3
Red Tape

You are now rolling your eyes. You dread going to all of the governmental agencies, a lawyer's office (if you hire one), licensing agents, insurance agents, and any other official entity. You just want to open a restaurant.

First, enjoy this process.

Yes, embrace and cherish this activity. When you do your research, reach out to all the government agencies—especially the health department—since they are there to protect you, your staff, and your customers.

You are devoted to opening a restaurant and close to selecting the location. Now you need to step back and protect yourself.

See Your Name … on Many Legal Docs

While you're in the process of determining your location, your next step is to set up your corporation. Do not operate your restaurant as a sole proprietor. I don't care if it is “just a burger joint.” You can get sued, and you need to protect your assets.

First, get an employer identification number (EIN) from the IRS. This nine-digit number is assigned by the IRS to identify the tax accounts of employers, even if you have no employees. It is free through the IRS by going online to irs.gov and filling out Form SS-4. You will also eventually have to file a certificate of occupancy and file a DBA (“doing business as”) certificate with the proper government office.

You need to create either a corporation or a limited liability company (LLC). There are several websites to help guide you through this process. You can talk to someone at the Service Corps of Retired Executives (SCORE), a nonprofit organization offering mentorship and advice from retired, successful business people. Visit SCORE.org to find a location in your area. There are other business mentorship programs, including universities with programs and mentors who can advise you. In addition, the Small Business Association (SBA) lists resources at SBA.gov.

After setting up either a corporation or an LLC, using your EIN number, find a bank and open a business account. Check out websites, visit banks, and speak with one of their representatives. Once you have selected a bank with the best fees and you have a personal relationship with a banker, open the account.

The resources mentioned, SCORE and the SBA, will also be invaluable in guiding you through the licensing process. This process is different in each state, and these resources can help you navigate the legal landscape.

For example, in Nevada, you need to apply for a state business license for the corporation as soon as you begin to conduct business, and before you apply for a local business license.

Before you can apply for a local business license, you will need to decide on the location. That will help you to determine what jurisdiction governs it, whether county, city, or township. One crucial point is that you can use a registered licensed agent's address for the corporation or LLC, but if the corporate address is in a different jurisdiction than the location of the restaurant, there will be more licenses. There are companies that specialize in providing services for small business owners, including registered licensed agents to represent corporations.

The Health Department Is Your Friend

Now you need to contact your local health department and obtain a list of what is required to pass the health inspection.

First, go online and find the health district website for your municipality. Make sure it is the official one—usually, it will be listed as [name].gov. Read the information available.

I advise you to visit in person; you should be able to call and make an appointment. The people who work at the health department are very helpful. They want your restaurant to succeed. They want a thriving business that serves good food in a safe, sanitary environment in their community.

During this visit to the health department, you will not be speaking to the specific health inspector who will eventually inspect your restaurant. You will be talking to other health department staff members.

You should begin to build relationships with these people. That is the operative word—they are people. I still know the names of assistants, receptionists, and other support staff. I made sure to let everyone know that my goal was to be compliant with all health department regulations and keep my staff and customers safe.

Now, when I go to the health department in any city where I have established a restaurant, the staff knows my name, a couple of people hug me, and I can accomplish my purpose. If I walk into a restaurant and bump into a health inspector I know, I always get a big hug. Don't freak out when you see the health inspector doing an inspection. For example, if I am using the wrong temperature on a piece of equipment, this inspector will inform me without writing me up, since the inspector knows I will immediately correct the temperature.

I am not suggesting bribery or gifts. They are not interested in food as a bribe. What I am advising you to do is to learn and use their names, and get to know them. This is how relationships are developed. No, don't stalk them on social media, but you should always be looking up profiles just to get an idea of the people you want to work with closely.

I have the personal cell phone numbers of many inspectors, so if, for example, the freezer stops working, I can call them to see how long I can keep the food and remain compliant. They want to help me, and they want to help you. It's their job because the last thing any health department in any municipality wants is an outbreak of foodborne illness. That reflects on them, and then you become the villain.

If you are vigilant about health compliance, there should be no foodborne illness. Remember, the wholesaler, distributor, vendors, and manufacturers where you buy your food to serve to customers also have to follow the regulations of the health department for compliance. If you and the suppliers meet the compliance level, the result is that people will come to eat at your restaurant, and you can trust the food being served.

I know that you hear horror stories because people think the health department inspector's sole purpose is to shut a restaurant down. That is not true. Your restaurant is being inspected to keep your food healthy for the community. Health department inspectors are the people who make sure any food you feed to customers, including children, is not tainted—which could cause illness or, in the worst-case scenario, someone's death.

