Don't Open a Restaurant Until You Read This
Hospitality lawyer Jasmine Moy shares essential steps for getting your business off to a healthy start.
Jasmine Moy wants to spare chefs some heartache, and potentially save them plenty of cash. In her practice as a New York City hospitality lawyer, she's seen every possible scenario play out—messy partner breakups, interminable permit lags, unexpected compliance costs—almost all of which could have been avoided with a little legwork, conversation, and documentation upfront. On a recent episode of the Communal Table podcast, Moy shared some of the simple, yet utterly essential steps that aspiring restaurant owners should bake in from the very start.
The transcript has been edited and condensed for clarity.
Seek cash when you’re scouting space.
If you're a chef at a more famous chef's restaurant, you should be walking the dining room, getting to know people, handing out your number, networking, finding the people who might believe in you and make good partners for you because you're very likely going to have to raise money. Even opening a small to midsize restaurant in New York is going to cost anywhere between $700,000 to $1 million and a half. Most people don't have that money. They have to get that from somewhere. You should be looking for spaces, talking to people, and putting a good business plan together where you are presenting a concept and figuring out how much you're going to charge for that food and in turn figuring out how much you can afford for rent. Sometimes that stuff works backwards.
Lock in a lawyer.
Once you do all of that footwork, a lawyer is the person who gets all that executed. When you find the space you want to jump on it. You've got to get the money in immediately. All of that happens in a very short timeframe, and that's when I'm negotiating your lease, making sure your architect has reviewed the space, you're doing due diligence on it, making sure there are no open Department of Buildings violations, talking to your investors, figuring out how you're distributing your profits from your restaurant. All of the sort of nuts and bolts of what happens with the money, how to get into the space, how to be building, and how to set forth a really good relationship with your investors so that everybody understands the vision, and how you want to make it happen.
Lay a solid foundation for your lease.
I have met a lot of people who signed a lease without looking for an attorney, especially if they were self-funded, saved money, got money from parents, father-in-law—whatever the situation is where you trust all the people who are involved. Then maybe you look at a lease and you're like, "I can't really negotiate this, I'm going to sign it," or "I don't want to pay $3,000 for someone to look at this." They sign it and start to have problems. They realize the building changed hands, they knew their old landlord, they don't know their new landlord and now there are problems. The worst thing you can do is sign a lease not having had talked to a liquor lawyer to find out whether it's even possible to even get a liquor license.
Yes, a liquor lawyer.
Every neighborhood has a different community board and the ease of getting a liquor license in each neighborhood varies. You might find out you can't sell all those cocktails you thought you were going to sell. You might get beer and wine, but alcohol is a revenue driver and the profit margin on alcohol is very good. Most restaurants cannot survive without serving some sort of alcoholic beverage. It's a lot of not doing your due diligence that gets you in trouble, or signing in a very old building that requires so many hoops to jump through, it could take forever to get the permits approved and the work done right. Researching what the building looked like in 1902 in order to restore it, X, Y and Z—it's a lot of work. Most of the hardship comes from the actual construction.
Decide if you want partners, a group, or to fly solo.
Most of my chef clients would say celebrities are interesting because they have a lot of money, they're too busy to micromanage you, they'll get the check when they get the check. People who have an insane amount of money for whom this is a drop in the bucket—those are the ideal investors. They're not going to be breathing down your neck saying, "I want quarterly reporting." "I saw how much you spent on tomatoes last month, I think that's too much. I think you should start getting your tomatoes from Sysco," or something sort of ridiculous like that. A lot of that micromanage-y stuff happens when you've got people who are taking a much bigger financial gamble personally.
If the investor has a lot of restaurant experience, that can be extremely valuable because they can bring more insight, they've got a higher level of operational expertise. On the flip side, that may be the person who is going to be looking at your books because they understand the books. They see where your inefficiencies are and maybe you're going to say, "That's efficiency by design, it's really important to me to get this meat from this one certain farmer even though it's two times what I might be getting it for somewhere else."
Restaurant groups usually have their own internal infrastructure, an in-house events person, PR person, lawyer. They've got people who are salaried who do work across all the restaurants. They create efficiencies. Bigger restaurants can order in bulk, do all of these things on a larger scale, save money. When you're involved in a restaurant group, you don't have the leverage. The restaurant group has the leverage, they have the money. You are getting is a well-run machine, expertise and staff. What you're giving up is a lot of control.
By and large you want to find people who you've known for a while, who know your skills, who believe in you, who find you really talented. Not somebody who's just like, "Oh I think it's sexy to invest in a restaurant, let me give you this money." You want them to say, "Hey I ate in your restaurant, I've been your regular for however many years. I love what you're doing in particular" because those sort of people are more inclined to be patient with the process, which everybody runs into hiccups.
Get a prenup for your partnership.
This is marriage but without the sex. The work that I do in the partnership agreement is your prenup, that's your bible. That sets forth: As an investor, here's your role. Here's what I'm going to promise you, here's what you're going to promise me. You want this to be a very transparent process. This is how I'm going to run this business, this is exactly what I'm going to do. I'm going to show up and I'm going to be there, I'm going to do it. To the extent that you're not doing that, even a family member has this document to say, "This is on paper. You promised us this is what we're going to get, we're not getting it. Let's have a conversation."
It also lays down the triggers for getting rid of somebody. In the post #MeToo moment, I have said to people, let's consider whether you want to build yourself room to remove someone if they do something really heinous. If they're stealing from the company, if you found out they sexually assaulted someone, at the very start of this, we'll all agree that's a basis for getting somebody out.
Have the awkward conversations up front.
It's not built into a lot of documents. I have to say, "Why don't you have the conversation? Why don't you think honestly about what you would do if the worst happened and so-and-so did X or Y. Let's think about it and put yourself in those shoes." Almost all of my clients now will agree, "Yeah, this is what we want. We don't want to have to go to court, spend $100,000 to get somebody out of here if they've done something that is injurious to the operation, to the restaurant."
I try very hard to say, "If we ever need to figure out what these shares are worth, this is how we're going to do it so that you can't fight about it." That's what keeps you in court forever.
Hammer out the manual.
Everybody should have a labor lawyer on retainer, making sure their employee manual has all the stuff it needs because doing that up front work protects you on the back end. A good employee manual is worth its weight in gold because if you have the disclosures—this is what we do not allow and everybody knows it—and everybody signs on the dotted line, it's very hard for someone to come back and blame you as the restaurant owner for activity that happened on their floor. Unless, of course, you've been warned and didn't do anything about it. You can be protected somewhat within these documents, especially if you think the case is going to be litigated or you're being investigated by a city or state agency.
Don’t put your name on the door.
Don't ever put your name on a restaurant where you don't have the majority, I want to say majority ownership but just really control. You can have a minority of ownership but have operating control. Never put your name on something if you don't have the last word in that space, ever. Don't do it.
Spend the cash, save yourself heartbreak.
I feel like I scare people into feeling afraid to do this without an attorney, and I'm not doing it for my own benefit, I'm doing it for theirs. I'm saying, "Without doing all of this work in advance, without paying someone to do this, here are the myriad issues that you could run into and that I've seen happen—some of them more than once. Even though they sound like edge cases, they're not." Let me explain to you all the ways things can go wrong, how expensive it ends up being. I can point to things in the news, public divorces, business divorces. "You know that person probably spent $100,000 fighting that." I say, "So you know, it sort of makes the $5,000 up front feel paltry in comparison." I let them know and let them weigh the risks. They always come back and say, "No, you're right. We should do this the right way."