Skip to main content

26 replies

Need some advice - another new restaurant owner to be.

FM Former Member
I have been reading through various posts this morning, and really have enjoyed the incredible wealth of knowledge this site has had to offer, just in the first couple hours of reading thus far. I hope that perhaps I can hear from as many of you as I have been seeing from the likes of Dave Bugg, BQ Matt, and others. Any and all input for this would be greatly appreciated.

So I live in the Twin Cities of Minneapolis Minnesota, and want to open up my own BBQ joint. It's going to be focusing on Texas Q - Brisket, Ham, Sausage, and some ribs and pork. My idea is to try and find about a 700-800 sq ft property that I can turn into a take out place, and perhaps also have self-serve catering "sotospeak" (meaning call ahead for lunch to be picked up for a business or meeting, etc...).

In just the past 6 months of my business planning down at the local SCORE office, I have changed my idea a couple of times, and have been going back to my original plan of just a small joint to start (to test the market and go from there with it's success). My questions would be for any current or previous Q joint owners...

1. I'm trying to find a place where the lease will not exceed 9% of my monthly gross. Is that about right?

2. I'm looking to probably try and keep my utilities costs at about 5% of the monthly gross as well. Same question - is that right?

3. Obviously - unless I buy an existing restaurant's assets - I'm going to need to acquire them in one fashion or another. Any recommendations on this would be great.

4. This really isn't a question to everyone, but there was someone out here who described how they are sort of "outsourcing" their kitchen and pit to make them money when they are not doing their own Q. I think it was Dave Bugg, but I do not remember the post that I saw this in now. My question here was to inquire more about this concept.

5. I am looking at creating an LLC with a C-Corp tax structure. The reason for this is it appears to be the best in the way of safety, and overall flexibility for tax deductions during the year. I also realize that with the lack of legal case history right now on the LLC structure, that this is the only real downfall to an LLC. Any ideas?

6. I am going to only have a staff during lunch rushes and possibly dinner rushes (depending on what my actual demographic research produces). Because of this, I am wanting to 1099 employees instead of going with a W2 for obvious reasons, but what would you recommend in either case?

7. This is the biggest red flag of all - and I can pretty much assume from what I have read that people will say that this is the deal breaker for me, but here it goes - I have $0.00 start up funds, and will be doing all of this via SBA loans to get started. I have read most of Dave's posts and he has emphasized (even more so than location) that under funded startups usually fail that do not have at least 6 to 12 months of gross income in the bank. How can I succeed, and is it possible to, if I have no funds in the bank currently? I believe it can be done, but am just curious to know if I'm just fishing in the dark here without any real startup capital. I have been researching Angel Lenders as well as the SBA, Venture Capitalists, etc...

I spent the last 20 years in corporate America, and maybe this is all coming off like a midlife crisis, but believe me when I say that I am doing my all to plan this out to be as fool-proof as possible (less the start-up, money in the bank already, funds). I started off in the culinary arts field prior to that, and only made the switch for the money. I am a single guy - no family other than my immediate parents and such, so I think I may be in a better position than most, but then again - perhaps not. Point I guess I am trying to emphasize here is that this is my dream, and I want to make as close to 100% sure that it works as is humanly possible.

Thanks for your time and review. Looking forward to many more discussions in the future. I haven't even started to talk "Q" yet!
Last edited {1}
Original Post

Replies sorted oldest to newest

FM Former Member
If it's your dream, go for it. There are certainly a number of stories in the forum that should help.

My thoughts:

quote:
3. Obviously - unless I buy an existing restaurant's assets - I'm going to need to acquire them in one fashion or another. Any recommendations on this would be great.


Not sure what you're asking, are you talking what kind of smoker, or more general for ALL equipment?

Do you have a background in Q or just think it's a good concept for your area?


quote:
4. This really isn't a question to everyone, but there was someone out here who described how they are sort of "outsourcing" their kitchen and pit to make them money when they are not doing their own Q. I think it was Dave Bugg, but I do not remember the post that I saw this in now. My question here was to inquire more about this concept.


I wouldn't outscource anything, I'd think seriously about catering. You can control which gigs you take and use the restaurant as a commissary. If you outsource, you have potential liabilities with the other users using your stuff. And if someone else is using your equipment for making/selling Q, wouldn't that make them a competitor?


quote:

7. ....I have $0.00 start up funds, and will be doing all of this via SBA loans to get started.

Thanks for your time and review. Looking forward to many more discussions in the future. I haven't even started to talk "Q" yet!