The health department and its inspectors are not your enemies.

Stop the mindset that the health department makes a profit when you spend money on proper equipment and other modifications. A successful restaurant that meets its standards is good for them and the community. Get your ego out of it. This is not a test of your will.

They will happily give you the requirements, including grease trap, hood, three-compartment sink, unique wipeable walls, proper flooring, and other areas. Also, it is crucial to find out if you can purchase the equipment used or it has to be new. This is essential information when negotiating your lease and specifying who will handle upgrades of equipment to meet the health department code.

The Final Decision—Location—Is Approaching

Now you have your list, and you can really inspect the location. You can determine what equipment is offered and what needs to be replaced. You can negotiate with the landlord or property manager about what equipment and other areas they will upgrade. Also, where the equipment is placed is essential. For example, you need to find out how far the dishwasher needs to be located from food preparation.

There are restaurant consultants out there, but many do not have the proper information. A famous Los Angeles deli opened a restaurant in Las Vegas and ultimately failed due to misinformation from a consultant.

The kitchen was beautiful, and everything was brand new and top of the line. While I am assuming that the licensing and permits were in order, this consultant didn't know how to flow staff with food service and cleanup in the dining room. The consultant also didn't understand how everyone can work in a commercial kitchen without running into each other. People were all over each other trying to get ingredients because the setup was poorly executed.

There is one big area to consider: grease, if you are going to grill or fry anything. You need to check with your municipality to see what grease inceptor devices are approved for commercial businesses. In older retail centers, the pavement has been ripped up, and many times the pipe has been removed. In the past, many restaurants used a portable grease trap in the kitchen.

I've looked at some restaurants where everything appeared to be perfect, and it was just too good to be true. After investigating, we found a pipe for the wastewater, but then we looked at the grease inceptor system. That was the problem with the beautiful restaurant location we were considering: the grease trap machine was spinning and pumping water, and then someone had to dump it. Many municipalities no longer allow a portable grease trap. Sometimes landlords know this but don't share the information.

Ready for a Drink?

If you plan to serve beer, wine, and/or spirits, there is another process you will have to embrace: obtaining a liquor license.

You could possibly find a space with a liquor license that may or may not be grandfathered to the next business. State websites have sections for business licensing divisions and list general information for alcohol licenses. You can hire an attorney specializing in liquor licenses; that can get expensive, but you will be better protected. Also, ask the staff at the licensing department. Never assume that what the landlord, real estate agent, or your friend is telling you is the correct information. Only the licensing board can definitely tell you if a license is transferable.

Getting the license will probably require a background check. There might be a requirement to provide financial information. If necessary, check out fees for attorneys and others who specialize in licensing, but find one offering a flat fee.

Protection Equals Insurance

You need to protect yourself, and that is why you have insurance.

Your potential landlord will give you a list of insurances you and your business need to carry. These insurances only cover the landlord's potential losses. You still need the protection of insurance in case of a catastrophe or other problems such as if somebody chokes or a customer slips in the bathroom.

You need to find a corporate insurance person who works with insurance companies that specialize in covering restaurants. Your personal insurance agent might be able to give you some referrals. There are also local and state restaurant associations that will refer members. Remember that these associations may not refer you to somebody who is the best or can find the best rates in premiums and coverage; they're going to refer you to someone who is a dues-paying member. Organizations vet their members, but do your due diligence and research them as well.

When you speak to potential agents, explain that you are opening a restaurant. You may have the desire to mitigate your costs, but lawsuits are much more costly than the premium for the proper amount of coverage to protect you and your business.

Ask questions to make sure you are adequately covered, especially if alcohol is involved. What if a customer is served alcohol at the restaurant and then leaves, driving his or her own vehicle, and gets into an accident? What if a customer buys a sandwich and, while eating and driving at the same time, causes an accident? How will the restaurant be covered if the restaurant owner or a staff member is included in a lawsuit or the driver is charged criminally?

Your own insurance is a necessity. However, while you don't want to be underinsured, there are different rates, and you don't need to be overcharged.

Get estimates and study them. Find out if you need to add more insurance if you have a liquor license, since state regulations will require you to carry a certain amount of coverage. Find out what each agent can offer and what insurances they recommend you carry for your protection.

These are safeguards to protect your livelihood, your dream, and yourself. The proper insurance coverage may cost you a little more. So you sell some more food to cover these costs; in the end, it will be fine, since you will be protected.

