Protect Your Money: Why You Must Have Regular Month-end Evaluations

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At the end of every month, successful bar operators sit down and review all the numbers that their business produced. Documents to be reviewed can include but are certainly not limited to: the income statement, balance sheet, internal spreadsheets, bank account statements, credit card statements, check stubs, and bills / invoices / cash receipts.

While most bar operators balk at the idea of sitting down to talk numbers, this is a required task for anyone concerned with the actual profitability of their enterprise. And it should be common sense that without profit, there is no business. Rather than hide from the world of accounting, bar operators should embrace and develop skills in this area.

But before we discuss the how and what about accounting, we must know why it is critically important to understand.

Here are the main reasons why you must have a month-end:

1. Fraud Prevention and Detection

Typical credit card fraud reimbursement will only be available within 90 days of the fraud occurring, and money laundering by partners usually causes irreparable damage even after it’s discovered. This is why no matter how high you climb on the ladder of success, you must always be looking at the money supply.

While you may not be responsible for paying all the bills yourself, you should always review your monthly bank account statements to see all transactions going back and forth. You must know what each dollar is doing, and this allows you to see if you overspent in any area, identify why overspending occurred, and look at all payees to see if anything looks unusual to you. You must know every vendor your business has and how much you typically spend with each one. This is vital because there’s a lot of theft that happens through vendors. This industry is full of horror stories of partners betraying other partners by creating false vendors and embezzling money out of their bars or restaurants.

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You must also be aware of delivery man theft. Very often, the items that arrive on your orders will not match the invoice that’s left. Therefore, someone must receive the order and ensure that all products the business has been billed for have arrived. When you stay on top of things like this, you can catch things before they become a problem. Preventing fraud is one of the main reasons why at the end of each month, you should gather all checking, savings and credit card statements and examine each one. Catch that funny business early on and nip it in the bud.

Additional Fraud Alert: When you’re paying employees with check, you must watch out for double deposit scams. Some people deposit checks through their phone apps and then deposit the physical check at a bank branch. Undetected, this can have disastrous effects, as your recovery efforts for stolen funds will be frustrating and unfruitful. Usually, people who steal money aren’t in possession of it once they’re caught. That only leaves civil litigation, which is costly and difficult to enforce. Even after a favorable ruling in a court of law, many small civil disputes are still left between parties to resolve. It’s not a situation in which you want to find yourself.

2. Tax Preparation

Proper month-ends allow you to better prepare for your taxes. It’s your diligence that determines whether you’re behind, caught up with, or ahead on your taxes. There are many businesses that make big sales but are behind on all sorts of tax-related bills. Bar operators are more susceptible to this kind of error than entrepreneurs of other industries.

First and foremost, bar operators are salespeople with good marketing skills. These types of people are rarely savvy in finance the same way they are with dealing with people. Because of this, it’s common to hear these operators completely outsource financial management to their accountants without personally putting in an effort to understand everything that’s going on. This lackadaisical attitude is more indicative of laziness than intelligent delegation. Accountants serve as guides to the tax laws and proper organization of the books. They’re not responsible for managing the day-to-day spending of a business—that’s the responsibility of the operator.

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Not knowing how much the government is owed and when that money’s due always leads to overspending. Smart operators know the exact dates for all government remittances, and budget for them on a day-to-day basis. This helps keep short accounts with the government, and avoid situations where accrued tax bills become crippling. Effective tax preparation is one of the biggest benefits of doing regular month ends.

Know Your Big Three: The main things are the payroll deductions, sales tax, and the annual corporate tax return. Payroll tax is very important to stay caught up with monthly; sales tax (GST in Canada) should be remitted every quarter; and then there’s the corporate tax return at the end of the year. You must be aware when each of these taxes are due and budget for them appropriately.

3. You Look at Money Differently

Month-ends force operators to think about money in terms of ratios. This is the main difference between an operator who overspends versus one who stays within the budget.

For example, if a restaurant makes $40, a prudent operator knows that 19 percent or $7.60 is for corporate tax, 2 percent or $4 is for property tax, 30 percent or $12 is cost of goods sold, 3 percent or $1.20 is for administrative costs, 3 percent or $1.20 is for credit/debit card processing costs, and 30 percent% or $12 is for labor costs. That’s $40 minus $38 total cost (which includes taxes owed), which leaves the operator with a net profit of $2, or 5 percent. While these percentages are arbitrary and may be different in your business, the idea is that a smart operator knows how all their expenses with taxes owed affect the bottom line. This changes the way the operator looks at $40, let alone the hundreds of thousands to millions per year a typical bar or restaurant operation will do.

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This mindset is the foundation to paying bills on time and always having enough money to pay what is owed. Regular month-end evaluations remind the operator of these ratios and ensure there’s always enough to pay all the bills.

4. Emotional Stability

Having exact figures from regular month-ends decreases anxiety about money. A doctor must make a proper diagnosis before prescribing any kind of medication. Similarly, a business operator must have precise data before implementing any kind of solution to a money management problem.

Many people live in denial about their financial problems and avoid facing them directly. Some use gambling, sex or drugs as ways to run from their problems. This type of cowardice is what keeps people trapped in their situations. Regular month-ends reveal all the good and bad about a business and allow operators to correct problems while they’re still small. Constantly addressing the issues a regular month-end reveals gives the operator more emotional stability.

Kevin is an operations consultant with over a decade of experience working directly with bar, restaurant and nightclub owners on all points of the spectrum: from family-owned single bar operations to large companies with locations on an international scale. Kevin works with them all and understands the unique challenges each kind of company faces.

He is the author of a book entitled Night Club Marketing Systems – How to Get Customers for Your Bar. He is also a regular writer for Nightclub & Bar, providing information high-level operators seek to get the extra edge in their marketing, sales and operations.

Kevin continues to write today, providing specialized information directly to nightclub, bar and restaurant owners from his workshops, newsletters and magazine articles. He is also active in the field, operating an inventory auditing practice with Sculpture Hospitality.

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