Pitfalls for restaurant owners

Are you a smooth operator? Your restaurant may run like a well-oiled machine on the front end, but how are things on the back end? Operation problems can be the undoing for the best of restaurant owners.

Not only do sloppy accounting and back of house systems make for stressful days, but issues that slip between the cracks can ultimately spell financial ruin for your restaurant.

Restaurant owners know that while so many business expenses are fixed, operating costs are flexible. True, you can’t repair insufficient sales by controlling your operating costs, but if your sales are strong, you can turn your operations around to be profitable by eliminating or avoiding the following mistakes.

1.  Messy accounting practices. If your sales are being posted incorrectly and tax errors are occurring, it won’t be long before your profits take a nosedive. Remember gift certificates are liabilities until redeemed and your books need to reflect that. You need to make sure that all money taken in that is supposed to hit the bank actually makes it to the bank.

See that checks are prepared and recorded properly and that signing processes are adhered to. Organize purchase orders and reconcile vendor account balances with their invoices.

2. Infrequent and Inconsistent Reviewing of Reports. Waiting until a check bounces to know you don’t have enough money in your account is no way to handle your finances. You must reconcile your bank and outstanding credit card balances regularly.

Financial reports can provide the view you need to made necessary adjustments, but they aren’t much help as a management tool if you don’t use them. Among many other things. these reports can show increases in food and labor expenses, reveal missing inventory, and point out discounts that are affecting your bottom line. They can be drawn up daily, weekly, monthly, and yearly, and should be reviewed regularly for a true picture of your finances.

3.  People problems. We humans make errors, and your staff is no exception. Innocent mistakes will always be made, but some behaviors may be intentional. Theft can be a problem with the wrong people in positions of authority. When the manager, bookkeeper or anyone for that matter is in charge of all things financial, there is no separation of duties or checks and balances. Sometimes that can spell trouble If that same person wears an all-financial-duties hat. You had better be sure that person is honest.

Another people-related issue that can wreak havoc is the waste that occurs when employees literally eat up your profits, nibbling away on the job or giving away your food to friends or to customers in order to get higher tips.  They may also be incorrectly taking or preparing customer orders, resulting in wasted food. Investigation can help you hone in on such problem areas and reveal the guilty parties too.

4. Hefty labor costs. There’s no question that one of your biggest expenses is labor. To make sure you are getting your money’s worth, keep an eye out to make sure employees aren’t overextending their breaks or clocking in too early or staying clocked in too late. Make sure everyone is performing their duties in a timely manner. Set up consistent pay routines, check that salaries adhere to approved guidelines and are correct in payroll  Make sure tips are properly reported.  A restaurant consultant can help you optimize your labor costs with suggested strategies such as cross-training, which permits less staff during slow periods.

5. Faulty processes. A question you should ask yourself periodically is whether or not you have the right processes in place. As the restaurant owner, are you aware of your restaurant’s financial weaknesses? Identifying your weaknesses means you are halfway to correcting them. Perhaps you have inventory reconciliation issues. Excess inventory can lead to spoilage, thefts, and your staff serving up excessive portions. It locks up your operating capital, which could be better used elsewhere.  Get in the know with spot checks, run waste reports, and get consistent practices in place for taking physical inventory.

As a long time restaurant consultant and CPA, I can help restaurant owners discover operations issues you may not even know you have, and correct them with new processes you may not be aware even exist. While I am on the job, I will act like your temporary CFO, and pass on the baton to you once you are squared away.  On all of my past engagements, early on I have found ways to materially increase their bottom line.