Opening a new restaurant can be an exciting business venture. However, with it can come a great deal of stress and a high risk of failure. To avoid the clichéd trap of restaurants failing within several years, prospective restaurant owners should develop a thorough business plan and ask themselves these important questions:
Consider what type of food or beverage items your restaurant will serve to customers. What is the demographic of your target market? What type of atmosphere will you create for customers?
As the owner, you must decide the right entity structure for your restaurant based upon a variety of factors. Will your restaurant be legally organized as a Limited Liability Company (LLC), S-Corporation, or C-Corporation? Before making the decision, you will need to consider the number of co-owners you will have, whether the restaurant be funded through debt or private equity, how you plan to compensate yourself, how you will pay your partners or outside investors, and what would make the most sense for you from a tax perspective. Consulting with an experienced accounting advisor can help you make the right choice.
If you are going to have co-owners, there are certain considerations that should be made when drafting the initial operating or shareholder agreement. What role will each owner have in the restaurant? How will the profits be divided? How will everyone be compensated for their services? What will happen in the event one owner chooses to sell their share of the restaurant?
It’s the running joke of business: location, location, location! As corny as it may sound, there’s a reason it’s such a common refrain. Location is vital. Your restaurant should be in a space where it can generate a high volume of traffic from your target market.
You need to estimate how much it will cost to furnish the new restaurant, obtain a liquor license, and buy the initial set of china, linens, silverware, etc. There should also be enough working capital set aside to cover business expenses for the first few months should the restaurant’s traffic be initially slow.
Banks and other financiers need to know that the restaurant will have enough cash flow from daily operations to repay any loans you are seeking. Most investors will want to see a strategic business plan for the restaurant to ease any concerns that they may have. It’s not uncommon for the bank to request the restaurant owner, especially for a start-up restaurant, to personally guarantee the debt so they can have an alternative should the restaurant be unable to repay the loan.
Even before its official grand opening, it is important for your restaurant to start marketing to the community. Create a variety of marketing tools, including a website, social media, promotional events, coupons, and restaurant specials, to start generating buzz.
A restaurant’s food, or “prime costs,” is the highest and most variable expenditure that it will incur each year. Food costs need to be properly managed to ensure that food made to order is not over-portioned, sitting too long on the shelf, thrown away, or stolen.
The treatment of employee tips has been a problematic area in the restaurant industry for years. It is imperative that tips are handled correctly or your restaurant could face expensive consequences. Tips received by servers must be reported as W-2 compensation. The restaurant is obligated to withhold Social Security and Medicare tax from future compensation and match the FICA withholding.
As a restaurant owner, you will have many responsibilities that will constantly keep you busy. You should consider hiring a manager to supervise the restaurant’s daily operations, such as ensuring the restaurant is selling its menu items and there is an appropriate number of staff assigned each shift.
Business owners with 50 or more full-time equivalent employees must provide health insurance to employees that work an average of 30 or more hours per week. All insurance offered must provide “minimum value coverage,” meaning the employer’s insurance plan must pay out at least 60% of the employee’s incurred medical charges. Businesses that do not offer health insurance to full time employees could face penalties up to $2,000 per employee. Not offering “minimum value coverage” insurance could cost the business fines of $3,000 per employee. As a restaurant owner, you must plan ahead for how you are going to comply with the mandates of the Affordable Care Act.
Aronson LLC is available for consultation on this and other business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240.364.2582 or firstname.lastname@example.org for more information.