By Roger Robinson, Ph.D., SCORE Mentor
Poor management and lack of expertise account for more than half of new restaurant failures!
Here are some operational tips that are essential to your restaurant’s success.
- Office Procedures. A simple, user-friendly manual based on Federal and State laws should define the management policy on sexual harassment and discrimination, dealing with customers or suppliers, employee performance reviews, terminations, and standards for operation of the business in a “real world” environment. Research on applicable Federal and State requirements are a must. Also included should be procedures or process flows on key work activities (budgeting, invoicing, accounts payable, credit and collection, purchasing and maintenance, etc.), employee benefits, training, disciplinary actions, records retention, and training. This manual should be developed early on, given to each employee and a signed receipt kept in company files.
- Profitability Through Financial Controls. Develop a progressing 12-month flexible budget defining estimated revenue streams and expenses. As applicable, include a revenue projection based on prior year’s performance. This exercise will provide a formula for projecting profit and loss based on expected revenue for the year and identifies trends and areas for management concern and corrective action.
- Develop a Cash Flow Analysis. Show the break-even point at which all costs and expenses have been absorbed, and the business starts making money. This analysis will help you decide if projected yearly revenue and expenses will meet expectations and identify cost categories where improvements are necessary should a profit shortfall occur. Develop credit lines or other sources of capital to be available during potential negative cash flow periods.
- Develop Standard Budget Categories. Track sales and expenses, daily/weekly and quarterly/annual management variance reports. Review order slips versus register tapes to determine the accuracy of reporting receipts and make recommendations for improvements. This will provide a level of management visibility and profit accountability in order to predetermine whether profit objectives are being met and form the basis for future reporting. Your accountant can help you here.
- Cash Flow Accountability. Implement cash controls that catch discrepancies in what is collected each night and what is deposited. All cash funds collected must go into the bank as soon as possible. If there is a difference, it must be identified and resolved by the manager on duty before they go home. The designated financial employee must then track down and resolve any difference in what is reported to be taken in for the week and what was deposited. Continually review daily and weekly register tapes by time and sales to determine an optimum operating schedule. Review cost of sales figures from prior years, if available.
- Training of Key Personnel and Management on a Flexible Operating Budget. The current operating budget will have the necessary operational relationships defined in order to calculate possible excursions in revenue or expenses and allow for timely management adjustments to meet year-end profit targets.
- Prepare Procedures and Flow Charts. These will become a reference source for all restaurant personnel on implementing and maintaining the financial and management control process. These procedures and charts are designed to be dynamic in nature and be changed or improved to fit the restaurants changing the work environment.
- Functional Organizational Chart. Unlike a typical block organizational chart, this is a chart to graphically portray the added flow of responsibilities top to bottom throughout the entire business structure. This should be the foundation for a complete understanding of work responsibilities and relationships between the owner and the restaurant team — and used in the development of job descriptions, management team development and controls.
- Financial and Management Reporting System. Design a financial and management reporting format that includes the required managerial controls. An efficient automated system that is designed specifically for the restaurant industry is required for updating and maintaining the financial data mandatory for professional and timely profit and expense control and reporting. An accountant with experience in restaurant financial controls could recommend a system suitable to fit the size of your business with the necessary accountability.
This is part of a series for new restaurant startups by Roger Robinson, Ph.d.
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