Why Efficient Bar Inventory Is The Lifeblood Of Your Business

Most of Your Assets are in Liquid Form

Face it: there is a lot of money tied up in your bar inventory. I’m sure you count your cash often and you always know how much money you have in your bank account, but most of your assets are tied down in your inventory. That is one of the main reasons you need to count it as often as you possibly can. You need to make your staff and management accountable for the way it is handled, and you always need to know where you stand.

In fact, just the act of taking physical inventory more frequently can lower your food cost by as much as 20% – without any additional processes! I will explain a bit further down why this is.

Below I will give you some proven insights into making your bar business that much more profitable by taking control of your inventory strategy.

How, When, and Why Take Liquor Inventory?

It’s a dreadful activity this one; most bar managers, owners, and staff are not big fans of taking inventory. But it is an essential part of the business, and if you neglect taking charge here, you might be missing out on some serious profits.

You could give the BarKontrol app a try if you want to speed up your physical inventory process.

The average bar loses up to 23% of the inventory because of spillage or theft! That is insane! That is almost like giving away every fourth drink for free. This is the average bar, mind you, as reported by Bevinco (bar auditor). They claim that the average bar loses 18%-31% of inventory due to shrinkage. This is because of numerous reasons, including theft, over-pouring, spillage, and more.

Another problem is sitting inventory – it’s basically just unusable cash and you need to have control over what happens to it.

When to Take Inventory?

You need to take inventory when your establishment is closed, that is the easiest way. If you try and do a full inventory count when your establishment is operational, you are setting yourself up for a lot of potential problems. Products could be going out to the customers, vendors could be lining up with your new orders – all of this activity can easily sidetrack your results. So it’s best to take inventory outside of service hours for less distraction.

What is the Point & How Often Should You Take Inventory?

For best results, you should do a full count as often as you possibly can. But it all depends on the kind of business you have, really.

The most often used timeframe, that we know of, is a bi-weekly schedule. If you count your stock every two weeks, you can have decent control over the situation of your stock.

Some bars and restaurants still stick to a monthly inventory strategy because they find it’s easier to track most data in monthly segments.

Some establishments take inventory as often as every week, while others do a full count after every shift – this is obviously the most precise way to take control of your stock management, but most operations make this very hard to implement.

You Need More than Perpetual Inventory

You might have heard about perpetual inventory and physical inventory, two inventory methods often talked about in the industry. While some say they only use perpetual inventory to run their bar business, you actually need both of these to be fully informed of your real situation.

The way this method works is that when you sell an item and punch that into your POS, it will deduct the item from your inventory. If you sell a product with a recipe (like a cocktail), the software will deduct the amounts specified in that certain product’s recipe settings.

For example, let’s say you sell an Old Fashioned and use the following recipe to create the drink: 1 1/2 oz Jim Beam Bourbon whiskey, 1 Sugar cube, 2 dashes Angostura bitters. You would set the recipe in your POS and whenever an Old Fashioned cocktail is sold, it will deduct the specified amounts from your inventory. Most managers will not add the sugar cube or dashes of bitters to a recipe, but it is ultimately your call about how exact you want to be about this. You would just add the bourbon in this case, most likely.

Perpetual inventory is tracked by most POS systems nowadays, and it basically just counts down your inventory as you sell, and counts up when you buy new stock.

Tip: Invest in a good POS system to keep track of your perpetual inventory, it is worth all the money. Don’t try to do this by hand, it is not worth it.

Using the data from your POS thus allows you to have a general idea of what is happening within your business. You can use that information to create new orders and count pour costs. But this is a theoretical value, and it should be corrected from time to time.

That is why you need to…

Take a physical inventory periodically

Your perpetual inventory will most likely not be exact because spillage, theft, and other mistakes will affect the theoretical values the POS system tracks. But if you do a physical inventory from time to time, you can adjust the real values in your POS, and track more realistic results.

Taking physical inventory simply means counting all stock that you have.

Whenever you take a physical inventory, you get an actual value of your stock. You can then adjust the values in your POS to reflect the real values.

The difference between your perpetual and physical inventory is your variance.

Variance is basically a number that tells you how efficiently you managed your inventory. The smaller the variance, the more efficient the inventory management. Variance will never be 0, so you don’t need to worry about that. But it is a value that indicates how well your bar is performing over time. If your variance changes radically from one inventory to the next, for example, you need to look into what could be causing this.

Taking physical inventory can be done with more traditional methods or using spreadsheets, but it will take a bit of time to process.

If you are looking to take your physical inventory to the next level, consider giving the BarKontrol app a try. Taking physical inventory by hand, or on spreadsheets takes a lot of time and effort; a dedicated app can save lots of hours of work.

Taking physical inventory more frequently not only helps you pinpoint potential problems in your business and helps you reconcile the real values with your perpetual inventory, but it also contributes to a significant lowering of shrinkage caused by staff negligence.

Just the act of taking physical inventory more frequently can lower your food cost by as much as 20% – without any additional processes. We have measured this repeatedly in the bars we work with. The reason behind this is that staff will take greater care of your liquid assets if it is clear that it’s important and it is being monitored accordingly.

It makes perfect sense if you think about it: if you never count your physical inventory, and nobody ever counts it, then it’s probably not that important. However, if you are on top of your inventory management, everyone will know, and everyone will be extra careful.

Enjoyed this article? Head on over to our next resource to learn about the most important metrics that can double your bar profits.

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Why not give BarKontrol a try?

Looking to improve the way you take physical inventory in your bar? Why not give the BarKontrol app a try?