7 Restaurant Internal Controls to Beef up Your Business
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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 will clarify procedures and define roles and responsibilities while also creating checks and balances.
Strong controls also prove to banks and potential investors that you have a stable business with a well-managed, regular cash flow.
1. Vet Employees and Contractors
According to 2017 estimates from the National Restaurant Association, employee theft accounts for 75 percent of inventory shortages and about 4 percent of sales.
Thoroughly vet candidates and contractors. Schedule time immediately after interviews to verify work history and speak with references. If everything checks out, run a pre-employment background check. And if they will handle money, add a credit check.
2. Reconcile Payroll and Staff Records
Have specific management procedures that dictate who can hire, who has scheduling responsibilities, and who can change pay rates.
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 wise to outsource payroll to avoid tax penalties and interest.
3. Maintain Consistent Cash Management
Managing cash in restaurants will never be perfect, and it often differs from one place to the next. Some options for handling this among restaurant internal controls? Give individual employees ownership of their register drawer for their shift, or use tamper-proof deposit bags for daily cash deposits.
Place security cameras over the point-of-sale (POS) stations, at the bar and in the dining room. It will discourage theft and provide a reference if someone comes up short.
4. Spread Financial Responsibility
Set a system of checks and balances that requires two or more people to count money or sign off on registers after a shift. This prevents theft and mistakes.
A manager can supervise if a senior crewmember 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.
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5. Reconcile Bank Statements Immediately
Here’s an easy restaurant internal control: Monitor bank accounts with monthly statements. Immediately 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. 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.
Large expenditures should require dual signatures, and the ability to add or manage vendor information should be limited to a small group.
Consistency is key. Use the same staff, count the same items at the same time, and use a standardized count sheet to improve accuracy over time. Analyze monthly gross margins to ensure inventory is right.
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.
Summary: Restaurant Internal Controls
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.