Restaurant Menu Engineering

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Take a break from working on your budget to catch up on a new law that will have a huge impact on your gross operating profit. As you may have already read, on September 12th, 2006 Governor Schwarzenegger approved a bill to increase the minimum wage. The bill calls for two raises to the minimum wage over the next year and a half as follows:

-On January 1, 2007, the minimum wage for California will increase from $6.75 per hour to $7.50 per hour.

-On January 1, 2008, the minimum wage for California will increase an additional 50 cents to $8.00 per hour.

To read the bill, click on the following link: http://www.dir.ca.gov/IWC/iwc.html

The biggest area the new law will impact is in the hotel’s food and beverage departments. Most restaurants only make a profit of about 10 percent. With server and bartender labor to increase 11 percent to $7.50, it could easily squeeze out the entire profit. Hotels with high benefits (especially high workers comp rates) will be hit the hardest. Now is the time to examine your menus and consider any price increases. There is a great article on menu engineering available at http://www.restaurantowner.com/public/330.cfm . There is also a menu engineering worksheet available for download to help you out. It is also a great time to examine your labor productivity. Make sure that you have a productivity number for each position and those numbers are used to forecast, schedule, and report each week.

The earlier that you can prepare for the increase, the easier it will be to absorb the expense. It is critical to examine what positions that it will affect and have a plan for them. Typically any position under $10.00 per hour will be affected by this minimum wage increase. You may want to consider raising the wages on those positions immediately rather than waiting until January 1st. As the word about the minimum wage increase gets around, employees will start looking around to see what other hotels are paying. The hotels that wait until January 1st could risk losing some good employees to their competitors. Also, a large increase before the government requires could be a great boost for morale, especially in December when hotels are slow and work is scarce.

Link provided with permission from RestaurantOwner.com. For more information, visit http://www.restaurantowner.com/.

Protection from Credit Card Chargebacks

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Credit card chargebacks probably cost your hotel thousands and thousands of dollars each year. With changing privacy policies, hotels are finding it harder and harder to protect themselves against chargebacks. In the old days, guests would check-in, present a credit card and an ID. The guest service agent would imprint the credit card on the back of a registration card and have the guest sign. Now, check-ins are often paperless and many hotel chains such as Marriott do not allow hotels to imprint credit cards.

Here are some suggestions to protect your money:

  1. Make sure every credit card presented at the front desk is swiped. Have accounting periodically run reports from the PMS and audit to make sure that all cards are swiped. Conduct further training with the front desk on the importance of swiping every card. Swiping the cards will also save you money on your transaction fees. We will get to third-party credit card authorization forms in the section below.
  2. Set a credit limit for in-house guests of one to two thousand dollars. Post a payment every time their account gets to that level and deliver a copy of the folio to their room. Then make sure that a new authorization is taken after each payment is posted.
  3. Monitor guests for unusual purchasing. Guests staying on stolen credit cards are usually the guest who go wild with room service, in-room movies, telephone, etc.
  4. Make sure the front desk gets a current address and phone number from every guest, especially walk-in guests. This is one area that is most neglected, especially when the front desk is busy. Also, in many counties in the US, it is the law.

What to do when a credit card is not present:

  1. Have a strict policy on the use of third-party credit card authorization forms. Have all requests processed through the accounting department rather than the front desk.
  2. Make sure that your authorization form requires the cardholder to fill in their name, credit card billing address, and signature.
  3. Require the cardholder to fax over a copy of the card and their photo ID if possible. However, many hotel chains no longer allow this. If you cannot do this, use step 4 below.
  4. Use an ‘Address Verification System’ to verify every authorization form received. Most major credit card processors such as Chase have an automated system available and it takes just a minute or two. Do not accept a credit card if you can not verify the billing address.
  5. Require payment in advance or a deposit when using a credit card authorization form. This is especially important if you accept an authorization form for large amounts like a group block, meeting room, or catering function.

As privacy policies continue to become more strict, it will be difficult to prevent chargebacks unless you stay on top of the tools you have on your side. Of course, we will continue to keep you updated in any way we can.

Cash Control Basics

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We have all heard stories of hotels that have had accounting employees commit serious fraud. Maybe it has happened at your hotel. Maybe it is happening at your hotel right now and you don’t know it. Even if you have a perfect record, it is always a good idea to review your internal controls and prevent fraud from happening.

There are some simple controls that every hotel should have, yet many hotels fail in these areas when the internal audit comes around. Here are some highlights:

1. Make sure that the General Cashier does not perform any accounts payable or accounts receivable functions. This is especially tough in small hotels that may only have one employee in their accounting office. In a small hotel, we recommend having the Sales Admin or Front Desk Manager be the General Cashier… anyone who does not do A/P or A/R. If a General Cashier has access to A/P or A/R, it makes it incredibly easy to steal cash.

2. Require the General Cashier to take a vacation each year and have their job functions assumed by another associate. Quite often, a cashier will not want someone else to handle their job duties or to take a vacation at all. This is often a red flag that the cashier is committing fraud and afraid of someone looking closely at his/her work.

3. Make sure that every bank in the hotel (including the main safe) is audited on a surprise basis at least once per month. This one is the most basic of basic controls yet many hotels do not do this. They typically find out of a cash shortage when an employee with a bank is terminated. This is especially important when it comes to the main safe. If it is not audited frequently on a surprise basis, it makes it so much easier for the cashier to steal or borrow money.

4. The drop safe should require two people to open. We like the drop safes that need a key and a combination. The combination should be kept by the General Cashier and the key should be kept by a separate person.

5. All deposits should be removed with a witness present and immediately logged. The deposits should be logged with a witnessed in case an envelope is missing.

6. Bank deposits should be made every day via armored car service. Do not allow your General Cashier to skip days and keep cash on hand. This makes it easier to commit fraud. Also, make sure that your deposit is picked up by armored car and not taken to the bank by the General Cashier.

7. Accounts Payable or Accounts Receivable employees should never handle cash or checks. Do not allow the A/P employee to receive checks in the mail. The checks should be received and logged by someone other than the General Cashier or A/R employee. We prefer an Administrative Assistant to handle this or have the checks sent directly to your bank lock box. Also, the A/P or A/R employee should not handle cash, including petty cash.

Again, these are just the basics of control. There is more information available in the HFTP Study Guide for the CHAE Exam. More information is available at http://www.hftp.org/ or your local HFTP Chapter.