How should a restaurant owner plan for the tax consequences of selling the business?
Before a lender audit, a restaurant group should show that its financial information is accurate, consistent, and supported by procedures.
Lenders are assessing whether management can prevent fraud, explain variances, and produce reliable information.
Here are six controls that should be in place before the audit begins.
No single employee should control a financial transaction from beginning to end. The person who orders goods should not also receive them and approve payment. Likewise, employees handling cash should not reconcile sales.
For smaller locations, managers can rotate review responsibilities or perform spot checks. Clear segregation of duties is one of the most important restaurant internal controls because it reduces misconduct and mistakes.
Each location should reconcile cash, credit card receipts, third-party delivery sales, gift cards, discounts, voids, and refunds to the point-of-sale system. Deposits should be matched to daily sales reports and reviewed by someone other than the person preparing the deposit.
The restaurant audit checklist should include evidence that discrepancies are identified, documented, and resolved.
Restaurant groups should maintain an approved vendor list and limit who can add or modify vendor records. Payments should require supporting documentation, approval, and a three-way match among the purchase order, invoice, and goods received.
Large payments, wire transfers, and changes to banking instructions should receive secondary approval. These controls help prevent duplicate payments, fictitious vendors, and fraudulent account changes.
Payroll should be reviewed before processing by someone independent of scheduling and employee setup. Management should compare hours, overtime, pay rates, bonuses, and tips to approved records and budgets.
Departing employees should be removed promptly from payroll, banking, scheduling, and technology systems. Strong payroll controls also support accurate restaurant financial reporting because labor is often one of the largest restaurant expenses.
Well-documented payroll procedures can strengthen Business Exit Strategies by showing a buyer or lender that labor costs are controlled and explainable.
Physical inventory counts should be performed on a consistent schedule using standardized count sheets and assigned responsibilities. High-value items, such as liquor, may require more frequent counts.
Management should compare actual inventory usage with expected usage based on sales and recipes. Significant changes in food cost, waste, spoilage, or gross margin should be investigated. During an internal audit of restaurant operations, inventory records often reveal whether purchasing, receiving, and usage controls are working together.
Each location should follow a consistent monthly close process that includes bank and credit card reconciliations, review of manual journal entries, and analysis of balance sheet accounts. Supporting documentation should be retained and easy to retrieve.
Management should review profit and loss statements by location and compare results with budgets, prior periods, and operating metrics. Unexpected changes in labor percentage, food cost, repairs, discounts, or cash over and short should have a documented explanation.
Reliable monthly reporting also supports Ownership Transition Strategies because it gives future owners, investors, and lenders confidence in the company’s earnings and financial position.
Before fieldwork begins, restaurant groups should organize policies, reconciliations, approvals, system-access lists, inventory records, payroll support, and financial statements in one location. The goal is not to create controls solely for the audit, but to show that they operate consistently throughout the year.
A lender is more likely to trust the numbers when management can show who prepared them, who reviewed them, what exceptions were found, and how they were resolved.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional, tax, audit, advisory, and business process outsourcing services. Contact Timothy Watt, partner in charge of Bennett Thrasher’s Hospitality practice, or call us at 770.396.2200.
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