The Side Dish

Finance to Table Education for Operating Your Restaurant

Risks for restaurants you may not have considered

When most business owners think of potential risks their restaurant could face, I would bet the first thing that comes to mind would be food safety. And rightly so. The health and safety of your customers should be top of mind. All restaurant owners should be aware of the regulations they are subject to, what permits are required, and what training needs to be put in place for their staff to ensure the quality and safety of the food and beverages being served. But there are many other risks for restaurants as well.

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The general safety of the restaurant also comes to mind when thinking of the risks involved with owning a restaurant. Repairs to flooring, handrails, steps, etc. should be addressed as soon as possible. Spills should be cleaned up and floors noted as wet should also be immediately cleaned, especially even during the busiest times. Adequate insurance coverage should be obtained and kept up to date.

While food and general safety are top priority, there are other potential issues that should not be forgotten. Consider how the following may impact you and your restaurant.

Payroll and Overtime Issues

It is imperative that restaurant owners understand hourly wage and overtime laws applicable in all states and cities in which they operate. One call to the Department of Labor (DOL) from a disgruntled employee could lead to legal headaches. The DOL can assess unpaid wages and overtime, as well as penalties and interest.

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You don’t just need to understand the law, you need to keep accurate and clear records. I have seen restaurant owners who have their employees scribble their time worked on a random slip of paper. If the DOL asks for documentation regarding hours worked, that slip of paper (if you can find it) won’t cut it. Ideally you should be using an electronic time keeping system which can integrate with your payroll system.

In the event you do get a notice from the DOL, contact an attorney who is experienced in these matters. Once the DOL determines the wages owed, you may also consider having it reviewed by a forensic accountant. The DOL does make mistakes.

Other Human Resources Issues

In the era of #metoo restaurant owners should be highly aware of sexual harassment and misconduct claims. A 2017 survey conducted by the Restaurant Opportunities Center-United surveyed over 675 restaurants across 39 states. The survey found that more than 90% of women working in restaurants felt they had dealt with some form of sexual harassment or discrimination.

So how do you protect your restaurant? Start with your employee handbook. Be sure it contains clear procedures for employees to follow if they believe they are being sexually harassed or discriminated against. Courts have often looked to whether or not businesses have reporting channels in place when determining the liability of the Company.

Trademark and Brand Protection

Have you thought about protecting your name and brand? Have you made sure there isn’t another business out there that has already trademarked your unique name? You don’t want to receive a cease and desist letter demanding that you stop using the name, do you? Do you want to hear about a restaurant with the same name as yours receiving negative reviews or publicity?

Ideally, protecting your name and ensuring you are not infringing on an existing name should be done before you open your doors. If you have trademarked your name, is someone making sure you are not being infringed upon?

Believe it or not, hashtags can be a registered trademark. Restaurants have been sued for using #TacoTuesday. Consider protecting your clever hashtag.

What about the look of your restaurant? Is there something inherently distinctive about the look that you want to protect? Distinctive décor, also known as trade dress, can be registered with the U.S. Patent and Trademark Office and receive protection.

Organizational Issues

How was your restaurant originally organized? Is this still appropriate for how your business has evolved? If you have partners or other investors, do you have an operating agreement in place that outlines how decisions will be made? If you do have an agreement in place, have you reviewed it lately? Is it as clear as it could be?

Often when business owners end up in a dispute, at least part of the issue is interpretation of agreements. For instance, an agreement may refer to something as simple as the division of “income”. But is that net income, income before or after taxes, or even gross income. Different partners may think of income in different ways. You should consider having an attorney review your existing documents for areas of ambiguity. Any financial or accounting terms should be reviewed by your accountant.

When faced with any of these issues, be sure to contact your attorney immediately. The sooner you start your documentation, the better off you will be. And when necessary, hire an excellent Henry+Horne forensic accountant who can present the financial aspects of your case in a clear and concise manner.

For more information on how Henry+Horne can help your restaurant business, check out our Services page.


Melissa E. Loughlin-Sines, CPA, CFE, CVA, CFF, ABV