Restaurant Law Blog

Tuesday, September 20, 2011

Checklist For New Restaurant Formation

CHECKLIST FOR NEW RESTAURANT FORMATION

CONCEPT

Create your own concept
Consider buying a franchise
Consider purchasing an existing restaurant
Draft a business plan
- Include a confidentiality agreement to give to those you discuss / share your ideas with
- Include your goals and strategies
- Include your proposed menu
- Include your proposed menu pricing
- Include your target market analysis
- Include your projected staffing needs
- Include your projected financing needs
- Include sales and profit analysis from best to worst case scenarios

DUE DILIGENCE

Survey target market with email blasts, direct mailers, etc.
Research the following:
- Market, trends and competitors
- Demographics
  - Consider purchasing demographics report on credit card or public utility data
- Consider purchasing prospect lists from the chamber of commerce
- Consider hiring a marketing firm to help with the research
- Taste test your menu

THE TEAM

Consider hiring professionals early in the process, such as:
- Restaurant consultant
- Accountant – early to get the numbers together for the business plan, especially if you need outside financing
- Real estate broker
- Attorney
- Marketing firm
- Designer
Consider partnering with others

BUSINESS FORMATION

Consult with a lawyer and an accountant to determine the correct business entity for your restaurant
- Sole proprietorship
  - Advantages: No formalities or filings with the secretary of state required (except for, in some cases, a fictitious business name registration)
  - Disadvantages: Personal liability for the owner
  - Other: Pass-through taxation
- Partnership
  - Advantages: No formalities or filings with the secretary of state required (except for, in some cases, a fictitious business name statement)
  - Disadvantages: Personal liability for the partners
  - Other: Pass-through taxation
- Limited partnership
- Limited liability company (LLC)
  - Advantages: Owners in most cases are not personally liable for the business debts, and fewer formalities than corporations required.
  - Disadvantages: Requires filing with the secretary of state and possibly securities registration
  - Other: Pass-through taxation
- Corporation
  - Advantages: Owners in most cases are not personally liable for the business debts, and flexibility in raising capital
  - Disadvantages: Requires filing with the secretary of state, formalities in maintaining the corporation and possibly securities registration (or a notice of exemption)
  - Other: Taxation at both the corporate level and shareholder level
- S Corporation
  - Advantages: Owners in most cases are not personally liable for the business debts, and flexibility in raising capital
  - Disadvantages: Requires filing with the secretary of state, formalities in maintaining the corporation, restrictions on the number and status of shareholders and possibly securities registration (or a notice of exemption)
  - Other: Pass-through taxation
- Form the business entity
  - File appropriate documents with the secretary of state, if need be
  - Register securities or file a notice of exemption, if need be

FINANCING

Consider the following sources for startup financing:
- Personal savings
- Family or friends
  - In the case of family or friends, make sure to document the transaction and clarify the terms
- Loans
  - Inquire at the Small Business Association to see if your business will qualify for help
- Investors
- Partner
- Purveyors
  - See if your purveyors will defer payment of your bills or otherwise lessen the burden during startup
- Set up business bank accounts
- Work with your accountant to set up the books and establish a plan for regular financial reporting
- Obtain a credit card processing system

LOCATION, LOCATION, LOCATION

Consider engaging a real estate broker to help find the space
Check with the chamber of commerce, zoning boards, and other local agencies / offices for help in finding a place
Consider hiring an attorney to assist in negotiating a lease
- Consider asking for a rent abatement while setting up
- Consider sharing a percentage of sales with the landlord to help keep rent at a manageable rate
Once in the space:
- Set up utilities
- Engage a pest control company
Engage contractors, architects and interior designers as needed
Consider trash services, dumpsters, grease removal, recycling
Obtain building permits
Obtain certificate of occupancy
Obtain Fire department permit
Elevator inspections
Compliance with ADA (www.usdoj.gov/crt/ada/adahom1.htm)

EQUIPMENT AND SUPPLIES

Consider new versus used and buying versus leasing
- Computer
- Fax / phone
- Reservation system
- Kitchen equipment
- Signage, business cards, takeout bags, letterhead, napkins, other printed material, etc.
Locate equipment suppliers
Locate food / beverage source suppliers
Obtain purchasing sheets for all products
Purchasing agreements with purveyors
Purchasing manual

PERMITS, LICENSES AND OTHER LEGALITIES

Liquor license
Safety / sanitation / hazard issues
Employee certification for safe food handling
Zoning / building codes
wage and hour laws
Health code compliance / health department permit
Business license
Employer tax ID
Building permits
Certificate of occupancy
Fire department permit
Elevator inspections
Seller's permit

EMPLOYEES

Help wanted ads
Hire employees
- chef
- general manager
- managers
- supervisors
- waiters
- hostess
- dishwashers
- etc.
Develop job descriptions, pay rates, benefits package, hours
Employee and operational manuals
Train employees
Each establishment must have at least one employee who is certified in food safety and sanitation
Engage a payroll company
Get forms together (e.g. I-9 , W-4s)
Hiring standards must pass the business necessity test
Background checks must comply with federal Fair Credit and Reporting Act (15 USC §§ 1681 – 1681u)
- General requirements:
  - Notice
  - Authorization
  - Certify compliance to credit agency
  - Provide copy to applicant
  - Provide notice of adverse action
- Paperwork checklist for employees:
  - Offer letter
  - Employee contract
  - I-9 / W-4 / government forms
  - Agreement to arbitrate
  - Employee handbook with acknowledgment of receipt
  - Authorization for payroll deductions
  - Benefits application form
- Consider independent contractors where possible
  - Advantages of independent contractors:
    - Employer does not pay the usual employer contributions for:
      - State employment tax
      - Social security
      - Federal unemployment tax
    - Employer does not need to provide benefits such as life or medical insurance, vacation, sick time, pregnancy time or retirement plan
    - Employer decides whether to provide workers compensation
    - Labor laws and wage and hour laws do not apply
      - National Labor Relations Act (29 USC § 151 et seq) and Fair Labor Standards Act (29 USC § 201 et seq) does not apply
    - Reduced risk of discrimination claim
    - Minimized potential for wrongful termination claim
  - Disadvantages of independent contractors:
    - Loss of control – cannot control how the contractor performs the service
    - Cannot terminate without cause (or risk breach of contract)
    - Need to continuously monitor relationship to make sure it is legitimately an independent contractor relationship because penalties for misclassification are high