Financial Statement Gymnastics - Part IV

John Cornyn

Managing "other controllable expenses" has all the unpredictability of herding cats.

This and next month’s articles address the costs that show up on the P&L line that is usually labeled "other controllable expenses." (As an aside, let me observe that anyone who thinks that putting food and labor costs into a logical frame of reference is fun,will find that doing the same with this group of expenses has all the excitement and unpredictability of herding cats.)

Because the direct expenses of food and labor are often referred to as "Prime Costs," there often is a tendency to dismiss other variable expenses as either insignificant or not worth the trouble of investigation. Such an assumption can be a big mistake!

This month’s column will focus on the items that are normally included in the "other expenses" category of most financial statements. Next month’s will take a look at the expenses that are not considered typical on most financial reports.

It will surprise no one to learn that in the universe of noncommercial or on-site foodservice, there is no accepted definition of exactly what comprises "other controllable expenses." The line typically includes a grab-bag of items that includes such things as:

Supplies. In some cases, the cost of all supplies is included here; in others, only those not directly tied to the service of the food (i.e., disposable service and dishware). It sometimes includes chemicals and cleaning items if these are not listed as a separate line item. Depending on the size of a program, office supplies may or may not be included in this line item.

Linens. If used appropriately, this line covers the expense of tablecloths and napkins used in the dining room and/or for higher end catering events. But under closer examination, it is not uncommon to find it also covering other expenses, such as those for the purchase and maintenance of employee uniforms.

Utilities. At most institutions, utility costs are extremely difficult to quantify for comparison purposes. Some food facilities have separate meters and are charged accordingly, based on actual usage. But too many others do not have meters; instead, they pay an estimated charge.

Typically, such estimates are based on a percentage of the total facility utility bill, according to an assigned number of square feet, or a more complicated formula based on "probable" usage factors provided by equipment manufacturers for each major piece of equipment, plus an estimate for lights, etc. In still other cases, the institution may simply absorb utility charges and/or assign them as part of overhead and administrative charges.

Repairs and Maintenance. Depending on the institution, the repairs and maintenance component can be a black hole for uncontrolled expenditures. One example will suffice–picture the following scenario…

The foodservice program in question is part of an organization that has an in-house facility and equipment maintenance department which cross-charges other departments for all (or work order-generated) parts and service calls. The problem is a malfunctioning ice machine and the director has submitted a work order to the maintenance department. An "engineer" arrives, assesses the problem, relieves the FSD of a cup of coffee and a doughnut, and announces that he or she cannot fix the machine. An "outside contractor" is then called. The engineer exits until said contractor arrives and the two of them now replace the $9.95 Home Depot-purchased thingamajig. Another two cups of coffee later, they exit again. Three months later, the monthly budget report arrives, and diligent research reveals that the repair cost more than $500 when the engineer’s and contractors’ times and expenses are totaled.

Janitorial. The differences among what is defined as "janitorial service" can be substantial, depending on just how the space and duties are defined. In some situations, the foodservice operator is responsible for the entire space, while in others, only from the front of the service counter through the kitchen. The costs for obtaining what is virtually identical service can also be substantially different, depending on whether the service is self- or contractor-operated.

Pest Control. In some parts of the country (you know where), preventing infestations of rodents and insects is a much greater challenge than in other regions. The cost of providing a safe and consistently applied prevention and eradication program can be significant, yet this is seldom noted as a differential in benchmarking comparisons.

Marketing & Promotion. Normally, these are the costs for advertising and promotion materials (whether print or electronic). Often, this category becomes a catchall for employee recruitment costs, staff parties and other items which should be listed separately or belong in "miscellaneous." (We’ll have more to say about this little gem next month). fm

John Cornyn is a principal with the Cornyn Fasano Group, a foodservice management consulting firm located in Portland, Oregon. He and his partner, Joyce Fasano, coauthored the book Noncommercial Foodservice: An Administrator’s Handbook.