This week in all the usual nonsense, complaints and wrong advice was a real gem. A newbie asked about “handling taxes”. Thankfully most of the answers were at least legal and fairly helpful. Buried among them was this amazing answer. My first thought was this guy has read my books!
“Many people back out the taxes from a flat rate price and then claim it is easier as a reason for doing so. Despite what anyone claims it is not advantageous to your crew or your business to do so. For the following reasons.
#1 you must raise your prices every year at least 2% to account for inflation that has averaged 2% the past 15 years.
If you do not bump your prices every year 2% by the 5th year you will be making 10% less money.
By that time, you will be wondering why you can’t pay your Bill's or be closed.
#2 you must account for food cost increases food cost increases don't care about round numbers.
3# change increases you tips both in cash and on the tip screen 4 you or your staff
4# it paces the orders coming in the window when there is a rush and ensures you get less jammed in the kitchen
#5 it requires discipline and presents (sic) of mind to hand out change and count out you (sic) drawer people expect you to charge it and people expect to pay it.
#6 depending on what state and town and metro you operate in sometimes there are 3 different taxes you must apply to you orders. That can rob you of money from your pocket and operation.
There is no reason to take short cuts with taxes.
Charge your 4 times food cost.
Set it aside daily in a separate account.
And manage your finances appropriately.”
Let’s look at each point closely. #1 Inflation. Yes, on average inflation has been 2.11% since 2003. Going back to 1977 (when I started in food service) inflation has been 3.59% on average. (Source) BUT how does that translate in pricing that impact food vendors. Food in general since 1977 has risen slightly less at 3.32% per year. While in recent years food prices have risen faster than inflation at 2.28%, meaning your prices MUST increase otherwise your profits decrease. Point #1 validated.
Point #2 Really is just a restatement of point #1, pointing out the limitations of using round numbers. Still a very true statement.
Point #3 Change does tend to end up in tip jars. Using on the dollar pricing eliminates this option for your guests. As does avoiding $5.00- and $10.00-dollar price points. While a pain keeping ones on hand to make change it does increase overall tips. All coins and a $1.00 generally end up in the tip jar.
Point #4. Pacing the kitchen orders. Absolutely counting back change will pace the speed of orders going into the kitchen. Transacting the cash or credit card is only a part of a well-trained cashier’s line pacing responsibilities. I suggest a written procedure that is trained from day one as well as practiced regardless of how busy or slow the meal period may be. Something along the lines of this:
3-5 seconds of greeting as personalized as possible for both the cashier and the guest.
Immediately after the guest response suggestive sell your featured item.
Complete the order and round out or up sell as necessary.
Give the total and transact the cash or credit cards.
Present the change or return the card and request a signature.
Finally thank the guest and explain how/when/where the food will be presented to the guest.
The overall process (depending on the complexity of your menu and the order) should be around 30 to 60 seconds for typical street food. Next you should have an average goal for the kitchen to produce the food. Again, depending on the complexity of your menu and your holding procedures the average ticket should be completed in 5 to 8 minutes for a cook to order operation. Yours could be much faster if you are able to pre-cook and hold, so all you do when an order is placed is assemble. What ever the average kitchen time is would be divided by the average order taking time. This number is your “weeds” threshold. For example, your order time is one minute and your kitchen time is 5 minutes the “weeds” threshold is 5. Meaning if a 6th ticket is on your screens or ticket rack there is a possible kitchen issue or the cashier is not pacing the line properly.
A good cashier would recognize this situation as a problem waiting to happen and SLOW DOWN the next order taken allowing the kitchen time to complete an order or two. Once a guest has paid their perception of time is massively distorted by their anticipation of getting their hunger satisfied. Good food brings guest in, great service brings them back.
Point #5 is not really clear but I believe the point is adding tax after the sale rather than including as a part of the menu price. Using on the dollar pricing made street food vending easier in the good old days for the mathematically challenged. In modern times with the advent of free POS app for cell phones there is no excuse not to add tax after the order is given. I personally include tax and price on the quarter just to save trips to the bank to get coins for change. Again, most coins end up as tips, so you are able to recycle coins anyway.
Point #6 This is a great point sales tax can be assessed at the state, county and city levels. Then add in differing rules for application of tax like perhaps water is taxed at the state level but not the city level. All the more reason to have a POS to properly add in taxes.
In my consulting with various food truck owners, nearly one fourth (25%) figured their sales taxes incorrectly often paying the revenue offices MORE than they owed.
I especially like the tips this post author lists at the conclusion of his post. I have been saying 4 times cost (25% food cost) for a decade, yet the overwhelming majority of advice in Facebook groups recommends THREE times (33% food cost). The other tip concerning having a separate bank account is another one of my Best Practice recommendations. I suggest depositing the sales tax EVERY single day you vend using the total from your POS system.
I have had a passion for helping people since an early age back in rural Kentucky. That passion grew into teaching and training managers and owners how to grow sales, increase profits, and retain guests. You’ll find a ton of information here about improving restaurant and food cart/trailer operations and profits. Got questions? Email me at Bill_Moore@live.com