New Jersey’s $16 billion restaurant industry employs more than 330,000 people, or 9 percent of the state’s workers.
The New Jersey Restaurant and Hospitality Association expects restaurant employment to grow 7.5 percent over the next 10 years, meaning more residents are expected to join the industry — or more residents will open restaurants themselves.
Today, there are some 27,000 restaurants and quick-service options in New Jersey, with nearly 18,000 of them acting as full-service establishments.
But not everyone is cut out for the job.
Marilou Halvorsen, president of the NJRHA, said the industry is tough.
“Being in the restaurant industry sounds very glamourous — everybody wants to be in it — but they just don’t understand the intricacies,” she said.
Stacy Gilbert, partner and co-leader of the restaurant and hospitality practice at the accounting firm Citrin Cooperman in Livingston, offered additional insight.
“(A restaurant) is a 24/7 business that not only takes the knowledge of a restaurant operator and/or chef, but also needs to be combined with business knowledge, too,” she said. “That combination is much rarer than you might think.”
Still, many are undeterred. So, NJBIZ spoke with industry professionals about the questions and issues restauranteurs don’t often consider in their pursuit to open an establishment.
Here’s who they are and what they had to say:
State and municipal licensing
“New Jersey is not viewed as one of the more business-friendly states in which to open a business. You need to really investigate all of the costs and fees associated and make sure you go through the proper regulatory procedures — at both the state and local level.” – Marilou Halvorsen
“A lot of chefs are attracted to the ability of opening a BYOB establishment in New Jersey — they’re able to avoid the expense and liability of a liquor license and concentrate on the food. … BYOB is relatively unique to New Jersey. … There are also a significant number of people who take the exact opposite view, which is, you can’t open a (successful) restaurant without a liquor license.” – Michael Halfacre
Hiring a professional team
“(You need) a lawyer knowledgeable in employment practices and liability, an accountant familiar with the hospitality industry, any food purveyors that might have buying programs that could educate you on food costs and liquor distributors who can guide you with a good cocktail program. You always want to make sure you have all the right insurance so that you’re properly protected, and you want to join the New Jersey Restaurant and Hospitality Association.” – Marilou Halvorsen
Protecting your business from the start
“If there are multiple people involved in the business, having an operators or shareholders agreement at the formation of the business can help delineate rights and responsibilities of partners and members so you can minimize the risk of disputes down the road. It can set forth the percentage of the business each person owns, who is responsible for what aspects of the business, how decisions are made, how profits are distributed and the manner in which to dissolve the business. (Also), depending upon the concept of the restaurant, you may want to trademark the name, copyright certain aspects of the menu or take additional steps to protect recipes, such as requiring employees to sign confidentiality agreements or otherwise take precautions to ensure that your recipes constitute trade secrets. Indeed, the use of confidentiality, nonsolicitation or restrictive covenant agreements can afford greater protection in circumstances where, for instance, a sous chef leaves your restaurant — such agreements would protect the restaurateur from potential attempts to start a restaurant with a similar theme or menu and prevent the poaching of other staff.” – Catherine Wells
“If I am the chef/owner, obviously, I don’t need to pay myself minimum wage or worry about overtime — there are advantages to being the guy doing the cooking. We’ve heard from our clients that it’s one thing to be a named chef but it’s equally difficult to find good cooks and keep them. They are the toughest jobs to fill and keep filled — if you are not a well-known cook, the hours and the pressure don’t equal huge amounts of money.” – James J. McGovern III
“I think the first chapter of advice begins with the initial raising of the capital. Raise more than you think you’ll need — there are always unforeseen circumstances. Raise 10 to 20 percent more than you need. The cost of equity is often more expensive than the cost of debt. But the cheaper way to finance a build-out isn’t necessarily banks, because restaurants are not a preferred category for lenders. Anything that is mechanical within a restaurant can be financed through an equipment finance company and structured as debt. The preferred method of financing a build-out is your own money, friends’ and family’s money, equipment financing and then third-party equity.” – Nicholas Florio
“If your location is within 200 feet of a church or a school, you will need an annual waiver from those institutions in order to have a liquor license in that location. In Hoboken, for example, you are not allowed to have a liquor license within 500 feet of another liquor license. All those licenses on Washington Street are grandfathered in, to bring a new license into that area is virtually impossible. Newark has a rule specifying 1,000 feet, but the city created a zone, the Downtown Family Restaurant and Entertainment District, that includes the area around the arena without a distance requirement in order to grow that downtown area.” – Gemma M. Giantomasi
Legislative and governmental actions
“Both labor law and sales tax scrutiny are at the forefront of all the governmental authorities. It’s not a question of if there is going to be an audit — it’s when. People are always unfortunately shocked when it happens or quite unprepared unless they have good professionals who have set them up and advised them properly. … Be proactive. Don’t wait for someone to knock on your restaurant’s door asking to see your books.” – Stacy L.Gilbert
Operating the business
“If you’ve got 50 tables and sit 200 people, hoping to complete two to three turns, you are forecasting your revenue and factoring in your operational costs of labor, insurance, supplies and everything else you need to run your restaurant. Rarely are these numbers ever tweaked after the restaurant is built, even though they were based on assumptions.” – Nicholas Florio