Why 85% of Bar Owners are Losing 20% of Their Money and Don’t Know It

Cabaret Design Group

A SOBERING THOUGHT

85% of bar owners are losing 20% of their profits and are totally unaware! What are the industry facts about bartender stealing? I have very reliable sources about this cat-and-mouse game.

HOW CAN BAR OWNERS BE SO UNAWARE OF LOSSES?

We’ve all frequented the local bar or restaurant where the bartenders are giving drinks away and we wonder, ‘How could the owner possibly be unaware?!’

Making money in the bar business isn’t tricky. To make lots of money is extremely tricky. And deceiving.

Why is this? Perhaps the bar business is so profitable that bar owners are lulled into thinking that they have it under control. Friends, this is the furthest thing from the truth! Bar owners who believe this are perpetuating a false sense of reality.

According to my good friend and industry expert, Chuck Deibel, CPA:

“Over 85% of all operators (unwittingly) understate their losses on an ongoing basis, thus setting themselves up for a multitude of problems and issues.”

NUMBERS DON'T LIE

In his “State of Ohio Sales Tax Audit Brief“, Deibel reveals that 85% of bar owners experience an average of 20% shrinkage, fueled by incorrect accounting and employee waste and theft. Deibel asserts that these numbers have been proven over a 20-year period with over 1,000 bars and 5,000 audits! Here’s Chuck’s State of Ohio Sales Tax Audit Brief that back-up his claim.

Listen to my exclusive audio interview with Chuck Deibel:

THIS COULD BE HAPPENING TO YOU!

Now back to the bar I mentioned earlier. It’s a place we all know. The bartenders give away drinks to receive larger tips.

If the owner were selling $10,000 per week, he’d be losing $2,000!

Most perplexing, you know the owner – he’s shrewd! You think to yourself, ‘How could a thing like this be going on in his bar?!’ This is almost unimaginable. Certainly, he MUST know. Guess what? HE DOESN’T! Why?

WHY BAR OWNERS NEED TO KNOW THE NUMBERS

From an overview perspective, this sounds too hard to be true. However, there’s a lot to the dynamic of owning and operating a bar. Let’s take a small glimpse at his operation to gain greater understanding:

  • He purchases well vodka for $6.85 for a 32 oz. bottle.
  • 1.25 oz. shots ($.27 net cost) sell for $3.50, which yields a gross profit of $3.23.
  • Like most bars, he also sells multi-portion cocktails, which includes long island ice tea, white and black Russians, etc.
  • Batch cocktails, such as margaritas and frozen daiquiris, are also sold.

You get the picture.

A COMMON INDUSTRY PROBLEM

Here’s a very complicated problem that affects most bar owners:

  • Our bar owner friend doesn’t perform his inventory accurately (let’s assume he realizes the importance of doing inventory).
  • He also offers Happy Hour specials, which further complicates the accounting.
  • Because he sells such a variety of mixed alcohol at numerous price points, it’s nearly impossible to compute a manual audit. Who could?!
  • Bartenders are aware of all this!

So what’s the end result to all this? The bartenders are picking his carcass clean – just like vultures on the Serengetti! It would be one thing if he were only selling well vodka, but this isn’t the case with the average bar. An average bar sells a nearly infinite variety of products and programs.

WHEN MAKING A LOT IT'S EASY TO MISS A LITTLE

My point is this: when bar owners are making a ton of money and liquor is flying off the shelf, how could anyone know when 20% is missing? I bet many would be interested if they knew there were a way figure it out, but this would be like unraveling a giant ball of twine!

THE FALSE NARRATIVE

As Chuck Deibel says, the basic problem most people have with performing an accurate inventory is they don’t perform it the way an accountant would. According to Deibel, in a 2014 edition of the Ohio Tavern News (a column he authors):

“Comparing current actual costs to past actual costs does not reveal (true) differences.”

Thinking about our bar owner friend, his problem cannot be revealed merely by comparing this month’s pour cost to that of last month’s. After all, his bartenders may have devised methods of keeping the shrinkage consistent.

From a layman’s perspective, many owners think they’re performing accurate inventories when their sales and/or pour costs compare favorably from one period to another. However, this is a false premise because performing inventories incorrectly all the time only means they’ve been done consistently! Furthermore, many owners aren’t even selling the same product mix from month-to-month.

WHAT SERVICES CAN BAR OWNERS USE TO ASSURE ACCURATE INVENTORY CONTROL?

By now you wonder what could this owner do that would get him to the root of his problem? Actually, quite a lot! My recommendation is the BevInco inventory service. BevInco clients learn to perform accurate and consistent inventory just like an accountant. According to Deibel’s 2014 column, he states that the critical key to perform an accurate inventory is determining the ideal cost and comparing that to the actual cost. The end result yields the amount missing. Does all this accounting talk sound confusing? It’s really simple when done the BevInco way. They developed proprietary software that bridges the gap bar owners need to perform accurate inventories.

Cabaret Design Group
BevInco SCALE AND MOBILE APP FOR PERFORMING LIQUOR INVENTORY ACCURATE TO ONE GRAM

HOW THE BEVINCO LIQUOR INVENTORY PROCESS WORKS

Firstly, BevInco calculates the actual usage with its accounting-based software:

  • All full bottles (alcohol, beer and wine) and kegs are counted and entered.
  • Every open alcohol, wine bottle, keg and open batch is scientifically weighed to within one gram.
  • The software converts the volume of each open brand to 1/100 of an ounce.
  • Drink and batch recipes are entered.
  • POS information is entered.

The result computed by the software is the actual usage. Hence, there’s no other way to compute this result.

Cabaret Design Group
ACTUAL BEVINCO LIQUOR INVENTORY REPORT

BAR OWNERS BENEFIT FROM BEVINCO

As a BevInco client, the local bar owner would know he has a shrinkage problem. He would then initiate steps to isolate over-pouring and theft. A sample BevInco audit report is shown above. According to Deibel, clients average 2 – 3% shrinkage. Given the above, if our friend were selling $10,000 a week, his shrinkage would be decreased from $2,000 to $200 – $300 – per week! 

THE BEVINCO DEALER NETWORK

With a world-wide dealer network, bar owners can hire a local BevInco dealer or perform their own audits:

  • Owners can hire BevInco directly at an average price of $200 per week.
  • BevInco teaches owners how to perform their own audits and then performs quarterly reviews.

To make your decision easier, BevInco will perform the first two audits free-of-charge.

Need Help with your bar plans?

Designing a bar can be time-consuming and frustrating. Contact us today for your free consultation!
Posted in

RICK UZUBELL

International Bar Designer