Archive for the ‘Green Accounting’ Category

dollar signTime for more fuzzy math!!

Everyone looks at the total savings that energy efficiency, or any sort of resource efficiency measure achieves, but restaurant owners rarely look at the cost of not implementing green measures. One thing to think about when considering any sort of resource efficiency in a restaurant is the amount of sales that would be needed to create the same additional profit if NOT implementing the efficiency measure.

So, for instance, say a skeptic says a particular green measure (lets say installing a low-flow pre-rinse sprayer) may save some money, but isn’t going to bring in any additional customers and they can’t afford it right now anyway. That may be true, but by not implementing the measure the business must now sell more product to earn the same amount of profit that would be earned by implementing the measure – buying the sprayer in this case.

Here’s the math:

Savings from green measure / Profit margin % of the restaurant = Amount of sales needed to equal savings from green measure

Lets say a restaurant has $1 million in sales per year, and a 5% profit margin. By replacing a 1.6 gpm with the most efficient low-flow pre-rinse sprayer on the market (.65gpm) they will save about $945 per year in water, sewer and water heating costs. (Pre-Rinse Spray Valve Water Cost Calculator) Taking that savings minus the $60 cost of the sprayer leaves $885 in savings in the first year alone. Putting those numbers into the formula equals nearly $18,000 in additional sales the restaurant would have to make up to equal the same additional profit of the efficiency measure.

$885 / 5% Profit = $17,700 in additional sales needed

Lets work backward to check the math.

With the sprayer: At the current 5% profit margin, this restaurant makes $50,000 ($1,000,000 x .05) adding the $885 savings from the sprayer = $50,885

Without the sprayer: $1,000,000 + $17,700 in sales x 5% profit = $50,885

Of course this math is a kind of easy and on the fuzzy side because pre-rinse sprayers don’t cost a lot and the savings are big. While something like a demand exhaust hood is expensive and savings usually need to be calculated over at least a couple years. However, the point is that there is a cost to not implementing sustainable practices. I’m sure there is an accounting term for this. I call it; you can’t afford to not go green…