So will the restaurant be your only source of income? What happens if it takes 6 months for word of mouth to get your clients to come? If they tell you 80% of business fail because of underfunding, don't underfund.
FM Former Member
quote:
Originally posted by sly2kusa:

6. I am going to only have a staff during lunch rushes and possibly dinner rushes (depending on what my actual demographic research produces). Because of this, I am wanting to 1099 employees instead of going with a W2 for obvious reasons, but what would you recommend in either case?


Answer:If you have set hours for a worker and supply their work equipment, then they are employees no matter what you want to call them. If you try to pay them on a 1099, you'll be in violation of the law and you will be caught and fined big time.

quote:
7. I have been researching Angel Lenders as well as the SBA, Venture Capitalists, etc...

Answer: Don't waste your time with VC or Angel type firms. You have nothing to offer them and you won't get anywhere with them. I worked for a VC group for 15 years. Trust me.
FM Former Member
Hello SmokinOkie and Todd G.

Thank you both for replying thus far.

Okie on the part where you were confused on my asking about acquiring assets, I should have been a bit more clear. I am talking about the hood, stoves/ovens, fryers, things of this nature. I already have a pit designer who will be building my stick burner, and I also plan to include a 300 series Cookshack (it's all part of my business proposal and plan). I guess my question really was if it's better to find a restaurant that is having a going out of business asset sale? Or are there suppliers that are just as competitive on price, and obviously, a better way to go?

I gained all of my "Q" knowledge from the couple of years that I spent in Texas, so while not professional - I know how to run a pit, but am obviously still new to it all.

It's definitely my dream, and I just want to do it right.

To Bill G - that is truly a new one on me (regarding the 1099 idea), but I suppose when I throw in the fact that I will not be supplying the employees with their equipment, and not setting set hours for them, that this is why my CPA and others have said it is a great idea. If an employee happens to use the tools there at my restaurant for serving food - that is not really an issue either, because it is not just for them, but any of use seving food. The hours that they will work will be chosen by them from a range of when they need to be available, so again - this is not a violation of the law from what I understand, but you bring up a good point, and I will be pursuing further details. Thanks for the heads up.

And you are right about VC's and Angels. Luckily I have a property owner who likes my idea so much though that he is going to put up some personal funds for where I may fall short on the SBA loans.
FF Fast Freddie/Love Shack BBQ (Guest)
I've owned two business's for many years. It use to be easy to 1099, but not anymore. If you have 1099 employees, they are their own boss. They choose when and how long they want to to work. If they want Friday off, so be it. Monday hangover, no show. You have no control of when or if they work. It is just like you hiring a contractor. He has his own rules.
If you tell them what time to be there, they are your employees.
FM Former Member
quote:
Originally posted by Fast Freddie/Love Shack BBQ:
I've owned two business's for many years. It use to be easy to 1099, but not anymore. If you have 1099 employees, they are their own boss. They choose when and how long they want to to work. If they want Friday off, so be it. Monday hangover, no show. You have no control of when or if they work. It is just like you hiring a contractor. He has his own rules.
If you tell them what time to be there, they are your employees.


Hi Fast Freddie - thanks for your response!

It's really all about balance. Sure - if someone is going to take that measure in working for me, then they are not going to be working for me very long. It's a situation where it saves me having to do payroll taxes, and allows the worker/employee/whatever you want to call them - a contractor - to be their own boss, manage their own taxes, create their own working situation and flexibility, and thereby improve their work experience. To me, it's a win-win, and from the initial research that I have done here in Minnnesota - is completely legal, (and I am not the only restaruant entrepreneur to use this model out here, though I am only at the stages of "to-be" owner at this point, which is why I am asking a lot of questions still).

You also have to keep in mind that this is not going to be a full-service restaurant. Even if it were - it would only be behind the counter servers (as with most traditional Texas "Q" joints). No waiters/waitresses. They will serve the food ordered from behind the counter, and that is all. No one else would be touching money except for me, and since all of my cooking is done in advance of the rushes - as with any Q - it's really just having an extra set of hands to make sure service is prompt.

Eventually I will expand out with catering, and who knows - I may go that route first, along with competing in KCBS events up here, prior to opening my doors, but it's all in the early stages right now.
FM Former Member
I have operated a restaurant for about 28 years and would give you the following answers.

