After you have chosen the right location for your restaurant, it’s time to go deeper into the registration process and obtain all the necessary restaurant licenses and permits. Without taking this step you can’t move forward to other important phases of building your business, like buying restaurant equipment, doing the repairs, the hiring staff, and choosing right POS software for restaurants.
As you know, there are two options of how to start a restaurant business: from scratch or finding an existing business for sale. The second option is less troublesome and you won’t need to bother with some of the necessary permissions. However, at the same time, you won’t be able to shape a business in your image. Whichever option you choose, though, getting licenses and permits for a restaurant is something you can’t avoid.
This guide shows an example of the permits and licenses for a restaurant that every novice entrepreneur should obtain before actually opening.
So, where to start? First of all, we need to understand why we need to make a business legal. People don’t usually get excited when it comes to dealing with a boring set of legislation, yet if you look at this from a different perspective you’ll see an obvious benefit. Obtaining licenses and permits protects your business and helps it grow. Another reason is to guarantee the stable and strong financial health of your business. No doubt, all the tax registrations, business licenses, and permits issued by federal, state and local levels of government will take up time. But it’s better to handle this at the very beginning than to deal with trouble as it appears in the future. Furthermore, you can obtain some licenses online.
Now it’s time to decide on the business structure that will fit your type of business. Here are three types that most suit restaurant businesses:
1. Sole proprietorship. This is the simplest form of running a business in the United States which doesn’t produce any separate business entities. This form of entrepreneurial activity is used by many small business owners and gives them full control. Basically, this means that you and your business are one-and-the-same, all assets and liabilities being shared. The US does not separate the sole proprietorship from its owner for tax purposes.
The central feature of a sole proprietorship is the unlimited responsibility of the owner, who is responsible for the company’s debts, backed by all the property he owns. The income from a sole proprietorship is automatically deemed to be the income of the founder.
2. A partnership is a kind of business structure which involves two or more owners. They carry on a business in common, under prearranged terms, and distribute the total profit according to those terms. A partnership is created by signing a Partnership Agreement at a state registry. Each state has its own legislation that governs the framework for the establishment and operation of a partnership.
There are two kinds of partnership: General and limited. A general partnership means that none of its participants pay tax on business income but assume responsibility for the business’s debts and obligations simultaneously. The second type can include both limited and general partners, while the limited partners are investors only.
3. LLC (Limited Liability Company) appeared in the 70s in the United States. Nevertheless, over its short period of existence, the LLC has firmly won the status of the most popular form of doing business not only among entrepreneurs in the US, but also far beyond its borders.
The growing popularity of LLCs is based on the concessional taxation principle of these companies. Each LLC member owns a certain number of membership units. In particular, US law considers an LLC for tax purposes as a “pass-through entity.” This means that the LLC income isn’t deemed to be the income of the company itself and it is not taxed.
Remember: each state has its own rules and legislation, so it is very important to keep your eyes and ears open, and monitor the official website of your state.
For example, if you register a business in New York state, but have no income, then your business is not taxed. In California, there is a mandatory payment ($800), regardless of whether you have any earnings or not.
Employer Identification Number (EIN)
In the process of running a business, you will need a tax ID number which is basically an Employer Identification Number (EIN). Remember that a personal EIN is given to a taxpayer once in a lifetime and is not subject to recovery or change. For convenience, you can obtain an EIN through the IRS website, and this is completely free of charge.
Certificate of Occupancy
You can’t legally occupy a building until you get a certificate of occupancy. This license confirms that the restaurant location meets the zoning and building codes and is now ready to be used. So before you are able to get the certificate of occupancy you need to pass the general building, health board, fire marshal and facility inspections. The certificate of occupancy specifies how many people can occupy the restaurant at any one time. The process and cost of acquiring this restaurant permit always depend on the state, so it is best to go onto the website of the local Department of Building and Safety and find all the details.
Food Service License
Every restaurant, cafe or bar has to obtain a food service license. The process of acquiring this license consists of a few steps: You need to fill out and submit the application, successfully survive a health department inspection and, after the license is approved, handle regular visits by the inspector. The cost of a food service license depends on the type and number of seats in your location. Sometimes, the fee may be based on the number of people that work in the restaurant. To make sure you get everything right, visit the U.S. Food and Drug Administration and find your local health department where you can get your food license for restaurant.
Building Health Permit
This is a very important permit for the food service business. To obtain this license you need to apply to your local health department. The building health permit means that the building where your restaurant is located complies with all the sanitary standards and that it is safe for people. It is very important to remember that these inspections will be repeated from time to time, therefore you need to be prepared to pass them. Depending on the state, this license can cost you between $50 and $1000.
Some restaurant owners neglect this license and then get very surprised when they receive expensive penalties (up to $30,000). If you plan to play music (live, CD, online streaming, karaoke, etc.) at your location and avoid copyright infringement, then you must obtain a music license. There are a few organizations that monitor public venues: Broadcast Music Inc. (BMI), the American Society of Composers, Authors and Publishers (ASCAP), and the Society of European Stage Authors and Composers (SESAC). It is better to deal with all three of them and protect yourself against surprise inspections and fines. Usually, the cost of a music license ranges from $250 to $500.
Obtaining a license for alcohol can be a long and complicated process. Each state has its own rules for the licensing of alcoholic beverages. In addition, cities within the same state may have additional rules about licensing requirements and procedures. Each state has an Alcoholic Beverage Control (ABC) agency, which monitors the sale and distribution of alcoholic beverages in restaurants and bars. You will need to update your liquor license annually, paying a renewal fee.
It seems like no big deal but every restaurant needs to get a permit before putting up a sign. This is required for all types of signs: permanent, wall, pole, billboards, awnings, banners, internally illuminated, etc. The license also may be affected by the size of the sign, the restaurant location, and the lighting. And the city government is not the only body you need to seek permission from. If you are leasing the building, your landlord needs to approve your sign, too. The cost of the sign permit ranges from $30 to $60.
Getting the restaurant opened and its future activity largely depend on all the licenses acquired. Legislative norms change every year, so make sure to monitor them and be aware of the most relevant information. Approach the task of the business registration process as carefully and as seriously as possible and take care that all the necessary health, building, music, and food licenses are acquired for the restaurant. It is better to check and verify all the permits required to open a restaurant several times with the relevant bodies than endlessly correct mistakes as they occur and pay fines.