Insureon Blog

6 steps for successfully opening a restaurant

30. July 2018 22:51
Cafe owner putting open sign on door

Most entrepreneurs decide to open a restaurant because food is their passion. Owning any small business can be considered a labor of love, but passion will only get would-be restaurateurs so far without adequate planning.

If life as a successful restaurant owner is your goal, then this checklist is for you. It covers several key aspects of getting a restaurant up and running, from applying for necessary licenses to mitigating risks with restaurant insurance.

By following these six steps to opening a restaurant, you can avoid potential legal pitfalls, obtain financing, and better set your business up for success.

Step 1: Register the business name

The name of a restaurant is important for many reasons. Not only does it create an identity for the business, it's also how it will be legally recognized. The first step in opening a restaurant is registering the business by applying for a "Doing Business As" (DBA) name. This isn't the same as trademark protection or incorporation. Rather,  “Doing Business As”:

When deciding on a name for your business, make sure you pick one that isn't already trademarked. Otherwise, you could potentially face a costly copyright infringement lawsuit. The U.S. Patent and Trademark Office's trademark search tool can help confirm that your selection isn't already taken.

Whether you should register your DBA with your local town or county clerk's office depends on where your business is located. Some states also require business owners to file with a state agency instead of, or in addition to, the county.

In many cases, the way your business is organized will determine whether you need to register with your state government. To learn more about the various business structures, check out the Small Business Administration's (SBA) guide, "Choose a business structure."

For instance, the following types of establishments require state registration:

If you operate your establishment as a sole proprietor, you don't need to register at the state level. However, many states require that sole proprietors use their own name as their business name unless they formally file a DBA name. If you aren't sure of the rules for your area, the SBA’s guide "Register your business" can help.

Step 2: Obtain business licenses

Most business owners, regardless of their industry, are required to obtain a license or permit to legally operate in a commercial capacity. Restaurant owners need to carry general business licenses as well as specific food service licenses, but regulations vary depending on the location, the size of the business, and the industry. To find out which licenses or permits your business needs, visit the SBA's "Apply for licenses and permits" page.

Restaurant owners who plan to sell or serve alcohol will also need to obtain both federal and local licenses. To legally sell alcohol, you first need to register your business with the U.S. Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB). You will also need to obtain federal permits from the TTB for tax purposes. For local alcohol permit and licensing information, contact the Alcohol Beverage Control Board for your area.

Step 3: Apply for restaurant insurance

Opening a restaurant is risky for a number of reasons. The location may not be as convenient as you first thought, or there could be a lot more competition than you anticipated. While risks like this can be somewhat mitigated with solid research in advance, there are other risks you can’t always plan for or prevent, such as:

Restaurant insurance can help minimize the impact these types of incidents have on the business. Some of the policies that can most benefit restaurant owners include:

Insureon agents specialize by industry, and are able to guide restaurant owners in selecting appropriate policies to best minimize risk. Ready to get started? Apply for coverage today.  

Step 4: Learn about food service regulations

Food service business owners have to comply with both federal and state laws that govern food preparation, food safety, and product labeling. (Learn more about federal food regulations.) It's important to familiarize yourself with the regulations governing food service before opening a restaurant.

Your county's public health department is responsible for overseeing commercial food production activities at the local level. This may include regular inspections to ensure your food retail business is clean and employs sound food preparation and handling practices.

Regulations vary from state to state. To find information about your local health department and its rules, visit FoodSafety.gov's "State agencies" section.

Step 5: Get a loan

The cost of opening a restaurant varies, but it typically requires a significant amount of startup capital. That's why many would-be restaurant owners turn to loans to help cover the costs. There are multiple federal, state, and local financing programs designed specifically with small business owners in mind. The SBA's loans search tool can help you get an idea about the funding options available to you.

Applying for a small business loan involves a thorough assessment of your financial history. In many cases, potential lenders will require documentation to help them better evaluate your application. Having the following items on hand before applying for loans can help streamline the process:

The more of these documents you have ready in advance, the smoother your loan application process is likely to be.

Step 6: Create shareholders' and partnership agreements

If your business operates as a corporation, you'll need to create a shareholders' agreement (also known as a buy-sell agreement). This contract should outline:

A shareholders' agreement ensures shareholders are treated fairly, especially when company shares are sold.

If your business operates as a partnership, you'll need to draw up a partnership agreement. Partnership agreements explicitly detail the relationship between the business partners, as well as their obligations to the partnership. This agreement will give you and your partners the opportunity to define:

These types of contracts can be long and complex. It's a good idea to hire an experienced attorney to ensure any contracts you draw up outline action steps for handling business expectations, stakeholder representation, funding, and dispute resolution.

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