Running Your Office
In This Chapter
- How to set up cash control systems
- How cash control systems thwart theft
- Your first three accounting milestones
- Running profit and loss and balance statements
- Making the most of your POS system
In this chapter, we’ll teach you how to control your cash by setting up smart systems. We’ll show you how to use systems such as surprise audits to keep employees honest.
The POS system is vital, and we’ll show you how to get the most out of it. You’ll use the data from your POS system to create reports that will give you snapshots of how your business is progressing—especially at the all-important first three quarterly milestones. We’ll discuss the components of a financial statement and how you can compare your costs and profits over time.
To understand financial statement information, you should have an understanding of generally accepted accounting principles (GAAP). Although your accountant will help you through this, we recommend getting an accounting textbook to reference and educate yourself. After all, accounting is the language of business, and this is your business; you need to know the language.
Jody uses an internal control system for dealing with cash. It provides good protection for cash receipts and cash disbursements. There are three basic principles:
- Separate the duties. Staff that handles cash should not be in charge of the register/cash draw. Payments are made at the bar or the payment desk. Separating the duties makes it more difficult for your staff to steal cash from you. Two or more people would have to be in on the embezzlement and the cover-up or void the transaction. That’s not very likely.
- Daily Deposit. You should deposit all cash receipts intact and daily. This keeps your staff from taking a loan on the cash before making the deposit.
- Pay by Check. Embezzlement doesn’t always involve cash, but can be payments for fake invoices. If a manager has the authority to sign checks, don’t let him or her have access to accounting records or have the authority or ability to generate an invoice.
Your bank statements will give you another view of your cash disbursements.
SMART MOVE
Use an accounting software package, such as Quickbooks, to track payments to vendors, payroll, and receipts. Whether you meet your vendor at the door with a clipboard in your hand or an iPad, your inventory template spreadsheet is the key to keeping food costs within budget. And that begins the moment they come through the back door.
How to Make the POS System Your Best Friend
The POS system is the heartbeat of the restaurant. Take the time to learn its many functions. If your staff knows the system better than you, it could be trouble.
Most people underutilize their POS systems. It can be used as a time clock; it tracks every transaction from order to check; and it can be used to manage your cash control systems. Your credit card sales are deposited daily through the POS system.
It’s not, however, good at doing inventory. It requires too much input and advanced features, and you’re better off working in Excel spreadsheets. Examples of the spreadsheets you’ll need can be found in Appendix D.
If you don’t know Excel, learn. If you need to hire someone to show you how to use it, it’s well worth the cost.
Adapting Your POS to Your Business
First off, remove all the void functions that don’t require a specific key or card swipe, and control the card.
Every single transaction must be entered into the POS and come from a printer. If a drink or food item is ever produced that didn’t come through the POS, you need to take immediate extreme measures. Even the owner’s meal must come through the system.
Explain to kitchen staff that if the printer doesn’t produce the order, no matter what, they are forbidden to prepare the dish. An excited waiter who didn’t remember to ring in a table will often rush to the expeditor and say what they need. The staff should wait until the order is rung in.
If everything gets rung, you have a revenue total and now you just need to track how it was resolved.
Handling Voids
The POS will look to close out the transaction. A void would mean the item was prepared and then taken off the check. You need to know about this.
Jody has a strong void control system in place to control costs and theft. Only the manager on duty has the authority and ability to void. The manager is accountable for the total voids, which are detailed in the end-of-the-day report.
Never use server or manager codes. They always get compromised and borrowed. Use hardcopy swipe cards and keep them in the restaurant; they should never go home with the staff.
If a guest ordered a steak and it came out well done and she didn’t eat it, and the server asked the manager to remove it from the check, you should require the server, manager, and chef to sign the back of the ticket with an explanation. This gets placed in the nightly log. Yes, this is cumbersome—but it’s very important.
When the staff arrives for work, and are in uniform and ready to start, they should come to the manager, who issues their card to sign in to the POS. The POS is a time clock that can also track productivity and measure sales patterns against hourly labor. In addition, it can warn you about a potential overtime scenario.
Make sure the staff has to see the manager to sign in, because if an employee has the ability to punch in without seeing the manager, they could sign in their friends and/or sign in way before their shift begins.
At the end of the night, the same thing must occur for staff to sign out. The staff must bring their cards back to the manager when they’ve finished with side work. They’re then tipped out while they reconcile the daily report.
Self Banking
These days, most full-service restaurants have only one active cash drawer—the bartender’s. The cash drawer is delivered to the bartender by the manager at the beginning of the shift and is verified and signed for by the bartender.
No one else can get into the cash drawer once it’s issued to the bartender. That includes any other bartenders who may be on duty. Even the manager has no right to touch the drawer. Only one cash attendant to a drawer is a critical rule. The POS can have multiple cash drawers that staff can sign into, but no one goes into another drawer.
Each time the bartender opens the drawer without a transaction, a receipt pops out of the printer and he needs to sign it and explain why the drawer was opened, and then place the receipt in the cash drawer. If a guest needs change and his server doesn’t have any, he may get it from the bar.
