Eight Ways to Plug Costly Profit Leaks

WILLIAM J. LYNOTT

BANK IT: There’s no sense in leaving checks or cash lying around your restaurant when they can be working for you.

Profit leaks are lurking deep inside almost every restaurant operation, silently draining off those hard-earned dollars. Some are harder to detect than others; some are far more damaging than others. Together, they can form a major obstacle on the road to optimum financial performance.

Following are eight steps you can take to smooth out the path to a consistently healthy bottom line in your restaurant.

Mind Those Accounts Receivables

If you do any of your own billing, such as running tabs for regular customers, you must maintain good records of how much money your customers owe you. Whatever system you use to keep track of receivables, it must be capable of telling you whether any accounts are overdue by 60 days or more. If that comes to 10 percent or more of your total receivables, you need a more aggressive collection policy.

The more casual you allow yourself to become about collecting the money owed to you, the more casual your customers will become about paying you.

Manage Your Cash Flow

Collecting what is due you is only part of the job. How you manage the revenue generated by your restaurant will have a great influence on how much of that money finds its way to your bottom line.

HIRE WELL: Screening will weed out dishonest or inefficient employees, who can hurt your bottom line.

Profitable management of cash flow calls for never allowing any of your money to lie idle. The worst place to deposit your daily receipts is in a low-interest/no-interest checking account. Instead, open a money market account at your bank and have it linked to your checking account for telephone or online transfers. From that point on, deposit your daily receipts into the money market account where they will immediately start drawing interest.

Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks written.

Worst money sin of all: leaving checks or cash lying around in a desk drawer until you can get to the bank. Using every cent of your money to make money is the smartest and shortest road to a healthy bottom line.

Don't Be in a Big Hurry to Pay Your Bills

Ever notice how checks are slow to come in from people who owe you money? That's because hanging on to cash as long as possible keeps that money available to draw interest or to work in a business.

Take the time to set up a system that provides for paying bills only when they're due. Don't go overboard and jeopardize your credit standing by paying bills late. Pay your bills when they are due--not before, not after.

Make Full Use of Available Technology

Your bank would like you to pay your bills electronically, and they're making it easy and profitable for you to do so.

Until recently, the idea has been slow to catch on. Change doesn't come easily to most of us, especially when it comes to how we handle our money. Fears about the security of paperless transactions added formidable hurdles on the road to a checkless society.

Lately, however, the sluggish stream of Americans viewing and paying bills online is becoming a raging torrent. At today's cost of 41 cents postage for each check mailed (sure to continue rising), plus the cost of buying checks, the savings in money and time are becoming an irresistible lure to computer-savvy business owners.

Service providers now offer a wide variety of easy-to-use systems, and experts say that security is a minor concern. “Online bill payment is at least as secure as conventional payment [paper checks],” says Elizabeth Robertson, senior analyst at the research firm, TowerGroup. Some experts say that banking and paying bills online actually reduces the odds of identity theft by cutting off thieves' access to the papers they need.

Improvements in technology and user-friendly websites make online bill paying almost as easy as logging on to check your e-mail. Check with your bank. Chances are that it offers free online bill paying. You'll be surprised at how easy and profitable it has become.

Hire With Caution

Yes, finding good employees is more difficult than ever. Still, your staff is the cornerstone of an efficient and profitable operation. A single employee functioning at less than optimum and honest levels can wreak havoc on your business and on your bottom line. At the very least, check all references and do a search on criminal convictions (not charges) before hiring. If you have any doubts or unanswered questions, don't hire that person.

Too many restaurant owners accept employee turnover as an unavoidable and costly necessity. While some turnover will always exist, chances are that you can slow this silent profit leak by taking more time and effort to hire the right people for the right jobs.

When interviewing a potential new hire, take the time to listen. Don't make the mistake of doing more talking than listening. Make an effort to gauge the person's ability to blend in with the existing culture of your restaurant and the personalities already on your payroll.

Increased turnover is only one of the problems generated by hiring the wrong person. Someone who isn't comfortable in your environment can harm your business in ways that are far less obvious.

Concentrate on Human Relations

Once you have your restaurant staffed with the right people, it's up to you to make them feel that they have found the right job. With all of the daily pressures and stresses with which you must deal, it's easy to overlook the emotional burdens on your employees.

Favoritism, or even the appearance of it, can be a deadly enemy of efficient and profitable operations. An employee who feels that he or she is the victim of favoritism is likely to develop a grudge that can cause serious damage to your restaurant.

Make a special effort to show appreciation to your staff in a fair and equitable manner. The importance of skillful human relations in a modern business environment is well established. Even the appearance of a lack of respect for an employee can undermine your best efforts to develop a pleasant working environment.

Another common mistake by some owners is failing to accept the blame when something goes wrong. A reputation for always putting the blame on others is a management deficiency that will eventually exact a heavy toll in the form of employee unrest. Being in charge means being willing to take responsibility for whatever happens on your watch.

Be Aware of Human Weaknesses

Despite the best of prehiring screening or the length of service of trusted staff members, human susceptibility to temptation will always be present. While your natural inclination may be to trust the people you know, you should institute safeguards to minimize the chances of losses due to ever-possible dishonesty or simple carelessness.

Deposit receipts daily, and make no exceptions. Make sure that a paper trail is created for every transaction in the business. Be especially watchful over the system for handling petty cash. This is where embezzlement usually begins.

If you have good reason to believe that someone may be stealing from you, report it to the police at once. If you put off that unpleasant duty, you could be making it more difficult to resolve the problem.

Take Action on Marginal Employees

Discharging an unproductive or disruptive employee is the sort of unpleasant task that most business owners dread. However, failing to take action when necessary can be a costly mistake.

Keeping a problem worker around to create more trouble makes a bad situation worse. That's not fair to you or to your other employees. That can result in added stress on other employees who may have to take on more work, and dissension among those who can't understand why you are keeping the employee on your payroll. This, in turn, can negatively affect the treatment of your customers.

In short, once you identify a disruptive or unproductive employee, it's best to face up to the unpleasant task of terminating the relationship. Postponing it can only lead to a more serious problem later on.

While it may not be possible to eliminate every potential profit leak in your restaurant, careful adherence to these eight operational techniques will greatly reduce your exposure to unnecessary losses.

Willam J. Lynott is a former management consultant and corporate executive who writes on business and financial topics. You can reach him at [email protected].