What is liquor inventory and how is it performed? If you own a bar and want to avoid a state audit for $98,000 I'll explain how you can have peace of mind.
Have you ever been the victim of an audit by your state liquor commission? Would you be prepared to write a check for $98,000 for such a demand? The first thing most people do in this situation is hire an attorney and a CPA who specialize in this type of claim, but it may be too late. After all, have you ever attempted to produce four years’ worth of sales and inventory records?According to a recent State of Ohio audit study (see below), over 80% of bars and nightclubs exceed the state allowance for shrinkage? Friends, is this the position you want to be in? For a minimal weekly charge, you could be a BevInco client who not only saves thousands every year…you probably wouldn’t have a thing to worry about when facing a dreaded state audit. Why? Because BevInco clients enjoy the peace of mind that comes with having the industry’s tightest inventory and documentation controls. This edition of the Design Buzz Productive Bar Design Series discusses inventory control the BevInco way, and how nightclubs and bars can maximize profits.
What Is BevInco?
BevInco, a subsidiary of BevIntel, a leader of hospitality profit solutions, is a consulting service that helps nightclub, bar and restaurant owners manage their liquor, wine and beer inventories. BevInco, has an international network of dealers. Clients pay a nominal ongoing fee to use BevInco’s proprietary inventory software, after a local dealer sets-up the database. The respective client can elect to either run his/her inventory (which is not inherently systematic), or contract to have the inventory service performed by the local BevInco technician.
How Does the BevInco Service Work?
With the BevInco software and the owner’s POS system, the local dealer performs audits and works with the owner to systematically decrease losses. To maximize profits, every nightclub and bar owner needs to perform a structured, weekly inventory audit. The local BevInco dealer can arrange to do that for you or they can be contracted to come in quarterly to cross-check your inventory on a spot-basis. With BevInco, the goal is to establish a streamline stocktaking process, reduce spillage, waste and shrinkage and maintain optimal liquor and beer inventories through a proven systematic approach.
What Are Some of the Most Interesting Facts about Bars, Their Losses and Their Liquor Inventories?
If you don’t think it’s worth your time and effort to learn as much as you can about gaining control of your inventory and inventory shrinkage, think again, my friend! Here are some facts you really need to know, what in all likelihood is happening to you (without your knowledge) and the ultimate nightmare that could happen to you:
The $98,000 Audit
Are you aware that 90% of bars are missing 15% or more of their inventory?! What does this actually mean? If you sell an aggregate of $15,000 worth of beer, wine and liquor each week and 15% is unaccounted, that’s $2,250 each week, or $117,000 annually. Subsequently, the state will be looking for $8,190 in sales tax each year*, but the worst part is yet to come. You aren’t even aware that you are missing the aforementioned inventory because you don’t perform consistent, reliable inventory audit procedures – if you perform them at all. So life is good today, because, in spite of yourself, you are still making money. But wait, your sunny world can come crashing down one day, four years from now, when the state sends you an audit demand for $98,280! Sound like something wrong with my math? No. The $98,280 bill includes penalties and interest – which is about three times the principal!
As any logical-thinking person could imagine, free-pouring has to be the most inaccurate way of making a drink. The typical shot glass, which typically has a white “pour line” (shown in the photo at right) is designed to deliver one ounce of alcohol, provided that the alcohol is poured to the bottom of the pour line. If the alcohol is poured to the top of the pour line, that is 1.125 oz, or an overpour of 1/8 oz. As described in an earlier post of Design Buzz (refer below), this can easily result in a financial loss of $50,000 or more per year to the owner. But an overpour of 1/8 oz. would be a welcome sight to the average owner. Here is actual audited information of the average pour size, from my good friend Chuck Deibel, regional vice president of BevInco, from his column “Last Call” in the May 2011 edition of the Ohio Beverage Monthly, which you can download below:
· Average pour size is 1.38 oz
· 47% used 1.50 oz
· 43% used 1.25 oz
· 3% used 1.75 oz
· 3% used 1 oz
Average Shrinkage Per Category
In a comprehensive State of Ohio audit study of 350 bars (which can be downloaded below), Deibel unveiled some additional information that he says coincides with his many years as a BevInco dealer. What I like about Chuck is that he’s a CPA and has taught cost accounting on the collegiate level. In other words, his research is extremely reliable. According to Deibel, here’s the shrinkage per category:
· Liquor 22.1% (10%)
· Wine 19.2% (5%)
· Bottle beer 10.6% (0%)
· Draft beer 16.3% (5%)
The numbers in parenthesis represent what the state of Ohio allows. Please pay particular attention to the numbers in parenthesis, because these percentages are what the state allows. The reality is that the actual losses for owners who aren’t BevInco clients are normally far greater, because they simply don’t have actual pour cost information.
According to Deibel, “Most (inventory) analysis methods that are done don’t really get at shrinkage.” “They basically have a (profit) percentage they look at, and if that’s in-line, people think that’s fine.” Most bar operators are not calculating their ideal sales or ideal pour cost percentages and comparing those numbers to their actual, so they are not aware of how much money they are losing. Consequently, when the sales tax audit occurs, bar owners find themselves owing thousands and thousands of dollars in sales tax, penalties and interest. With the BevInco service, you will get a handle of how much inventory is missing and how to adjust your losses to these thresholds. Even better, you will gain knowledge and control of your losses through systematic audits. According to Deibel, his average client has reduced their inventory shrinkage from 20% to 2%!
As I mentioned earlier, BevInco provides bar and nightclub owners with their proprietary software. A sample of how a BevInco client improved his bottom-line in just four months is shown in these two audit reports, which can be downloaded below.
At an average weekly cost of $200, the BevInco service will not only maximize your profitability, you won’t have to worry about being unprepared for a state audit. With BevInco, the first audit is free and there are no contracts.
If you’re serious about your business, you need BevInco. Don’t you owe it to yourself?
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* Based on 7% sales tax.