At the end of the shift, the POS prints out a chit that tells the manager how much the server owes in cash and credit cards and house charges. They need to provide the exact amount to the manager.
Hiring honest people isn’t always a reality—you just can’t know that they’re honest. And even honest people will do dishonest things in extreme circumstances. You have to battle theft by removing opportunity, and watching the cash.
Question everything, and don’t let people say you don’t trust them. It’s your manager’s job to verify the controls you’ve set in place. No one should take it personally.
Bartenders often need to stuff the drawer with the extra cash they’re trying to steal (which they’ve accumulated by under-charging or other nefarious means), and they need a method to extract their ill-gotten gains at some point during the evening. Permitting them to cash out their own tips is too risky. Allowing them to take their tips and cash them in is also a bad idea.
If the cash builds up during a shift, a “drop” should be made. The bartender counts a pre-determined amount, and the manager verifies the amount and signs a receipt, which is left in the drawer by the bartender. The manager then places the cash in the safe.
When the shift is over, the manager immediately escorts the bartender and his drawer to the office or counting room. With the manager standing as witness, the bartender counts the original bank and returns it. Then the manager counts up cash and credit card charges. You don’t have to give a total and have the bartender prove that number. Keep the goal line in darkness. If they’re over, it’s just as bad as being under because it means they’re not keeping track of how much they’ve charged.
POTENTIAL PITFALL
If you suspect someone of stealing, don’t accuse them; there’s too much potential liability. Remember you can terminate someone who can’t perform the function of selling items and collecting the correct amount of tender. (Be sure that’s stated in your employee manual.)
During the shift, take hourly readings of your POS system and be visible about this so your staff knows you’re doing so. Ask the bartender to perform a quick cash count, and then look at the tape, and perhaps even scratch your head. Then take the tape and walk away. This act will blow their confidence if they are scamming, and it will likely prevent the evening’s larceny. Fifty percent of controlling the cash is psychological. Controlling the cash is a chess game, and you have to be on your toes.
Cameras Can Be a Theft Deterrent
Video cameras can be very helpful in deterring theft. We suggest you set them up over the bar, in the kitchen, in the office, and by the primary staff’s work area. Video is a record, and you should hang on to it for a couple of weeks so you can view it if you suspect problems. It can be sent to your laptop, iPad, or iPhone. Be careful to not let watching video become an obsession.
As for theft, you should be tipped off when a staff member makes a request or performs an action that takes you off the floor or out of the restaurant. Scheming staff usually try to get you out of sight so they can make their move. If they’re loading the register with cash they’re accumulating by undercharging, for instance, they’ll need to remove it before you do your count.
We suggest you utilize a couple of techniques with people you suspect of stealing. They often keep track of the cash they’re collecting, so interrupting their program throws them off. Random cash audits mid-shift are a great way to curb theft. You should require two cash audits per shift on bar registers to be documented.
POTENTIAL PITFALL
How can a bartender rip you off? The techniques are endless. However, don’t focus on how they do it, but on your methods and systems of interrupting and stopping them from stealing your profits.
You can throw a bartender off guard when she least expects it by performing a second audit shortly after the first. She’ll think it’s smooth sailing ahead, but you’ve now discovered too much money in her drawer.
Keep your eyes peeled for accomplices. Sometimes a bartender will have an accomplice show up, sit at the bar, and buy a drink. When the bartender gives his accomplice change for the drink, it will include the night’s grab.
Another control is to have each transaction printed and placed in front of the guest in a shot glass. The manager can meander by at any time and slip the ticket out and glance at the amount. If you saw the bartender just make a batch of margaritas and the ticket in front of the guest says one shot, the bartender is busted.
Require your bartender to return to the register after every single transaction and ring up the sale. Don’t allow him to wait and ring up several at the same time. He’s not allowed to make any drinks for the service bar without a printed ticket. You should not have a printer at the service bar—it undermines the program if staff calls out an order. The order should be rung to avoid any verbal commands.
A bottle-for-bottle perpetual inventory also helps minimize stealing. We’ll talk about this more in Chapter 17, when we discuss how food and beverage inventories keep costs within budget.
Remember, a bartender can sneak his own few bottles into your bar. By giving away the drinks off those bottles, your pouring cost percentage won’t show up with a change. But you’ll be bringing in less revenue, so watch for any unexpected dips in beverage sales, especially during busy times like holidays.
Furthermore, to prevent a bartender from sneaking in his own bottles, secure all deliveries in a locked area and have a template of the back bar with specific placement of all bottles. When the bottles are delivered, you can mark the labels with a special black-light signature stamp. A sweep of the bar with a black light will reveal any unauthorized bottles.
These controls should be used when owners deem appropriate. The good news for would-be restaurant owners is that most cash transactions are limited in this age of credit cards.
