine?

·         Are your revenue streams providing profitable outcomes to your financial performance?

            Purchasing controls

·         Is my purchasing solid and flawless mirroring my true need for the menus I’ve created?

·         Am I hitting my weekly purchase targets?

·         Is my weekly inventory accurate with updated pricing on all items purchased?

Food Cost

·         Is my Food Cost as a percentage of Revenue at or below my budgeted expectations?

·         Do I hold my production team accountable to directives as detailed in my production sheets?

·         Am I driving “My Food Rules” daily, for every meal?

·         Are portions controlled and monitored for every meal served?

Labor Cost

·         Do I follow the budgeted number of hours set up in Ebudget?

·         Do I review daily reports of actual hours worked in My Staff on a daily basis?

·         Is my hourly staff maximizing productivity during each shift worked?

·         Am I holding my salaried and hourly staff accountable to budget parameters on a regular basis?

·         Is my overall labor expense in line with my budgeted labor percentage of revenues?

Managing Direct Expenses

·         Am I purchasing exactly what I need with regard to Paper and Cleaning?

·         Do I manage my Pcard expenses effectively in e Finance?

·         Am I working closely with my accounting supervisors to insure all expenses are captured prior to month end?

Opportunity Buys

·         Is my percentage of OB monthly spend at maximum levels

·         Do I menu ALL of my OB purchases monthly?

·         Are my OB invoices processed within the week of purchase to insure proper tracking?

·         Does My Orders efficiently reflect my OB items purchased with a stock location to insure $$$$ values are realized?

Looking forward to a great 2016

Friday Financial Footnotes from Kevin J McLaughlin

Managing budgeted payroll costs by determining your accounts “average hourly wage rate”. Understanding the process

Managing payroll expenses is not an easy task in today’s ever changing environment.  This is the season where we typically have more than usual staff changes due to school and first time part time workers in our communities.

For the most part, many of our community budgets have been created more than 12 months ago and we used an pre-determined “average hourly rate” to help manage the budget payroll expense process.  As part of the process we hypothetically determined an increase to the “average hourly wage rate” and which month it would take effect to help us accurately depict payroll expenses throughout the budget year.  I believe it is helpful for each of us to best understand the “how to” process of determining average hourly rates and the effect they have on your budget tied to financial performance.

Data and Facts

·         You manage a medium size CCRC that is budgeted to run with an FTE level of 22.  An FTE is an acronym for “Full Time Equivalent”.

·         1 FTE equals 2080 annual productive hours (40 hours x 52 weeks)

·         22 FTE’s   totals 45760 annual productive hours (2080 x 22 FTE’s)

·         Budgeted average hourly wage rate is $10.62 (pre-determined by prior 9 month history of actual performance)

·         Annual budgeted payroll expense is $485971.20  (Sum total of average hourly wage rate x annual productive hours)

·         Weekly budgeted payroll expense is $9345.60  (Sum total of annual payroll expense divided by 52 weeks)

·         Weekly budgeted hours are 880 (this is the sum of the annul hours divided by 52 weeks in the year)

To determine your budgeted “average hourly wage rate” you divide payroll expense by annual hours.  In this case it would be $485971.20/45760.  This equals $10.62.

Scenario for Exercise

Calculate your actual “average hourly wage rate” for your current years financial performance

Current years financial performance has calculated the actual average hourly wage rate to be $10.69.  To calculate this you would need to take your past 9 months of actual hourly payroll expense divided by your actual hours worked in the same 9 month period. We suggest using 9 months of actual as you will need to have your budget data prepared before the next year’s budget start date.

Your community may have many different wage rates based on positon, tenure with the company etc. This could have little relevance as you will use only actual data and hours worked to calculate your “average hourly wage rate”.

Calculations

9 months of actual payroll expenses total $377800.00

9 months of actual hours worked equals 35320 hours

Average hourly rate would calculate to $10.69.

This exercise shows that you how to determine your average hourly wage rate.  Additionally, this calculation shows that the financial performance has been running higher than budget on payroll expenses due to the increase in the average hourly wage rate calculation of $10.69 vs. $10.62.

The variance to your budget equals the difference in wage rates times the actual hours worked. ($.07 cents per hour x 35320 = $2472.40).

This is extremely important to remember to complete this process to develop an accurate budget for the next year.

