What is liquor inventory and how is it performed? If you own a bar and want to avoid a $98,000 fine from the alcohol beverage commission, I’ll explain how you can have peace of mind.
WHAT YOU DON'T KNOW ABOUT LIQUOR INVENTORY CAN HURT YOU
Have you ever been the victim of an audit by your state alcohol beverage 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 already 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 liquor 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. Today I’m going to discuss inventory control the BevInco way, and how hotels, restaurants and bars can maximize profits.
INTERESTING FACTS ABOUT BARS, LOSSES AND THE STATE ALCOHOL BEVERAGE COMMISSION
If you don’t think it’s worth your time and effort to learn as much as you can about gaining control of your liquor inventory and inventory shrinkage, think again, my friend! Here’s some facts you really need to know, what in all likelihood is happening to you. This is happening without your knowledge and the ultimate nightmare that could happen to you:
Scenario A: The Unexpected $98,000 Audit
Are you aware that 85% of bars are missing 20% or more of their inventory?! What does this actually mean? Consider the following:
- 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. In spite of yourself, you are still making money. But wait, your sunny world can come crashing down. Four years from now, the state alcohol beverage commission sends you an audit demand for $98,280!
Sound like something’s wrong with my math? No. The $98,280 bill includes penalties and interest – which is about three times the principal!
Scenario B: Losses from Bartender Over-Pouring and Free-Pouring
As any logical-thinking person would 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, below) is designed to deliver one or more ounces of alcohol, provided that the alcohol is poured to the bottom of the pour line.
For example, if using a one-ounce shot glass and 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 (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.
REAL-LIFE LIQUOR AUDIT INFORMATION FROM AN EXPERT
The following 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:
Here are the most common shot glass sizes from Chuck Deibel’s May 2011 column:
- 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
WHY IS THERE A WHITE STRIPE ON A SHOT GLASS?
The stripe on a standard shot glass is referred to as the “Pour Line,” and a correctly-poured shot of alcohol is supposed to be poured to the bottom of the pour line. This is true no matter the size of the shot glass.
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%)
- Bottled beer 10.6% (0%)
- Draft beer 16.3% (5%)
WHAT THE STATE ALCOHOL BEVERAGE COMMISSION ALLOWS FOR SHRINKAGE
The numbers in parenthesis represent the amount of shrinkage the state alcohol beverage commission 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.
Downloadables:
Ohio Beverage Monthly May 2011
State of Ohio Sales Tax Audit Brief
Why Most Bar Owners are Vulnerable to an Alcohol Beverage Commission Audit
According to Deibel, “Most (inventory) analysis methods devised by bar owners 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.” Consider the following:
- 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%! Thus, with Bevinco bar owners are prepared for the unexpected alcohol beverage commission audit.
WHAT IS BEVINCO?
BevInco, a subsidiary of BevIntel, a leader of hospitality profit solutions, is a consulting service that helps hotel, 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?
Exactly how does the Bevinco liquor inventory 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 hotel, restaurant 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:
- Establish a streamline stocktaking process.
- Reduce spillage, waste and shrinkage.
- Maintain optimal liquor and beer inventories through a proven systematic approach.
Another vital benefit is to protect owners against an audit by the state alcohol beverage commission. While nobody can guarantee results, bar owners are comforted in knowing that their liquor inventory records are accurate and up-to-date.
As I mentioned earlier, BevInco provides hotel, restaurant and bar owners with their proprietary software. A sample of how a BevInco client improved his bottom-line in just four months is shown in the two audit reports, which can be downloaded below.
WHAT DOES THE BEVINCO SERVICE COST?
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?
Downloadables:
* Based on 7% sales tax.
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