Financial Statements
Keeping good daily and weekly records creates the foundation of your financial statements. Remember, financial statements exist to give you snapshots of your business over time. To be useful, these statements need to be timely and accurate reports. These are stop-the-clock moments, when the restaurant comes to a standstill to generate these reports—because items in the kitchen are constantly being transformed. A bag of onions has a different value on Monday than it does on Tuesday after it’s been turned into onion soup.
Restaurants are a cash business, and that always must be paramount in your mind before you spend any money. Your financial statements give you great insight into what’s changing in your business.
When you look at financial statements, you should look at them comparatively. You should examine two or more accounting periods in side-by-side columns on one statement.
The most important accounting milestones for a new restaurant are three, six, and nine months. Three-month success is almost assured by virtue of curiosity in the market. But don’t mistake this wave of business as any measure of sustained success. You’re in the introductory stage, the getting-to-know-you phase. There’s an opportunity percolating. In your financial statements, you’ll want to look at your actual expenses and profits compared to your pro formas. You’ll want to look at whether certain dishes are profitable and selling well.
The six-month financial statement will tell you if the folks who came in earlier are coming back and bringing their friends. When the friends come back with their friends, you’re off to a good start. When you run your financials, look to see if your sales are increasing. Are you doing more covers? Are your revenues up? Are your food and beverage costs on budget and a blend of 25 to 30 percent?
The nine-month financial statement is when the first economic reality takes hold for many restaurateurs. There are all sorts of ways a new business can pace through its first three quarters, making excuses and anticipating things will settle to where you want them.
The nine-month window is usually the first face-to-face meeting with economic reality. Your financial statement will reveal the trajectory of your business. Your accountant might be able to help you make some adjustments to your profit and loss statements. In addition, you might be able to make some adjustments in the kitchen. But once again, sticking to your concept and your plan is key.
Re-examining your menu mix, pure food cost vs. actual food cost, inventory analysis, and shrinkage will help you determine which fire to put out first and which solutions to implement.
DEFINITION
Shrinkage is the amount of inventory lost through waste, spoiling, stealing, mistakes, or sloppiness.
The important thing is to take financial matters in hand from the beginning and never let go. As your restaurant continues to operate, you’ll be able to compare profits and losses of various aspects of your business weekly, monthly, quarterly, and yearly. You can use these comparisons to highlight changes in any financial statement. Look for dollar value changes or percentage changes from one period when compared to another or over a certain period of time.
An important formula to understand is the percentage change formula, discussed next.
The percentage change formula calculates the percent change from one accounting period to the next:
P = accounting period
Δ = change
P2 = recent data, P1 = previous data
Say your sales for the first quarter were $178,323 and sales for the second quarter were $154,247.
What this shows is that your second quarter sales are down 15.6 percent. You’ll want to make this calculation in your spreadsheet so you can quickly see where large percentage changes have occurred. You’ll also want to address this immediately by looking further and making adjustments where necessary.
The Income Statement
The income statement will be your most used financial statement. It shows your revenues and expenses and the resulting profit:
Sales - Expenses = Profit
Get used to looking at this statement on a daily, weekly, monthly, quarterly, and annual basis. To make the data as meaningful and actionable as possible, always compare similar accounting periods and use your percentage change formula, which we discussed above.
A balance sheet shows your restaurant’s financial position on a specific date. It’s a snapshot of your financial bearing. Your accountant can help prepare a balance sheet for you. Liabilities are subtracted from the assets to get a value of the company on a specific date:
Assets = Liabilities + Owners Equity or Assets – Liabilities = Owner Equity
If you plan to use the balance sheet to entice investors, realize that investors are looking for trends or financial strength. They want to see if the restaurant’s net worth has been increasing over time, or if growth of the restaurant’s net worth has been slowing.
Cash Flow Statement
A cash flow statement details how a business gets and spends money, borrows and repays, sells and repurchases ownership, pays dividends and distributions, and other factors that affect liquidity.
A cash flow statement breaks down where the business revenue comes from. Business revenue can come from operating, investing, or financing. For restaurants, revenue is based on sales. If your business can show that it brings in more money than it spends, potential investors obviously will view that more favorably than a business that has to sell assets to operate.
Paying Taxes
It’s almost unfair to give restaurants a fiduciary role in holding on to taxes. For a cash business, doing so is a trap. Use a payroll service for taking care of payroll and holding taxes. Set up a bank account for accruals—those expenses you know are coming, such as rent, taxes, and insurance. You don’t want to know how many restaurant owners find themselves over their head in expenses and behind in paying taxes. Proactive financial planning in a restaurant is sorely needed. Be sure to meet with your accountant every quarter.
When you stay on top of your daily, weekly, and monthly financials and meet with your accountant regularly, paying taxes doesn’t become a nightmare. Always use a good accountant who’s experienced in doing taxes for businesses, and restaurants in particular.
- Know how to use your POS system and adapt it to your restaurant’s needs.
- Cash control is a system to keep your staff and vendors honest. Keep a good system in place from the start.
- Running weekly, monthly, and quarterly financial statements will keep you on budget.
- Meet with your accountant every three months, especially the first year you’re open.