Kevin J Mclaughlin | Regional Director of Operations 

Friday Financial Footnotes from Kevin Mclaughlin

Test your knowledge on weights and measures as a Friday Brain Twister

This week, please take the following review to test your standard knowledge of weights and measures, Good Luck

Calculations

1.    How many Liters are in 1 Gallon?

2.    How many Liters are in 1 Quart?

3.    How much does 1 cup of flour weigh?

4.    What is the lb. weight of 1 gallon of liquid?

5.    How many ounces are in ½ lb.?

6.    How many cups are in 1 Gallon?

7.    What measure does 32 ounces represent?

8.    How much does 8 oz. of a carved item weigh?

9.    How many ½ cups are in 2 quarts?

10.  What is the number of ounces in a 50 lb. bag of flour?

CLICK "READ MORE" FOR THE ANSWERS

Friday Financial Footnotes from Kevin Mclaughlin

This week I wanted to revisit a few things related to inventory and the impact that high inventories has on our overall Financial Picture

In many accounts, weekly inventories are mandated especially in our PL operations.  Weekly inventories are a trusted process that helps determine your food consumed for a specific range, usually tied to our weekly calendar closing period of Thursday.   Weekly inventories and consumption are most accurate when ALL Pcard purchases and vendor invoices are processed within the week received.  This allows for your total inventory to be reflective of all items brought into the community and then actual consumption will follow the course.

There are 3 strong components of food cost that are driven by accurate inventories.  These components include;

·         Inventory Cost per day

·         Inventory days on hand

·         Inventory turns

To calculate each of these components follow these formulas and examples

Inventory Cost per day

Take your Monthly FC for the month ending and divide that number by service days in the month

Example

            Monthly FC = $30000

            Days in the month = 30

            Inventory cost per day = $1000

With this example you should also take your budgeted food cost for the month and divide it by the number of days to insure that these numbers match.  If they match, you have made your FC budget for the month.  If they do not match any variance will be falling to PBO either positive or negative.  This can be a great test of your financial skill as a leader.

Inventory Days on hand

Take your end of month inventory total and divide that number by service days in the month

Example

            Inventory taken at month end = $12000

            Food cost per day = $1000

            Inventory days on Hand  = 12,000/1000 = 12 days

The standard for Morrison Community Living, inventory days on hand is not to exceed 6 days at optimum levels for food, and 25 days for optimum levels for Paper.  For every day that you are running above the standard has financial impact to Compass as you are keeping too much food or paper on your shelves.  This overage creates risk for waste of food, theft or other issues that could be out of your control.  Additionally, having food on the shelves that you don’t use within 6 days you are reducing cash flow from an accounting standpoint.

Inventory Turns

Take the number of days in the year and divide that by your inventory days on hand

Example

            Days in the year = 365

            Inventory days on hand = 12

            Inventory turns – 365/12 – 30.4

The goal is to keep your inventory turns as high as possible.  This helps to avoid theft, waste and other uncontrollable issues due to food expirations and overall savings of stored foo and paper items.  Following these factors related to turns will result in increased revenues to your PBIT.

As with any formulas, your performance is only as good as your budget compliance.  Please use these formulas to help you better understand these three components of food cost.  Inventory Cost per day, Inventory Days on hand and inventory  turns.

Kevin J Mclaughlin | Regional Director of Operations

Friday Financial Footnotes from Kevin Mclaughlin

This week’s message reminds all of us about the costs of hourly and salary staff turnover

As we enter the highest turnover season of each year in community Living I felt it best to point out some key factors that can be considered “hidden costs” of staffing and the true expense of turnover.

While we all know the impact that staff turnover can have on our Residents, it’s extremely difficult to put a price tag on what that expense would be. In most cases of turnover it is immeasurable as our Residents typically resonate in a personal way towards our staff.  Whether it be front of the house or back of the house, management or hourly, our staff have direct impact on our operations and ultimately our Resident satisfaction scores.

While many of our staff our entering the work force for the first time it is very important to on board effectively and consistently.  To show you the cost of what it costs for turnover, I have included the following example.

Average Hourly Wage Rate               $10.00

Fringe/Taxes/Benefits @ 36%            $ 3.60

Total Hourly Cost                                $13.60

Scenario

You have a 30 hour per week server resign their position without notice.  The server works 6 hours per day, 5 days per week.  With your server leaving abruptly, you have an immediate void and you need to pay OT to a server to cover the shifts.  The OT rate is now $15.00 per hour plus the fringe totaling $20.40 per hour worked.

You immediately post the positon on My Opportunity and it talks 8 working days to backfill the vacant server position.  So far you have payroll expenses above your normal amounts of 8 days server hours @ 6 hours per day equals 48 hours multiplied by the rate difference (regular to OT) which equals $6.80 per hour worked.  48 hours x $6.80 = $326.40 excess payroll.  Normal payroll would have been 48 hours x $13.60 per hour equaling $652.80, your new expense is $979.20.

