From the Jan./Mar. 2008 Issue
A franchisee for a well-known casual dining restaurant thought they were doing
all the right things to stay on top of cash at their eight locations. Bank statements
came in on the fifth and, like clockwork, they were quickly performing bank
reconciliations. Then one month, while doing their bank reconciliations, it
happened. Locations #1 and #2 were fine, as usual, but at store #3 they found
the daily deposit was $100 short on the third of the month. The next day was
also short by $100 as was two days later and a number of other days that month
to the tune of $1,800. What’s up?
After a brief investigation, the pattern emerged. It wasn’t mere coincidence
that each day they were short. They found that on each of those days, “Mary”
was the back-of-house administrative employee responsible for counting the cash
from the register. It now made more sense why Mary had suddenly quit at the
end of the month. No doubt she knew her creative accounting would soon be discovered.
Of course, by the time the bank reconciliation was done, it was $1,800 too late
for the fateful franchisee. It was a costly lesson learned and a wake-up call
on cash management.
TIMELINESS IS EVERYTHING
In cash intensive, multi-location businesses like restaurants, timeliness is
everything, and timeliness must be defined as “all the time” where
cash is concerned. Margins are already tight, and losses in the restaurant business
like the one caused by Mary, can quickly “eat up” all the profits.
In the case of the restaurant, minimizing risk moving forward meant putting
in place the “checks and balances” to decrease exposure. The key
was “balance,” and the solution was a combination of technology
and standardized business processes on top of their existing business systems.
THE RIGHT INGREDIENTS
We’ll call our restaurant “Sally’s Seafood.” The following
list outlines the new “ingredients” Sally’s added to make
a better Cash Management menu to keep them in Balance.
- Effective immediately, there had to be two people present for any counting
of cash. The policy was established that the two employees, preferably one
being a manager, would empty the cash register whenever there was $1,000 over
their base amount. Together, they would count the money, put it in a sealed
envelope and sign their names over the seal. With both there, they would drop
the envelope into the slot in their safe where it stayed until the armored
truck came to get it. Though not foolproof, it lowered risk because it required
collusion for a theft to occur.
- Effective immediately, Sally’s began requiring each store to send
its Daily Sales Report (the DSR, in industry terms) electronically back to
the corporate office. The report reflected sales, divided into cash, checks
and credit card (divided by type) revenue taken in, along with some other
- At the start of each business day, the corporate office accountant electronically
downloaded from their bank the previous day’s daily deposit information
for each of the eight stores. This included the detail credit card information
segregated by type of card. This level of detail makes it much easier to handle
the daily reconciliation.
- The information from both the store’s DSR and the bank were combined
in the “Balancing” tool in Sally’s corporate accounting
system. With that information coming in daily, it was now possible for Sally’s
to balance their cash, checks and credit cards daily instead of monthly. Using
their new technology-based cash reconciliation tool, they were provided the
needed functionality on top of their standard bank reconciliation, allowing
them to immediately spot any discrepancies in cash and checks.
A NOTE ON CREDIT CARDS
There is one point to keep in mind with credit cards. Credit cards often have
a few days of lag time before the bank settles, so those show on the daily reconciliation
as adjustments. The key on these was Sally’s knew the time frame tolerance
for the credit cards to settle and would get alerted if they were behind. As
soon as the credit cards settled, they could quickly see any differences. The
key again is the speed of capturing the information from the stores and the
bank, the tool and the processes.
OTHER BENEFITS OF BALANCING
Sally’s also found other benefits with this new “Balance.”
They were catching other errors faster, as well. For example, one day they found
that they were having an electronic transmission issue on credit cards. From
the restaurant end, all looked well, but the processing company was not receiving
them. With their daily “Balance,” it was an easy catch.
One other “piece” of business seemed unique to the restaurant
business. Sally’s was set up so that servers “carried their own
bank.” This meant that they kept all their money themselves and squared
up with the restaurant at the end of their shift. There is a loophole with this
process, however, and it impacts the customer side too. My husband and I were
victims last year at one of the area’s nicer restaurants. We paid for
our dinner by credit card and didn’t notice until we reconciled our credit
card statement that we’d been charged for two meals that night, both for
It seems our server, who was “carrying their own bank,” decided
to make a withdrawal out of ours. It turns out that wasn’t too hard. During
the course of the evening, our server received both cash and credit cards for
meals they served. All the server had to do was pocket the cash a customer paid
for their bill and then charge that same amount to our credit card. This put
the server in balance. That is until the credit card bill gets to the customer.
It’s apparently more common than you think. It’s also one of the
reasons that some restaurants are using new technology to let customers pay
with their credit card at their table so it never leaves the customer’s
sight. That would have thwarted our resourceful server.
The lesson here for Sally’s was again a matter of timeliness. With more
timely reconciliations of the credit card statement, it’s easier to spot
chargebacks. Now Sally’s has an e-mail alert to the manager generated
every time there is a chargeback on a credit card bill. Notice comes when the
event is still fresh and easier to spot patterns that could point to a server
in business for themselves.
SPREAD THE WORD
The final piece to implementing the new Balancing Rules was for Sally’s
to be sure that all of its employees knew about the rules. Spreading the word
that Sally’s system had been tightened up implied that the risk for trying
to steal was now much higher.
MAKE SURE YOUR CLIENTS HAVE A BALANCED DIET
Some say the best way to learn is from experience. It can be expensive when
it’s your own experience, so take a lesson from Sally’s. Use your
trusted advisor position to make sure that your clients in the restaurant, hospitality
or other service industries know about the “Balanced” diet for finance.
This diet is not focused on weight loss, but rather on preventing money loss.
It’s guaranteed to prevent the heartache and financial pain caused by
a system without the right checks and balances.