2011 September: EXPENSIVE LESSONS

What keeps you awake at night? For me, 25 years in pizza has provided tremendous fodder for 3 a.m. nightmares. I read Pizza Today and attend International Pizza Expo because I want to learn from the successes and mistakes of others. I’m not too proud to tell you some of my most expensive mistakes. These costly errors have turned into valuable lessons for me. A wise man once wrote, “You will learn more from your mistakes than from your successes.” I am probably the poster boy for that saying! So, without further adieu, I have put together my “Top 10 Mistakes” list in the hopes that it saves another pizzeria operator from the heartache I have endured.

No. 10 — Minors

I had a 16-year-old employee wash dishes and it cost me $2,000.

Labor code varies from state to state. In California, the employment of anyone under the age of 18 has restrictions not only on the hours they work, but the actual work they perform. We removed the metal guards from a Hobart slicer and put them in the dish sink. Apparently this constitutes dangerous equipment.

Solution: I no longer hire minors for restaurant work.

No. 9 — Bank Statements

A bookkeeper wrote more than $5,000 in checks to a company that did not exist. The checks were cashed with a forged signature. This was finally caught when I opened a bank statement that contained the copies of the checks that cleared. I was able to recover the money, thankfully.

Solution: Open all bank statements personally.

No. 8 — Breaks and Overtime

A 10-year employee sued for lunch breaks. It cost me $2,500. Another salaried manager sued for overtime. It cost me $5,000.

Again, while labor code varies, in California a 30-minute break is required for all shifts over five hours. There are no exceptions to this rule. Salaried employees are not exempt from overtime. In other words, restaurant managers working over 40 hours need to be paid for those hours at the overtime rate.

Solution: Every payroll sheet is signed by the manager, who checks for lunch breaks and overtime. All restaurant employees, including managers, are paid hourly and given overtime pay as required by the state.

No. 7 —Cutting Marketing Dollars

I cut my marketing for two months with the hope of saving $10,000. It cost me over $30,000.

Like many restaurant owners, I was looking for ways to cut costs in a slow economy. I stopped door-hanging and direct mail efforts. My sales dropped 10 percent within four weeks. Worse, it took another four weeks to recover once I re-instituted these programs.

Solution: Never cut marketing. Only change it to make it more effective.

No. 6 — Yellow Pages

I stopped all yellow pages ads and it cost me thousands of dollars.

I believe that yellow pages advertising is a thing of the past. But when I pulled my yellow pages ads, the phone book ‘accidentally’ removed my listing altogether. Yes, I mean the white pages. Of course, this is where the 411 service gets its info. The result was one year with no number in the phone book.

Solution: A free in-line listing in the yellow pages setup in writing.

No. 5 — Insurance Policy

I had a restaurant fire that cost me $100,000 more than the insurance paid.

I keep minimum limits on my policy to keep the cost down. If you have a fire claim, you will be negotiating the amount to be paid by the insurance company. It is not a given. Your cash flow will take a hit and any late fees will not be covered by the insurance company. Verify that your insurance includes ‘Loss of Business Income.’

Solution: Review insurance limits each year with your broker.

No. 4 — Credit Card Refunds

An employee swiped a pre-paid credit card and refunded themselves $5,000.

Because of the large sum, the credit card processor alerted me … two weeks later! It took eight weeks to get the money back. Because of the problem, we went back and reconciled our credit cards (something we had never done effectively) and discovered the thief had experimented with smaller amounts previously.

Solution: Have your credit card machines password-protected on refunds. Also, reconcile your credit cards weekly.

No. 3 — Telephone Credit Cards

I had over $20,000 in credit card chargebacks in a three-month period.

We stopped taking checks and switched to credit and debit cards for delivery. The credit card processor came in and helped us set up the credit card machines in our phone center. They also programmed the machines. Three months later, the chargebacks started rolling in. Apparently it was our fault because we were not getting the three-digit code from the back of the card and the billing address. It is a shame the credit card processor didn’t share that this was possible in the programming feature. We corrected this and now have about $50 per month in chargebacks on more than $100,000 in credit card sales.

Solution: For telephone orders, make sure your credit card machines are programmed to ask for card number, expiration date, three digit (or four digit for AMEX) code, billing address and billing zip code. Always enter this information.

No. 2 — Payroll

A restaurant manager reported an extra $4,200 in pay for hours she did not work.

As I opened more restaurants, I saw less office time, which meant I skipped reviewing the labor reports each week. After three months, I finally returned to looking at my key indicators and discovered 25 hours every week in overtime for one manager. My investigation revealed that the overtime hours were not worked.

Solution: Have 10 Key Performance Indicators that you review every week. Make payroll reports one of them.

No. 1 — Unsupervised Managers

I promoted and trained an area supervisor and discovered $216,000.

As I opened more restaurants, I continued to wear the area supervisor ‘hat’ along with all the other ‘hats.’ When I finally promoted an area supervisor, we improved food costs by 1.5 percent and labor costs by 3 percent — including the pay of the area supervisor!

There is no substitution for daily supervision and support for the manager.

Solution: A good area supervisor will control costs to more than cover his or her pay. A great area supervisor will make you incremental profits.

Well, there it is: nearly $400,000 in mistakes. You can bet I’ve learned from each and every one of them. Hopefully this article helps prevent you from making the same costly mistakes I’ve made.

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