Cafe & restaurant risk management: Business interruption, employees, food & beverage

Risk is what being an entrepreneur is all about! You find unmet needs or design something new and unusual. Then open a shopfront or a website, promote it hard and wait for the customers - if you'd done the right research, you will soon have customers visiting and spending.

It's a good theory, but the COVID-19 crisis has upended so much that was certain in business – many things that were predictable are now uncertain and risky. Let's look at the critical areas of risk, and solutions to protect you from negative consequences. Ultimately, it all flows through to financial trouble, which we cover in the second article.

Unexpected Interruptions that Stop or Delay Your Business

* Pandemic lockdown, floods, storms, fire or a local emergency – it soon flows through to cashflow problems.

* Machinery breakdown - loss of refrigeration, or failure of crucial equipment, eg coffee machine

* Untrained staff causing machinery breakdown or loss of stock from poor preparation or contamination

* Failure to abide by liquor and food licensing regulations, leading to fines or temporary closure

What's your Plan B if there's an accident or emergency? It can be everything from having duplicate equipment, to organising a staff call-out list to notify about alternative plans. If you're in an area prone to flooding, look at what could happen if the water came into your shop. If fire is a threat, what is the state of protective equipment? If staff behaviour is the problem, better training and access to instruction manuals will be necessary.

See our Guide: Disaster recovery marketing for cafes, restaurants and bars.

Equipment maintenance and updates are essential to guard against unexpected failure – preventive maintenance is less expensive in the off-season (eg refrigeration checked in winter), and sometimes the cheaper option is to replace something with a new or Certified Used item. A good relationship with repair services will be useful, especially for out of hours. Check all the ‘Repairs & Maintenance’ items on your Profit & Loss statement – old equipment can be surprisingly costly.

Risks Related to Employees

* Loss of a key person (chef or manager)

* Staff unable to come to work because of transport problems or emergencies

* Staff unable to handle customer demands and service needs

* Unable to recruit staff because of labour shortages - the disruption caused by restricted immigration or regional shortages

* Difficulty for staff with public transport cutbcks and lack of parking

* Harassment leading to legal action, negative publicity or loss of good staff

* Long working hours for key staff leads to burnout, poor performance or resignation

* COVID-related issues cause staff absence because of sickness or quarantine

* Incorrect payment of wages, leading to fines and back-payments for affected employees. This could also lead to reputation risk if publicised.

There's no one solution for this wide range of issues, but they highlight the importance of having solid people-management systems. It starts with a strong culture to attract and retain the best staff, and there should be robust recruitment, rostering, payroll, communication and team management systems in place. There's a wide range of low-cost digital solutions available to handle these tasks, track costs, and make staff management much more predictable.

Regular consultation with staff will help to improve 'softer' systems, like customer service, sales activity, reputation management and staff turnover – problems here can lead to increased costs or reduced income.

Risks Related to Food, Alcohol, Cooking and Service

* Incorrect food storage or preparation, causing sickness or poisoning

* Inadequate cleaning and sanitation, leading to loss of stock and food safety issues

* Food allergies not taken seriously, resulting in customer complaints or emergencies

* Dishonest employees who steal cash, food or alcohol

* Wasteful work practices that cause loss of food, alcohol and other stock

* Inadequate fire control systems, leading to fire and loss of equipment or the entire building

* Serving excessive alcohol to customers that leads to property damage or accidents – the business may be held liable for their actions

* Bookings do not turn up, causing loss of sales and over-staffing

Many food spoilage problems occur because of inadequate refrigeration – freezers and refrigerators should be checked regularly. Digital monitoring systems are very inexpensive and protect you 24/7. Regular stock checks help to catch thieves, and camera monitoring is a good investment. Some fire control systems are required by your insurance policy, eg hood and exhaust duct cleaning. In addition, staff need training in quick reaction to minor fires on a stove or fryer – usually panic takes over, and common sense is forgotten.

See: 10 annoying expenses after you’ve opened your cafe or restaurant and also Prepare your refrigeration for a trouble-free summer.

Responsible Service of Alcohol training, backed by management supervision, helps minimise the risk of customer intoxication and protects you if there’s an incident. Many venues now have stricter rules with bookings and confirmation, requiring deposits or credit card details – this has meant a big reduction in no-shows. See our Guide: Best apps & ordering systems for takeaway & food delivery.

The Importance of Insurance

Insurance has always been a solution for sharing risk with a third party, in return for paying a premium. But many insurance policies exclude risks related to business interruption from unexpected events, like COVID-19, machinery breakdown, floods and fire. Especially if you're in an area where this is likely to happen, eg near bushland or on low land near a river. If a policy is available, you'll want to balance the premium against the likely cost of loss and interruption.

Continue to Pt 2 - Reputation, Cyber-Crime and Financial Risk