Tips to Successfully Open a Restaurant in California the Right Way.

Opening a restaurant in California can be a daunting task.  Along with researching the restaurant scene and learning both business and food-industry practices, starting a restaurant requires compliance with licensing procedures and food-service laws.  California cities and counties have varying regulations and required permits, so it is important to double check local laws.  This guide will set forth the steps necessary for opening a restaurant.

1.  Create A Business Plan

Just like starting any business, you will need a specific, thought-out business plan before seriously pursuing a new restaurant.  This may include the overall concept of the restaurant, your target market, a solid financial plan, startup costs, advertising strategies, menus, pricing, and a name.  It would be wise to construct an exit strategy as well.  Researching the area where you wish to open your restaurant can give you an idea of how much you can expect to pay for rent, utilities and supplies as well as anticipated sales volume based on foot traffic.

2.  Create A Business Entity

The type of business entity you choose for your restaurant will affect your tax obligations and amount of personal liability.  There are four basic types of business formations: sole proprietorship, partnership, corporation, and limited liability company.  Each type has different requirements, costs, tax implications and levels of liability.

New restaurateurs and small businesses most often choose to form a limited liability company, better known as an LLC.  Owning a restaurant opens the door to wide range of liabilities, so setting up your new restaurant as an LLC will protect yourself as the owner.  In the event of a lawsuit, only the restaurant’s assets are at risk, not your own personal assets. Unlike corporations, LLCs do not require a board of directors and shareholders meetings and profits can be divided in any way.  Check out UpCounsel’s guide on forming a California LLC.  

Do some research and/or speak with an attorney or accountant to decide what type of business structure would work best for you. You should also check out the UpCounsel article on How to form a Multi-Member LLC in California and How to form a Single Member LLC in California.

3.  Obtain Funding for Your Restaurant

Once you have a business plan, you can work on obtaining the funding to move forward. The amount of money required depends on the type of restaurant, the facility you may or may not have already secured, whether or not you have equipment or inventory, and other related costs.  

Funds for your restaurant can be sought through a bank loan, a line of credit, investments from family or friends, securing a partner with financial resources, or even government programs that can assist small businesses. If you seeking funding from someone other than a bank you will need a loan or demand promissory note.

4.  Secure a Location

Zoning ordinances may limit where you can open a restaurant, so check with the relevant government agency in your area, typically the Department of City Planning, to see if your desired neighborhood is zoned to permit restaurants. After you’ve secured a location, double check with that agency to confirm that your specific location is zoned for your type of restaurant.

Negotiating a lease is complicated and it would be wise to work with an attorney and/or realtor who can review documents and present you with options and advice.  For example, you will probably want a transferable lease with options to extend and contingencies regarding securing permits, not just a regular set-term lease. They can help you secure that type of lease and accompany you and your contractor through a final walk-through of the leased property.

5. Obtain All Necessary Permits, Licenses, Registrations, etc.

California law requires a restaurant owner to obtain the following:

IRS identification number:  Restaurant owners must register with the state of California and the federal government for a Federal Employer Identification Number.

Seller’s Permit: A seller’s permit is required for all restaurants in California. Online registration for a seller’s permit can be found on the California Board of Equalization website.

Health Operational Permit:  This permit is for the sale of edible goods, and the costs and rules vary by county.  You will have to apply with your local health department.  Contact information for each county can be found on the CalGOLD: California Government On-line to Desktop website.  With this permit, you are subject to periodic inspections by your city’s health inspector.

Workers’ Compensation Insurance: California law requires employers to have workers’ compensation insurance even if you only have one other employee. This can be purchased from any broker or agent that is authorized to write policies in California.  

A list of authorized insurers can be found on the California Department of Insurance website.  After obtaining insurance, you must post a “notice to employees” in a conspicuous place at your restaurant which informs them of your workers’ compensation coverage and where to get medical care for work injuries.  Failure to post this notice is a misdemeanor with a civil penalty of up to $7,000.

Food Safety Certification:  California law requires each food facility to have at least one employee/owner that has passed a state-approved Food Safety Certification exam.  A certification is only applicable to one facility and is good for five years.  A few examiners include the National Restaurant Association Educational Foundation, Experior Assessments aka Thompson Prometrics and the National Registry of Food Safety Professionals.

Food handler permit:  All employees that handle food must have a permit to do so.  A “food handler” is someone who works in a facility with food and involved in the preparation, storage, or serving of food.  Instructions and frequently asked questions about obtaining this permit can be found on Foodhandler USA’s website.  California law requires employers to maintain records documenting that each employee that handles food has a valid food handler permit.  New employees have thirty days to obtain the permit.

The CalGOLD: California Government: On-Line to Desktops website allows you to search your county and city to see exactly what business permits are required to operate a restaurant and contact information for each agency.

Optional Stuff:

Sign license:  Your city may restrict the type of signage you display outside your restaurant. Before you display a sign, check with your landlord and your local government.

Music License: If you plan on playing recorded music in your restaurant, you will need to obtain a music license. Recorded songs are copyrighted so royalties need to be paid, usually to music licensing companies like Broadcast Music, Inc. (BMI) and the American Society of Composers, Authors and Publishers (ASCAP).  The yearly fees owed to these companies can be quite expensive, but without the license you can be held liable.  In 2011, a restaurant was ordered to pay over $30,000 plus $10,000 in legal fees to BMI for failing to obtain a music license.

Alcohol License: You will need a license if you plan on serving alcohol to your patrons.  The California Department of Alcoholic Beverage Control regulates these permits.

If you are renovating your location, you should present those plans with your area’s department of building inspection and fire department to ensure that those plans are in compliance with public safety and accessibility laws.  

6.  Hire and Train Employees

Selecting the right employees will help your restaurant succeed.  In addition to servers, busboys, hosts, and cooks, you may want to consider hiring a bookkeeper and manager. If you can afford it, offer positions with compensation higher than minimum wage to attract more experienced applicants.  Then, be sure to adequately train your staff to prevent mishaps.  You’ll want your operation to run as smooth as possible from the start.

More information on hiring employees and complying with employment laws can be found on the California Governor’s Office of Business and Economic Development website.

7.  Pass Your County’s Health Inspection

Before opening your restaurant, you will need to pass inspections with your local health department.

8.  Prepare to Open Your doors to the Public

Once all of the formalities have been settled, you’ll be able to prepare for your restaurant opening.  Don’t forget to advertise in local publications, create a website, and prepare your inventory.

Opening a restaurant takes plenty of research, planning and effort.  You may want to consult an attorney to help you secure a lease and form your business entity.  UpCounsel can connect you with many attorneys in your area and within your budget.  

Related Legal Forms and Guides:

How to form a Multi-Member LLC in California

How to form a Single Member LLC in California

Demand Promissory Note

Employer’s Tip Reporting Form (IRS)

I-9 Employment Eligibility Form (Department of Homeland Security)

California New Employee Report Form

 

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