Each year, approximately 30,000 new restaurants are opened in the United States. Most restaurateurs understand the great risk that comes with these ventures; in fact, some sources estimate as many as 18,000 of the 30,000 restaurants opened this year will fail within the first three years in business. Despite the risk, many chefs and hospitality professionals dive right in. If you’re a hopeful restaurateur, legal planning is an absolute necessity to ensure you don’t fall victim to many of the common mistakes that cause these businesses to fail. Consider the following:
All restaurant owners must carefully consider the best corporate structure for their businesses. Generally speaking, there are four types of structures: a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. In the case of a restaurant, most owners will want to limit liability, and protect personal assets, should there be a lawsuit filed by a customer or employee. An LLC or corporation is often recommended for restaurants since these limit personal liability. A qualified business law attorney can help you identify which structure is best for your new restaurant, and help you prepare and file all required documents.
As any successful restaurateur will tell you, a good location is key to a profitable restaurant. In considering the location of your restaurant, you will want to take into account the local zoning laws. Some areas are restricted to residential dwellings while others may be zoned for commercial use. Do you want to have outdoor seating in the summer? That too may be subject to zoning restrictions. Be sure to carefully outline how you plan to use the space and then identify possible locations accordingly.
Leasing a Space
If you don’t have the capital to buy a space for your restaurant, you’ll likely have to rent one. In many cases, costly renovations are required (especially if the space was not previously used for a restaurant). When a significant amount of money is put into the space upfront, it’s absolutely essential that you take steps to protect your tenancy and ensure your business can afford to stay there for an undetermined amount of time. This might mean negotiating a favorable a long-term lease, and including specific clauses pertaining to rent increases. A lawyer with experience in the restaurant industry should be consulted early in the process to ensure your best interests are protected.
Licenses and Permits
Unlike many other types of businesses, restaurants often require a number of licenses and permits from local governing bodies. For instance, you might be required to obtain a license to handle food. If you want to have a bar, you will need a liquor license. Even if you plan to have patron dancing, you may be required to obtain a special permit. An attorney can help you identify exactly what you will need and help you complete all applicable paperwork.
Patron & Employee Safety
To ensure the safety of all patrons, your local governing agency may require your restaurant to undergo regular inspections from the health department. To ensure the well-being of all employees, you should also review all Occupational Safety and Health Administration policies.
If you frequent restaurants, you’ve likely witnessed an accident or two - a server spills a hot cup of coffee all over a patron or a bartender slips on some water from the ice machine. With the risk of injury high, it’s absolutely critical that all restaurant owners select an insurance policy which protects the business against lawsuits. In selecting the best policy, speak with an insurance agent and knowledgeable attorney who have restaurant experience to ensure you are protected.
You have probably thought long and hard about your restaurant’s name, signature recipes and even your tagline. Since these components are all critical to your branding and long-term success, you should take steps to protect them. An attorney can help you register the name of your restaurant or food creation as a trademark.
If you are purchasing a franchise, you will have even more legal considerations including the time consuming review of the disclosure document and the often daunting franchise agreement.
Opening a restaurant has its fair share of challenges, especially when compared with many other types of small businesses. By addressing potential legal pitfalls, restaurateurs can focus on operational aspects of their business and enhance their chance of success. It’s absolutely essential that you consult an attorney with experience in the restaurant industry early on to reduce risk and expense down the road.
The attorneys at Schneiders & Associates, L.L.P. are experienced restaurant attorneys, representing many food-service businesses in and around Ventura County. If you are planning to open a new restaurant, relocate a restaurant, purchase a franchise or purchase an existing restaurant, please contact us for assistance navigating the process and to avoid the pitfalls discussed above.