Music Can Add to Appetites and Legal Problems

You love music, and you want to feature live entertainment, play recorded music in the background, or both, in your restaurant.

Along with everything else, you need music licensing rights to play music in public, as regulated by BMI (BMI.com) and ASCAP (ASCAP.com). To play music publicly, whether recorded or live, you must have a license. Copyright laws require retailers, restaurants, and other for-profit businesses to get permission from songwriters and composers to play their music publicly. Both organizations will help guide you, the restaurateur, get the proper licenses.

Do not think you can play one of the streaming services and avoid paying for a music license. These songs are protected under BMI and ASCAP, and you will be heavily fined. In a live music situation, do not make the mistake of accepting the entertainers' word that you don't need a music license when they perform. It is your establishment, and you are the one who is responsible and will be fined.

Do you want to showcase live music? You need to research entertainment licensing and entertainment tax. You need to check with your municipality to see if you will be charged a flat fee or a per-person entertainment tax. Here is the caveat—if your municipality does it by occupancy (per person), you will pay whether people attend the show or not.

Let's use an example of an occupancy rate of 150 people allowed in your establishment at one time. You book your second cousin twice removed, because all of your relatives and family promise to attend and support a member of the family. You are charged a per-person entertainment tax for an occupancy of 150. Only three people show up. Guess what? You still have to pay as if 150 people attended.

Remember, you can always offer live entertainment later. There are also many royalty-free sites online where you can select music, but make sure the music can be played in a commercial establishment. You don't want to be sued for infringement.

What's Your Sign?

Of course, you need signage, which involves one-time fees.

At this point, you need to ask the landlord about the requirements for signage. You will need to hire a sign company. Services that you need for certain that should be included in their fee are design and installation, and submitting proper permits to the proper department. The company should be able to create graphics and schematics and submit to the appropriate department. This is one time you should not go a la carte but rather should find a full-service sign company. As to what should go on the sign, that will be discussed in Chapter 4.

Selling Merch and Offering Entertainment

If you're going to have merchandise and food items for sale, you need a resale permit. This includes t-shirts, coffee cups, caps, and other merchandise. You will probably want to include your logo on many of your items, and I talk about that in Chapter 8 about branding.

You want your restaurant to have a casual vibe, and offering a place to play billiards or pool will add the right element. In some municipalities, you might need a license to offer pool tables. There might also be an entertainment tax, so check with your local and state offices that handle licensing.

This Is a Special Time

I like to enjoy this process of getting the required licenses, and that's what makes it so special. You will go from one office to another. Most of the time, you won't have to wait in long lines, but you might in some places. You may have to pay a couple of hundred bucks in fees, but what an experience for you to go from department to department and really learn about the process. If you work with the administrators, they're going to help you; and, more importantly, they want you to succeed. It's all set up for you to succeed. It is not about the money, although fees are involved, and you might feel overwhelmed. The process is set up to make sure everything is covered, including dotting your i's and crossing your t's.

One of the important licenses includes the health department and the final certificate of occupancy, and you can't get that until you have your equipment. But you can prepare. The key to this whole thing is preparation.

You might get frustrated at certain points when you're trying to line up licenses. Every municipality is different, and when you've talked to the federal, state, and local tax people, they may have sent you in various directions. Unfortunately, at this point, the process is not accessible and easy. No one has a set list of things for you to accomplish. But you are determined and passionate about opening a restaurant.

Think of this process as a positive experience. It's an exercise toward your success. It's not a pain in the ass. It's not someone trying to stick their hands in your pockets. The people working in the various departments are there to help you with consultations and advice.

When you meet with them, ask them what they think of your ideas. Ask them what you need to do to accomplish your goals. This is the process. They're going to tell you honestly if your plans meet regulations. They deal with this 24 hours a day, since inspectors sometimes pop in at night.

This is your business. You're staking your life on it. Lose your ego, ask the questions, write down the answers, study the process, and then figure it out like a puzzle. All this licensing will help you in the end. That's why the process was established. It was not put in place to hurt you or your restaurant. Do you want to walk into an office building and worry that the lights could fall on you? Do you want to drive down the street and plummet into a big hole where roadwork is being done, because there are no proper regulations to guide drivers?

This is why there are systems to keep you and your customers safe. There is nothing wrong with compliance. This is not a place where you want to be a rule-breaker.

Save the rule-breaking for your marketing. Compliance will create the deepest business relationships you can make, because when a health inspector walks through your door, you will know them, and they will know you want to work with them.

This might be called red tape, but I love it. You should enjoy it as well, to make this one of the best experiences of your new life.

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