That depends on what you think of as a step, and what you think of as fees.
Is it one step if the single form for opening a restaurant is 200 pages?
Is it zero fees if the fine for violating a health inspection is $10,000?
The forms demonstrate that the new restaurateur has safe plans in place for traffic, seating, fire risk, equipment, food storage (dry, refrigerated and frozen), sanitation, and know the requirements for employment and training. If there's alcohol, there's licensing and training requirements. Are the kitchen floors both non-slip and impervious to water, with a proper drain? Are there arrangements for waste disposal, especially for used oils?
I'm not even in the food business; I'm sure an expert can tell you much more.
Boston's Cocoanut Grove nightclub fire[1] claimed 492 lives in 1942, so I am not surprised that the city imposes many checks on new restaurants.
Neither the headline, the article, nor the linked Institute for Justice report[2] list the specific steps, forms, visits, or fees. It is hard to know which are superfluous, overpriced, or excessively burdonsome. The report defines "steps" on page 17 (PDF page 21):
> We calculated this metric by totaling the discrete tasks an entrepreneur must complete to start each of the business types. Tasks we counted as steps include but are not limited to: filing a form or application, submitting supporting documentation, scheduling and attending meetings and inspections, and completing ancillary requirements like training or zoning checks.
Of the five business types in 20 cities studied, the report lists fees only for starting a restaurant in Minneapolis. Totalling $13,972.68, the fees are LLC filing: $155, Trade name registration: $50, Building plan review: $1,399.13, Building permit: $2,242.50, Plumbing permit: $207, Mechanical permit: $250, Electrical permit: $251, Sign permit: $156, Sewer availability charge: $8,275.05, Background report: $8, Restaurant license: $535, Food plan review: $310, Certified Food Protection Manager (CFPM) training: $99, and CFPM certificate: $35.
We can compare the roughly $14,000 in startup fees (or just $5,554 in Boston) with the $375,500 median cost of starting a restaurant (according to a 2018 survey[3] by RestaurantOwner.com). I don't think those fees discourage entrepreneurs from opening restaurants.
I agree with the report's overall conclusion: cities should make it cheaper, make it faster, and make it simpler.
I'm not gonna sit here and say the process and expense is at least some theoretical optimal level everywhere that exactly balances public interest with whatever benefits accrue to society from having more restaurants with lower barrier to entry, but this article is presupposing the point with "excessive." That is hard to quantify. It's not like there is no reason for these things.
I actually helped a friend open a restaurant in Long Beach, CA a few decades back and among the reasons for the expense:
- You're serving food, so there has to be some check that you're procuring food that isn't spoiled and you're properly storing and preparing it
- Anything communally served (i.e. buffet style) needs to have safeguards in place to ensure you're not creating disease vectors
- You're generating a bunch of biological waste and need to dispose of that properly
- The cooking process puts out a bunch of waste grease that needs to be trapped and kept out of the normal water disposal system so you're not clogging everyone else's pipes
- A kitchen is quite obviously a fire hazard and needs to comply with codes preventing fires
- If you're not providing your own parking lot, your customers are going to be parking on the street and someone needs to pay for that additional congestion to prevent externalities
There is no way to automate the inspection process, so humans need to do it, and I'm not gonna say these are super high-skill jobs, but code inspectors still need to be paid. What other way is there to do this except paying upfront before you have revenue?
So again, maybe this exact number of steps is excessive, maybe the in-person visits are excessive, maybe the expense is excessive, but simply enumerating them doesn't demonstrate that. What are the steps? What is on the forms? What is the purpose of these visits? How are these fees being spent?
I mean, that sounds bad, but that report is from a libertarian organisation with an agenda, so they have a reason to paint it in a bad light. I wonder how many of these steps are incidental, and how many are really justified.
If I think about what it would take to open a restaurant here in Germany (a country which also has a reputation for bureaucracy to be fair) I think there are a lot of unavoidable steps:
Register a business, register with the chamber of commerce, and the tax office. Maybe also with town hall. Check if the restaurant is in accordance with the development plan. Apply for any exemptions/licenses if needed. You need certifications from the health department. You need to take steps to proove you don't have unreported employees. There are fire safety checks. You need toilets, but fortunately not parking spots (usually). And this is just scratching the surface.
But I think, unfortunately, many of these make sense and are unavoidable. And honestly, you can get help for many steps, and the time and money expended is not too big compared with, I don't know, the current rent for a restaurant in a good location.
So your hypothetical minimum wage worker is going to start a retail restaurant that costs typically $350,000 - $500,000 to open?