This scenario is also compounded by the 3 day training expense you will incur after you onboard a new server.  3 days server training at 6 hours per day.  This expense is 18 hours x $13.60 is $244.80

To recap 

The base amount of normal server wages without turnover would be $652.80

The new amount will be an additional $326.40 + $244.80 = $571.20

Total expense increase for this scenario depicting server turnover is 87.5%,

The 87.5% amount is real and occurs each time we have staff turnover.

Hire correctly as the turnover expenses can be staggering. 

Thanks

Kevin J Mclaughlin | Regional Director of Operations

Friday Financial Footnotes from Kevin Mclaughlin

Realizing the cost of providing free Associate Meals on Food Cost

This week I would like to review the significant impact that Associate Meals (non-revenue generating) have on Food Cost and ultimately PBO.

It seems that for many years there has been an assumption that because we work in the Foodservice industry, we can eat our meals for free.  The logic had been that if we didn’t provide a meal that most associates would “snack” during their shift and ultimately cause bigger issues such as eating in the kitchen etc.  Or morale would drop to such low levels that we couldn’t keep staff. It is difficult to understand how in today’s world that staff would not accept or stay at a job because of the “free meal” assumed hidden benefit.

This assumption is now at the forefront and is being challenged by all Foodservice operators around the country.  National fast food chains have taken a hard stance on this “assumed benefit” for associates.  We have all heard the saying, “there are no free lunches in life”, and that is now true in the Food Service industry.  While offering food for associate consumption is not a bad practice, offering it for free can have staggering consequences.  Having a policy that allows associates to eat a meal is great but it needs to have employee ownership on the other side.  Most National operators offer deep discounts on food for associates who desire to eat a meal while at work. 

Compass Group is no different than any other large national corporation.  Each sector of Compass has specific associate meal programs that can be found in the Compass Owners Managers Suite of services under My CPM, Forms, and in our case, Morrison Community Living Associate Meal Programs.  The Compass/Morrison programs allow for an associate to qualify for a meal through payroll deduction amounts based on hours worked.  The program is spelled out very clearly on the form found in CPM. While the programs do not truly cover the cost of the meal, they offer reasonable solutions to the former “assumed benefit” of having a free meal provided for associates working in the operation.

The impact that providing a free meal to your associates has significant financial impacts and include;

·         Employees preparing additional food to feed employees

·         Employees cooking items for themselves that are not on the menu that day

·         Employees eating both breakfast and lunch on premises

·         Employees taking food from the building for consumption off site

·         Non Budgeted Food Cost which impedes your ability to hit your Food Cost target

·         Significant waste which also results in higher than budget Food Cost

Whether you are in a Fee account or a PL, have Morrison associates or client associates, employee meals have significant impact on your financials.  It’s important to understand this and present the cost impact to your clients as their annual budget process begins. Many clients may allow you to budget for this expense which should be clearly identified as line item in your Food cost budget.

Recently, I conducted an audit of a specific RDO and there region.  Below is a detail of my findings;

The region has 316 Morrison associates and operates with 90% PL accounts

Meal cost for the Region averages $2.60 and includes Soup or Salad, Entre, Starch and Vegetable, Dessert and Cold Beverage.

Assuming that 45% of the Morrison associates were allowed to have a meal working at least a six hour shift, the Region served 36,972 associate meals at a Food Cost of $2.60 per meal.

I assumed the operations to have cumulatively at least 260 service days each year (on the light side taking into consideration the true associate meal consumption by hourly schedules each week).

The impact to Region PBO for the year was a staggering $96,127.

Remember, there is no such thing as a “free lunch”  take a moment to calculate your cost of having an associate free meal program.

Meals x cost x service days = impact on PBO.

Kevin J Mclaughlin | Regional Director of Operations

Friday Financial Footnotes from Kevin Mclaughlin

Communicating Value to our clients through Financial Performance

As leaders within our organization it is important that you look at the many components of communicating Value.  Many client shave different perceptions of what relevant value truly is.  In many cases, Financial performance is one of the top three value drivers for each of you as leaders to accomplish in our clients mind.  Managing your client’s budget demands trust, efficiency and consistency all of which are value drivers. 

• Below are some key components that support Communicating Value through Financial Performance
•  Be aware of the clients financial platform as you need to realize and understand the clients perspective on the number
• Support monthly financial reviews with your clients finance team, remember, you are the expert driving success
• Share your strategies to manage a successful department budget
• Discuss monthly variances with only positive comments, take ownership as you Own Your Business
• Provide as much detail as possible when asked, we are running their business
• If you are in a PL, continually show value as to what is included in your PPD rate each month.  No one likes surprises
• Set an example of your financial management skills setting the standard for other department heads to follow
• Be sure to fully understand the contract as your client, interpretation at the same level is key
•  Drive revenues in all areas of your department.  This truly is a Value Driver as higher revenues work to offset your clients department expenses
• Be accurate with your reporting
• Don’t be afraid to show our systems management to your client
• Get involved with annual budgeting at a higher level, support your clients vision for the future by sharing your expertise of our business
• Manage the budget without cutting quality, service or variety.  All of these are true Value drivers 

Each month you have a formal opportunity to Communicate Value through effective management of the numbers using the Monthly Client report.  However, you also have an opportunity throughout the month to continually show the value with your actions within the Dining Services operation.