1&2=depends on the area you are in
3=I would lease as much of your assets as possible. there are some good buys on used but only buy new refrigeration
4=would not do it don't want someone else breaking my equipment
5=llc is a complete waste of time and money because every supplier is going to insist on a personal guarantee from you or someone
6=1099 is no longer an option-too much of a hassel with so many isssues
7=start up capital is not a small concern eg.cash in registers, inventory, money to pay home expenses,etc

Herman
FM Former Member
quote:
Originally posted by hbeaman:
I have operated a restaurant for about 28 years and would give you the following answers.

1&2=depends on the area you are in
3=I would lease as much of your assets as possible. there are some good buys on used but only buy new refrigeration
4=would not do it don't want someone else breaking my equipment
5=llc is a complete waste of time and money because every supplier is going to insist on a personal guarantee from you or someone
6=1099 is no longer an option-too much of a hassel with so many isssues
7=start up capital is not a small concern eg.cash in registers, inventory, money to pay home expenses,etc

Herman


Herman thank you very much for these responses. Specifically with regard to new refrigeration I am debating on how to go with walkins in a smaller location or if Sub-Zero types of units will work. Still researching.

The 1099 thing is really surprising me because as I have previously said, it is a go over here in my neck of the woods. I am definitely gong to research this more.

Regarding going with an LLC - that is precisely why I am doing it. I'm not going to have my signature alone on anything I sign, and if they are wanting a personal guarantee from me, then I will show them a line of credit that the LLC has as the guarantee (a friend of mine back in North Carolina did it this way, and had no problems whatsoever).

The start up capital is the main thing, and I knew it was going to be.
FF Fast Freddie/Love Shack BBQ (Guest)
I paid employees under the table for years calling them "independent contractors". It has always been done in the autobody industry and in construction. I was caught twice and paid some big fines. ($40k) It saves you from paying workers comp, ssi, unemployment insurance and a few other expenses, but IRS will watch a business return very carefully. They know what they are looking for. Also, if an employee gets hurt, you are open to a lawsuit even with a LLC. Been there, done that. You can do it as long as you don't get caught. I did it over 30 years, but then again, computers didn't talk to each other like they do today.
FM Former Member
quote:
Originally posted by Fast Freddie/Love Shack BBQ:
I paid employees under the table for years calling them "independent contractors". It has always been done in the autobody industry and in construction. I was caught twice and paid some big fines. ($40k) It saves you from paying workers comp, ssi, unemployment insurance and a few other expenses, but IRS will watch a business return very carefully. They know what they are looking for. Also, if an employee gets hurt, you are open to a lawsuit even with a LLC. Been there, done that. You can do it as long as you don't get caught. I did it over 30 years, but then again, computers didn't talk to each other like they do today.


I'm not really talking about paying them under the table, but I get the drift of what you have been saying. The perception is obviously coming off as if that is the intent, but that's not anywhere close to the truth. Here in Minnesota, a restaurant can have up to a total of (I think - am still checking on this) 4 employees before the business has to carry workers comp. So long as none of the employees are full time, then there are no benefits such as insurance. SSI and other state/federal taxes are to be handled by the employee, and I would of course have them optioned to work with someone if they did not know how to manage their own tax debt.
K kapnMember
Things like worker's comp. and unemployment insurance are state issues.

Independent contractor status is a Federal Issue.
I used to work in a position that made these types of decisions for the IRS and Social Secutity.

Here is the best written explanation of Independent Contactors that I have seen.

IRS guidlines

Resturant worker status as employees seems pretty clear to me.

But, it is your call.

Good Luck

TIM
FM Former Member
quote:
Originally posted by KAPN:
Things like worker's comp. and unemployment insurance are state issues.

Independent contractor status is a Federal Issue.
I used to work in a position that made these types of decisions for the IRS and Social Secutity.

Here is the best written explanation of Independent Contactors that I have seen.

IRS guidlines

Resturant worker status as employees seems pretty clear to me.

But, it is your call.

Good Luck

TIM


Hi Tim - Thanks for this info on the Federal guidelines. I have been reseraching this for a while now, and even since the beginning of this thread (since it has turned out to be the hot-button piece to my discussion out here).

The determination of whether a worker is an employee or an independent contractor here in Minnesota is based on common law rules. The determination depends primarily on the extent to which the person receiving the services has the right to direct and control the service provider with regard to what is to be done and how it is to be done. An employer generally has the right to control how an employee performs the service. Independent contractors determine for themselves how the work is to be performed.

Minnesota Rule 5224.0330, adopted by the Department of Labor and Industry, states that “the most important factor in determining whether a person is an independent contractor is the degree of control that the purported employer exerts over the manner and method of performing the work contracted. The more control there is the more likely the person is an employee and not an independent contractor.”

