Internal Controls 101 – Restaurant & Cafe Business

If you are a restaurant/cafe entrepreneur or a restaurant manager, you know the pain of managing the operations of your restaurant/cafe. This business is different from other SME businesses and require more specialized knowledge of the industry for proper management. Apart from attracting adequate number of customers, you have to maintain the level of service quality for each and every customer. Financial returns and smooth fund management is one of the necessities of this business, which if not managed properly starts severely affecting other areas of the business. A lot of restaurants in Nepal get closed due to lack of prompt response to problems in operations and accumulation of such problems over time beyond repair.

Control system/mechanisms can be integrated with the accounting system to adequately monitor the activities of the business and ensure smooth fund management & financial returns. Though retaining a professional consultant is recommended, a basic level control system/mechanisms can be introduced by the entrepreneur/manager. More elaborate measures can be incorporated later depending upon the scale of operations and the confidence of the entrepreneur/manager.

We are sharing top 5 internal controls practices that will help entrepreneurs to monitor their finances and operations efficiently:

1. Daily Sales Summary

A Sales Summary Report including all the sales through cash, cards, wallets and credit should be generated at the end of the day. This provides information about the funds collected on the day and in what forms these funds are available. This also provides information about all the credits issued to the customers. Over a broader timeframe, this report provides a valuable source of information to cross verify other information relating to sales and payments which are useful in maintaining the books of accounts.

2. Daily Cash Count

The entrepreneur/manager should count the cash in the cash counter and see if it matches with the cash sales for the day to ensure that all cash is available. Cash count includes counting the physical cash as well as cards and other payment receipts to match them with the Daily Sales Summary Report. It is an excellent tool for cash management of collection that provides a system to identify any differences between sales and collection. If possible the verification should be carried out by a person other than the one who generates the Sales Summary Report.

3. Debtors Ledger and Debtors Aging

Credit Sales generally creates a lot of problems to restaurant owners due to blockage of funds. Funds that could be used in more productive areas get tied up in debtors if it is not monitored adequately. While Debtors Ledger is useful to identify the amount receivable from customers, Debtors Aging is useful to identify the length of the credit/blockage of funds. Both reports can be extracted from the accounting system if it is properly maintained. These reports are excellent tools for credit management which provide correct information about credits to the entrepreneur/manager and help them decide a way-forward to manage/reduce such credits.

4. Kitchen Order Ticket/Bar Order Ticket (KOT/BOT)

KOTs/BOTs are stationeries that are widely seen in restaurants and cafes. However, these are rarely used as control documents in Nepal. Review of KOT/BOT helps to track customer complaints, cancellations, unbilled items, incorrect billing, etc. The review should be done on a daily basis to smoothen the burden of work and develop institutional learning, as a whole.

5. Food Cost Analysis

This is a slightly more elaborate exercise, but it helps the entrepreneur/manager monitor the overall profitability of the restaurant. Food cost budgeting is done to assess (budget) the cost of ingredients of individual items. This should also be matched against actual consumption to obtain realistic data. Food cost consists of the major portion of the direct cost. It helps the entrepreneur to estimate the Breakeven Sales in the restaurant and provide feedback on the effectiveness of strategy taken for Menu Engineering.

Breakeven Sales = Fixed Cost / (1 – Food Cost (in %)),

Where, Fixed Cost = Regular costs such as salary, rent, administrative costs, etc. that are required to keep the enterprise running.

These systems require small level of additional time & resource on regular basis but will pave the way for a more responsive management system which will ultimately help you reap better returns from your enterprise. We hope you the best in trying these out. Cheers!