Opening a Restaurant

A Glance at the Restaurant Industry.

Whether it is a small street vendor in lower Manhattan, or a group of investors purchasing a franchise in San Francisco, opening a restaurant takes a lot of consideration. According to Market Watch, the number of American’s starting their own business fell 18% in 2004.[1] It is believed that these American’s feel starting a business is not a viable career choice, and that there is a lack of opportunities available. In actuality, the success that can be made by opening a small restaurant or franchise is huge, if done right.

 

A Lesson from the Past

Ohio State researchers found that at least 26% of restaurants failed within the first year of operation.[2] A common reason for failure is a lack of a business plan, or not following the one they originally devised. Planning is crucial, and directly affects the success of a venture.

 

Taking the next step

At this point, you have received the necessary funding, acquired your building site, and hopefully have a business plan completed. Next, you need to file the necessary documents with your state in order to become a certified food distributor. It is very important that you apply for an Employer Identification Number (EIN). The application only takes a couple minutes and can be done at http://www.irs.ustreas.gov. In most cases, you will be issued an EIN right after you apply. This number will be used when you file your annual tax return with the IRS. After you receive your EIN, you need to file for a Texas Sales and Use tax permit. This permit can be obtained at http://www.window.state.tx.us/ and must be displayed in a visible location at all times.

Inspections and Fees

Every establishment is subject to a series of inspections and must acquire numerous permits before they can serve their first patron. These inspections are conducted by both city and county officials. A list of required permits and inspections can be obtained through your city or county clerk, and in some cases must be renewed annually. Also consider the zoning ordinances that apply to the location and nature of your business. Once a restaurant is deemed acceptable, the permits issued should be displayed so that both customers and inspectors know your business can legally operate. States, counties, and cities can vary in their requirements; these are a few that are standard across the board.[3]

 

Building Inspection

This is probably your most important permit, as this establishes whether or not your building can be occupied. Building inspections are usually reserved for establishments that under-go considerable renovation or that have just been built. Things considered are widths of doors, ensuring that blueprints comply with local codes, etc.. Some additional requirements that you must follow include:

  • For every 25 parking spaces, you must have at least one handicap parking space, until you reach 100 spots. At this point, it is every 50 parking spots per handicap space.
  • You must have at least one accessible route from public transportation stops, as well as accessible parking, and public streets or sidewalks, to the building entrance.
  • Grab bars must be available in restrooms and comply with length and positioning as shown on the ADA website.

These are just a few examples of some of the regulations enacted by ADA. To ensure you are compliant, visit www. Ada.gov. After a satisfactory inspection, the restaurant will be issued a certificate of occupancy, which states that the building may be legally occupied.

 

Health Code

Most small business owners think that Health code regulations are more of a nuisance than a necessity. Heath codes are a very crucial part of your planning process. You can have your doors opened and your licenses in hand, but the heath inspector can shut you down anytime for too many violations. Restaurants are subject to at least two unannounced health inspections per year. For new restaurants, the first of these occurs before opening. Inspectors will primarily focus on equipment and food storage, as well as making sure the cooler is reading the correct temperature and that the establishment has enough hand sinks located in the correct places. The health inspector will also check to make sure you have your food service operator’s license and any other documentation the health code requires. A copy of your local and county health codes can be obtained through their respective offices or websites. You restaurant association can also direct you towards licenses you may need as well as information about certifications and licenses that you will need, along with different inspectors and contractors to help you reach quality standards before opening your doors. [4]

 

There are regulations on a wide variety of issues (FDA Website):

  • The arrangement, organization, and temperature of the kitchen
  • Thawing, cleaning, and cooking of foods
  • Standards for the cloths and linens cleaning process and material
  • Training and certifications of employees and chefs.

 

Fire Inspection

Local fire marshals will walk through your restaurant before opening day. Much like a health inspector, they ensure that buildings are up to code. Some of the things that are considered are:

  • specific location of sprinkler systems
  • number and location of fire extinguishers
  • fire suppression systems in cooking areas
  • supplies stored in areas that do not pose a hazard
  • maps detailing escape routes

 

The following additional tax fees and licenses may also be required:

 

  • Depending on your restaurant business location, you may be charged a percentage of your gross sales, or a simple yearly fee to operate your business.
  • Property taxes with your state and local government
  • If you sell oysters and other specified seafood, the state of Texas charges additional fees.
  • If you sell alcoholic beverages (see note below)
  • Make yourself aware of any restrictions your city may have on sign size, location, type, and lighting and acquire any required sign permits.

 

Alcohol License

Most restaurants generate the largest proportion of their sales from selling alcoholic beverages. Choosing to serve alcohol in Texas (or any other state) is a serious decision for any restaurant, and the potential for liability should be carefully considered. Some additional factors that may exclude you from receiving a license are:

  • Location and proximity to churches, schools and daycare centers
  • Location and proximity to a hospital
  • Whether you are located within a ”dry county” and are permitted to serve alcohol

It is important to realize that alcohol sales are regulated state by state and not federally controlled, thus each state has its own laws that must be followed. In this case we are looking at Texas state laws.

According to the Alcohol Beverage Code,

“A person must be 21 years or older, of good moral character, a law abiding citizen, and legally reside in the United States.” [Sections 11.46 and 61.42]

To be issued a retail license or permit, employees that will be selling or serving alcohol to the customers must be at least 18 years of age. The license may be moved from one location to another upon approval by the TABC. It takes approximately 45-60 days to obtain a permit depending on the local governing authorities so it is important to begin the application process as soon as possible. In addition, you must receive a certificate from your county clerk and comptroller certifying that you are in a “wet” county and have received a valid sales tax permit. Most counties in Texas may also require you to post a sign 60 days before your application is received, stating your intent to apply for a license with TABC.

