7 Restaurant Internal Controls to Beef up Your Business
March 7, 2018
It takes passion to run a restaurant. Passion for food. Passion for the customer experience. Passion for financial management … wait, what?
Few chefs and restaurant owners would cite financial management among the reasons they went into business. But restaurant internal controls are crucial to operating a self-reliant business, as well as minimizing financial mistakes and threats.
Well-defined internal controls clarify procedures, define roles and responsibilities, and create checks and balances. They also prove to banks and potential investors that you have a stable business with a well-managed and regular cash flow.
Let’s look at the 7 internal controls you need to know to improve your restaurant business.
1. Vet Employees and contractors
According to 2017 estimates from the National Restaurant Association, employee theft accounts for 75% of inventory shortages and about 4% of sales.
Avoid risk by thoroughly vetting candidates and contractors. Try these steps:
- Schedule time immediately after interviews to verify work history and speak with references.
2. Reconcile payroll and staff records
Have specific management procedures that dictate the following:
- Who can hire.
A second manager should review payroll data before processing. This means double-checking timesheets for hourly employees, overtime and salary wages, as well as reconciling them against the budget. It’s wise to outsource payroll to avoid tax penalties and interest.
3. Maintain consistent cash management
Approaches differ but here are some options for handling cash in restaurants:
- Give individual employees ownership of their register drawer for their shift.
4. Spread financial responsibility
Set a system of checks and balances that requires at least 2 people to count money or sign off on registers after a shift. This prevents theft and mistakes.
A manager can supervise if a senior crew member is not available. Pairs of managers can alternate making deposits and reconciling bank statements.
The person signing checks should not be the same one inputting accounts payable data.
5. Reconcile bank statements immediately
Here’s an easy restaurant internal control: Monitor bank accounts with monthly statements. Compare the previous month’s deposits, disbursements and miscellaneous items to your monthly profit and loss (P&L) statement.
The longer it takes to discover theft or an oversight, the more difficult and costly it’ll be to address.
The most significant exposure tends to be credit cards. Reconcile credit card receipts, payments and deposits at the same time as your bank accounts.
6. Systemize accounts payable and inventory
Nothing brings a restaurant to a screeching halt faster than inventory issues. Here’s what you can do to stop them from happening.
- Allow managers, chefs and cooks to place regular orders from vetted vendors within specific dollar amounts. This power allows them to keep the kitchen operating with minimal hassle.
Do this all consistently and accounts and inventory won’t be a problem.
7. Review financial statements monthly
Dig into all the ledger accounts and check the numbers at least once a month. This is a smart business practice that can help reveal potentially fraudulent activities.
Any manual entries should be signed off by a second person, with documentation supporting the reason. The longer the delay in account reviews, the easier it is to miss discrepancies.
The restaurant internal controls outlined here are primarily manual, and they constitute the first line of defense. Technology plays a critical role in automating and reporting data on everything from inventory to cook-station efficiency.
Staying on top of technology is key to remaining competitive. But staying on top of internal controls is even more critical when it comes to maintaining a healthy business — and seeking an outside buyer or investor if the time comes.
About the Author
Tommy is the partner-in-charge of Aprio's Retail, Franchise and Hospitality group. His practice focuses on small and mid-sized retail, franchise and hospitality companies and real estate firms. Tommy has expertise in corporate structuring arrangements, multi-state and international tax planning, and corporate and individual tax mitigation.