Restaurant Law Blog

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

INSURANCE

• Property
• General liability
• Liquor liability
• Auto
• Workers’ compensation
• Unemployment
• Flood, earthquake, etc
• Employment practices insurance
• Loss of business income insurance
• Food contamination and spoilage

TRADEMARKS, TRADE SECRETS, COPYRIGHTS, LOGOS, BRAND IDENTITY

MARKETING / ADVERTISING

• Website, email, etc.
• Mailers, tv, radio, newspapers, trade publications, word of mouth

James DiPasquale, Esq.

DIPASQUALE LAW GROUP

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