TABC permits can range anywhere from $200-$3,000 depending on the type of business and beverages served. [5]

There are many questions regarding taking your own alcohol into and out of a restaurant. It is illegal to take alcohol into a restaurant that has a private club permit or a mixed beverage permit (distilled spirits in addition to beer and wine). You cannot take any alcohol out of these places. An exception to this rule is if it is a bottle of wine purchased with a meal which has not been completely consumed. The TABC also has the authority to cancel or suspend your license for any violation after a hearing before the State Office of Administrative Hearings.

In addition, it is against the law for the restaurant to make alcohol available to a minor. In the event this occurs, the employee who did so will be subject to criminal penalties. There is a defense for an employee, who is duped into selling to minors who present themselves as 21. Technically the law does not require any patrons to show their ID to purchase alcohol, however since the employee is liable if they sell to a minor almost everyone requires it. It is up to the individual establishment, whether or not to allow minors onto the premises. The legal hours for the sale of alcohol for an establishment with a beer/wine permit are Monday-Friday from 7 am to midnight, Saturday from 7 am to 1 am and Sunday from noon to midnight. If the establishment has a Late Hours Permit they can sell alcohol until 2 am any night of the week.

 

Labor Laws

We’ve talked about all the things you need in order to insure you are ready for your opening day.  We’ve also gone over some of the health codes and regulations that you are required to follow. Now we need to talk about the people that are going to help keep your business running-your employees.

The first thing you will need to consider is how many employees you will need to run your restaurant efficiently. To help you with this, you can use an employee forecast, which is similar to your sales forecast. With this tool, you can look at the number of employees you would need at full capacity; and calculate the number of people you actually want to hire. After you’ve looked at those numbers, you can research similar companies, and how many employees they have on hand at any given time of the day. [6] After you have hired your employees, there are several regulations and licenses that you must  obtain.

You will want to talk to your attorney to get all the specifics; such as finding out items required for your state and county and also those things you can get by without. An example of one regulator is OSHA. OSHA has several regulations that must be followed or your restaurant can be severely fined. One of these regulations is an employee emergency plan, which maps out what each employee is to do in the case of any kind of emergency, whether it is a kitchen fire or burglary. Another place with a lot of information about labor laws is the United States Department of Labor website. They have information about everything from wages to teen employment laws.  These are only a few of the regulations that must be followed; your attorney will be able to help you out with the rest. [7]

 

Required Training

The Texas Department of State Health Services requires that all employees successfully complete a “Food Managers” course (also known as a food handler’s course). Course certification can be obtained one of three ways: accredited classroom training, accredited online training, and accredited private training. Managers are required to be licensed every 3 years, and basic food handlers’ permit requires renewal every 4 years.   The DSHS also requires that its “Field Inspection Manual” be kept on the premises at all times.

“Examinations that meet state requirement are National Registry of Food Safety Professionals; National Restaurant Association Solution – ServSafe; and Prometric. These examinations are offered through licensed training programs and test sites. Examinations that meet state requirements available on the internet are: Learn2Serve.com and the Texas Restaurant Association Food Guard.”

 

Ready, Set, Cook!

Now that you have received all the necessary permits, passed all inspections and trained all your employees, you are ready to open your doors. Realize it is your responsibility as an employer to stay current with all new rules and regulations that may be enacted by your state and local governments. If you fail to meet any of these standards, you may risk citations, fines, or losing your business.

 

References

Coombes, Andrea. “Fewer Americans Join Ranks of Entrepreneurs: Study Small Business Report – MarketWatch.” MarketWatch – Stock Market Quotes, Business News, Financial News. Web. 20 June 2010. http://www.marketwatch.com/story/fewer-americans-join-ranks-of-entrepreneurs-study?siteid=google

 

“Exit Routes, Emergency Action Plans, and Fire Prevention Plans. – 1910 Subpart E App.”Occupational Safety and Health Administration – Home. Web. 21 June 2010. <http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=STANDARDS&p_id=10114&gt;.

 

“Inspections for New Restaurants.” Restaurant Supplies | FoodServiceWarehouse.com. Web. 23 June 2010. <http://www.foodservicewarehouse.com/education/how-start-restaurant/inspections-new-restaurant.aspx&gt;.

 

Sidney, G. “Restaurant Failure Rates Recounted: Where Do They Get Those Numbers? RestaurantOwner. Web. 20 June 2010. <http://www.restaurantowner.com/public/302.cfm&gt;.

The U.S. Department of Labor Home Page. Web. 23 June 2010. <http://www.dol.gov/&gt;.

Token, The Same. “Department of Justice ADA Title III Regulation 28 CFR Part 36.” ADA Home Page – Ada.gov – Information and Technical Assistance on the Americans with Disabilities Act. Web. 23 June 2010. <http://www.ada.gov/reg3a.html#Anchor-10133&gt;.

TABC Home Page. Web. 21 June 2010. <http://www.tabc.state.tx.us/&gt;.

 

U S Food and Drug Administration Home Page. Web. 22 June 2010. <http://www.fda.gov/Food/FoodSafety/RetailFoodProtection/FoodCode/default.htm&gt;.

Definitions

 

  1. ADA– American Disability Act
  2. Dry County – A county in the state that forbids the sale of alcoholic beverages
  3. DSHS– Department of State Health Services
  4. EIN- Employer Identification Number
  5. FDA– Food and Drug Administration
  6. IRS– Internal Revenue Service
  7. OSHA– Occupational Safety and Health Administration
  8. TABC– Texas Alcoholic Beverage Commission

[1] Coombes

[2] Sidney

[3] Inspections

[4] US Food and Drug

[5] TABC

[6] The U.S. Department of Labor

[7] Exit Routes, Emergency Action Plans, and Fire Prevention Plans


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