Someone’s In the Kitchen
Cooking shows on TV like Chopped, Iron Chef, and Hell’s Kitchen are all the rage. Everyone seems to want to be a chef. Here in the Hudson Valley we are blessed to have the Culinary Institute of America, which turns out truly talented chefs every year. Many of these choose to remain in the Hudson Valley and open their own restaurants.
The restaurant business is very challenging. Restaurants have a very high mortality rate. According to a frequently cited study by Ohio State University on failed restaurants, 60% do not make it past the first year, and 80% go under in five years.
A law firm cannot help with recipes or chopping, but we can help planning and running a business.
Here are some of the issues aspiring restaurateurs should consider when planning a new restaurant.
- Should you use an entity that will insulate your personal assets from the risks of the business? Should you use a corporation or limited liability company? How many owners are there? Are there outside investors? Will you own the real estate the business occupies and as well as the business? Many different factors go into the choice of business entity.
- Is the business adequately capitalized? Lack of adequate funds is the most common reason for the failure of most businesses of all kinds. If you have investors, you need to make sure you are complying with both federal and state securities laws. If you have lenders, you need to make sure the loans are properly documented and that an agreement with a new lender does not inadvertently violate an agreement with a prior lender. Do you have the necessary freedom to run the business your way, or do your investors or lenders have the ability to interfere? What collateral security do you have to pledge in order to close the deal?
- Where is your space? Are you purchasing or renting? Is your activity permitted under the applicable zoning code? Are you complying with the requirements as to parking, setbacks, trash disposal, signage, seating capacity, hazardous materials, and the like? Does your lease give you the necessary flexibility, and call for a rent that you can afford? Do you have options to extend the term?
- Do you have all the necessary licenses and permits? Will you be serving beer, wine or hard liquor? Are you properly collecting and remitting sales tax?
- Are you leasing equipment? What happens if the equipment breaks or is damaged or stolen? What if you want to upgrade? Is there a penalty if you cease your business and return it before the end of the lease term? Do you have an option to purchase?
- Employment is an increasingly complicated and risky issue. Are you paying employees a salary or hourly wage? Do they get tips? Are the owners sharing in tips (they shouldn’t be!)? Laws about minimum wage, overtime, and tips have all changed recently and employers need to be sure to comply with the current laws. Fines and penalties for noncompliance can be substantial.
- Do you have all the necessary kinds of insurance, in adequate amounts? You should consider general liability, worker’s comp, dram shop, personal property, business interruption, valuable papers, and identity theft.
- Do you need to warn customers about possible food allergies? Is your staff adequately trained about serving alcohol?
- Does your restaurant’s name infringe on the name of someone else’s restaurant? Do you have all the releases and clearances that you need for your website and advertising?
The attorneys at J&G have helped many clients start, buy and sell restaurants of all kinds. Let us help you cook up a successful restaurant.
Gary Schuster is Senior Counsel with the firm and practices Arts & Entertainment and Business Law. He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.