Thanks

Kevin J Mclaughlin | Regional Director of Operations

Friday Financial Footnotes from Kevin Mclaughlin

This week’s financial footnote is a reminder to update all Floor Stock, Nourishment and Supplement pricing in eMorrison

Managing your food cost is an integral piece of financial success as well as accuracy at you’re account.  Keeping pricing updated in your system is a simple way to insure that your billable items and tracked items are registering accurately.  Keeping prices updated quarterly is a standard operating practice and should be completed by each account.

In many accounts, we bill back the client for these tracked items or at least keep track of expenses by pantry area. It is essential to insure that you are capturing all of the credits possible to insure that you are managing a healthy, accurate and stable food cost each month.  It’s a good rule to remember to update these tracked items prices at the end of each quarter.  We just completed period 9 which would be the end of the third quarter, so now would be great time to complete this process.

Recognizing that managing your food cost has many moving parts, accuracy in price paid for each item is crucial.  As with inventory pricing, it is equally as important to successful account management and accountability.  To see the impact that “not updating” your tracked item pricing see the below.

SAMPLE COST IMPACT SCENARIO

Over the past 90 days the cost of small yogurts that are in your tracked items as a floor stock for a specific pantry have been stable at $.48 per unit.  It is the end of  the quarter and you are updating prices and find that your small yogurts are now landing into your account at $.59 per unit, a difference of $.11 per unit.  If you deliver 550 small yogurts each month during the billing cycle, this cost increase would impact your food cost by $60.50 on just that one line item.  This is significant as it just shows the impact of not updating pricing for one tracked item.

Additionally, keeping your tracked item prices updated is great information to share during your weekly RDO calls to help to inform other accounts of a specific variance.

Following the process of updating tracked items quarterly will help to insure solid food cost performance.

Kevin J Mclaughlin | Regional Director of Operations

Friday Financial Footnotes from Kevin Mclaughlin

Monitoring and Managing Cleaning supplies in your Community

This week we will be reviewing key components of managing your chemical costs

Typically, chemical costs should not exceed 1.5% of your revenues.  For example, you can take you prior months actual revenues and multiply that number by 1.5%.  The total that appears can be used to compare to your actual cleaning supplies for that same month.  If the number is greater than what it should be you could have a serious chemical cost issue which will only erode PBO.

Example

Period 7 actual revenues posted at $78,000, multiplied by 1.5% = $1170.00.  Your actual chemical expense for period 7 posts at $1345.00.  A difference of $175 or an increase of 1.75%  which is .25% over the max amount of what your chemical should be ruining.

The formula for checking

Revenues multiplied by 1.5% = optimum target for Cleaning supplies

As we get ready to enter the final quarter of the 2015 Financial year, it is a good idea to complete the following.  These suggestions are essential and truly something that should be done routinely, and not less than quarterly;

·         Contact your Ecolab Representative to insure that all of your cleaning systems are operating correctly, dispensing higher amounts of chemicals is very costly and when un controlled can really add up waste and higher expense to your community

·         While your Ecolab representative is on site, ask them if you have the most efficient chemical dispensing system for your specific account.  Frequently systems become outdated and typically like anything that ages do not perform as they were intended when they were new.

·         Check water temperatures from your dish machine regularly (daily as logged).  Many chemicals are dispensed or dissolved based on water temperatures.  If your system is not hitting the wash and rinse temperatures, you could be losing valuable $$$ which fall directly to the bottom line

·         Keep test strips readily available and insure that they are within use by dates for accurate temp testing

·         In service all staff monthly on the importance of using all chemicals and the importance of following specific directions as “how much” to use and what the standards are for PPM of solutions for sanitizer and detergents

·         Do not overstock chemicals, frequently it may seem easier to order chemicals once monthly.  The reality is that you may not truly know your consumption if you follow this rule.  While many accounts run somewhat consistently with dish and ware washing there is always room for error.

·         Chemicals are very expensive and it is important to only keep what you need on hand. Twice monthly could save you money

·         Keep an accurate inventory on hand both quantities and $$$ amounts at all times to insure consistency between inventories

Remember that every improvement to your operation drives improved financial operating performance.

Kevin J Mclaughlin | Regional Director of Operations