"A 2009 survey by "Restaurant Startup and Growth Magazine" found that the average owner spent $451,966 to get his restaurant up and running -- not including the acquisition of real estate. With a land purchase, the average total cost went to just over $700,00. Even those with starting costs in the lowest quartile of respondents spent $125,000."
I don't know much about running a restaurant, but I figured he'd be in big trouble as soon as I read that number after reading the condition of the place. I've done remodelings, and I'm pretty sure that just remodeling that place alone would eat up the entire $60k. I have to figure that bootstrapping a new restaurant would run at least that much on its own, between laying in food, kitchen equipment, hiring staff, doing marketing, permits and taxes, etc.
Starting a restaurant business requires some unwavering efforts. First of all, you need to be detail-oriented, and able to view a bigger picture at the same time. You should have sharp managerial acumen too. As you decide to open a restaurant, develop a checklist so that you can plan out every thing in a hassle-free manner. You should start you preparations few months prior to your opening.
See more at- http://www.headwayfinance.com/blog/how-to-prepare-a-checklist-for-your-restaurant-business/
It's not an entirely unconstrained choice, though, since in most cities there's a substantial chunk of regulatory compliance involved in setting up and running a commercial kitchen. Large fixed costs favor in-house dining with a staff of 15 over takeaway with a staff of 3, even if the latter would be better for the owner on the margins.
All they needed to do to be honest (if that was their goal, questionable) was separate out costs associated with the business from costs associated with the building. They could still argue that the costs are too high for starting a restaurant on a bare concrete pad.
I'm not in the restaurant business, so take what I say with a grain of salt (heh), but from the people I know in that business there's a wide variance in the actual business knowledge they possess.
You need enough capital to actually open the doors - that means not leasing the space with knob and tube wiring, residential drainage and a leaky roof. If that's all that's out there, you could simply not open yet and keep looking. In the OP, it sounded like that money was burning a hole in the owner's pocket and he had to open now. Patience.
Then once the doors are open, you need detailed, ongoing knowledge of your costs. There is no $29 chicken if it costs out to $31. If no one is going to pay $35 so that you can make a profit, it doesn't go on the menu. But you don't, as the author put it, sell $40 in cost for $29 simply because no one would pay $40. Then you get into ordering and spoilage, where even me as a total outsider, could tell you there's often money rotting in the walk-in. Point is, you must know your real operating costs before you ever even stand a chance.
Then you have to go out there and not suck. For a chef opening a restaurant, this is probably the part they're focused on. Problem is, you could be sunk before you even get to this stage. The guys that are successful and worked under successful people for a long time probably learned quite a bit about running the business, and is why they have better odds.
tl;dr - Under-capitalization is a leading cause of failure for many businesses. You can't make up your operating losses in volume. Don't open any business if you aren't prepared to live and breathe the minutiae of your costs.
Unit yes. But when you include all the overhead, labor, compliance costs, your overall margins thin out fast. That's why the restaurant business is difficult to get into.
Those are quantifiable costs though. If your restaurant is shut down or your reviews are bad, you can say how much it'll cost the owner. The owner can then make a more informed decision about how much to invest in cleaning.
Many restaurateurs have been running restaurants and cooking professionally for years before they try to open their own. I'm not sure writing software is as helpful experience wise.
I'm not arguing against all regulations. There are certainly many that aim to keep food cleaner, and can be done efficiently. But there is also a lot of red tape and permitting processes that add large costs to new restaurants and keep them from opening.
A year doesn't sound unreasonable. Especially for a person's first time. Even large franchises in midwestern strip malls can take 9+ months to get going.
Wow, this is like a how to guide on how to not run a business.
Raise a bunch of cash, go into a location that has so much wrong with it, blow literally all the cash plus $1k just setting up furniture and permits...
Why wouldn't you find a restaurant that just went under and buy out the lease? Take over the kitchen in place (buying the equipment from the bankrupt owner who just wants out), do a revamp on the sitting area, and spend pennies on the dollar compared to this? Added advantage that all the zoning and permits are already complete?
i've been toying around with the same idea for a while, but the things i've thought about seem to be capital and time intensive. i recently read an article that compares opening your own restaurant to throwing your money away. i guess it depends on location and product/service.
Is it one step if the single form for opening a restaurant is 200 pages?
Is it zero fees if the fine for violating a health inspection is $10,000?
The forms demonstrate that the new restaurateur has safe plans in place for traffic, seating, fire risk, equipment, food storage (dry, refrigerated and frozen), sanitation, and know the requirements for employment and training. If there's alcohol, there's licensing and training requirements. Are the kitchen floors both non-slip and impervious to water, with a proper drain? Are there arrangements for waste disposal, especially for used oils?
I'm not even in the food business; I'm sure an expert can tell you much more.
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