Given that my employees are only going to be working during rushes, and with the food quantities of how and what are to be served as a general rule of thumb for themselves to follow - it's the primary reason why I have understood it to be both legal, and lawful to have them under a 1099 structure as opposed to a full fledged W4/W2 situation.

But - as I previously stated - I'm still researching every angle on this.

Thanks again for this information.
Last edited by Former Member
FM Former Member
quote:
Originally posted by sly2kusa:
Given that my employees are only going to be working during rushes, and with the food quantities of how and what are to be served as a general rule of thumb for themselves to follow - it's the primary reason why I have understood it to be both legal, and lawful to have them under a 1099 structure as opposed to a full fledged W4/W2 situation.


If you tell them when to work, what to wear, if they use your utensils to serve, if they serve your food, then they are EMPLOYEES. This is a federal issue, not a state issue, and based on your statements, you are on the wrong side of the law on this one.

If you don't mind them showing up "whenever", wearing "whatever", serving with their hands food they brought with them to work, then go for it.

The only restaurant people that I've ever been able to 1099 were event service staff for caterings, and then we had to have a contract for each person, for each event, stating that their pay was for a "one time" event and that they were supplying their own uniforms and transportation. The buffet servers could not be 1099'd because we supplied their uniforms, work tools, and transportation, and directed their placement and activities. Any attempted use of a 1099 to pay people WILL be viewed as fraudulent by the IRS and it will be up to you to prove them wrong. Good luck with that!

Lastly, and not to be difficult, if you think you can run a restaurant with the idea that "my employees are only going to be working during rushes, and with the food quantities of how and what are to be served as a general rule of thumb for themselves to follow", then I suspect that you will have problems. Food specs are a lot more than just a "general rule of thumb" as they contribute to food costs, plate appearance, customer satisfaction, etc. A lack of precision on these matters will lead to no customers and no money.

Honestly, if you can imagine yourself telling an IRS auditor that your workers should be 1099'd because you only provide a "general rule of thumb for them(selves) to follow" and you can't hear them screaming BS at the top of their lungs as they start to fine you 20 different ways, then you make up for you lack of imagination with giant brass testicles.
Last edited by Former Member
FM Former Member
Wow - ya'll are really all worked up over this, aren't you?

I guess no matter what, you will always find someone who needs to be right about everthing they say.

What part of "But - as I previously stated - I'm still researching every angle on this" did you not understand Todd G?

Guess you didn't read that far, but as always - thanks for your candor - I guess.

EZ thank you too, and yes - it is appearing to be more of a Federal issue than a State issue. I haven't spoken with my CPA since I first post this, but will be speaking with them tomorrow.

Thanks again.
A accentMember
Hi sly2kusa
I will tell you what my Accountant used to say when I used to ask about getting around certain laws; "It's all legal until you get audited."
So maybe listen to the people here, they don't want to argue with you, they're probably trying to keep you out of trouble.
Oh, when my Accountant said that to me, it meant that I was to do things as he said, not as I felt, and funny thing, I never had a problem with the Auditors.
Good luck on your venture

accent
FM Former Member
quote:
Originally posted by accent:
Hi sly2kusa
I will tell you what my Accountant used to say when I used to ask about getting around certain laws; "It's all legal until you get audited."
So maybe listen to the people here, they don't want to argue with you, they're probably trying to keep you out of trouble.
Oh, when my Accountant said that to me, it meant that I was to do things as he said, not as I felt, and funny thing, I never had a problem with the Auditors.
Good luck on your venture

accent


Thank you Accent. The last thing I came out here to do was to get into an argument about anything, but you know how some people are - no matter what, they have to beat you up on an issue until you see it their way.

Funny thing about all of this is that while I understand the critical nature of this decision, it wasn't even the main point of my post.

I think I'll let this one close out and post it again another time.
Thanks
FM Former Member
quote:
Originally posted by sly2kusa:
quote:
Originally posted by SmokinOkie:
Let's just get back to talk about the Q part.

I asked a couple of question, but didn't see a response, how about we talk those things?


Hi Okie!

Yes, lets do that shall we? I lived in Texas for a couple of years, and while not professional - this is where I gained all of my "Q" knowledge from and how to run a pit. I would still consider myself a newbie to it all still, but I did learn a lot of their secrets, and fell in love with Texas Q. It's now my dream and passion to make this happen, and I'm just wanting to make sure I make all the best and right moves possible.

As for the equipment - I have a pit designer who is going to be building my stick burner, but I also plan to go with a 300 Series commercial CS smoker. The reason for both is for diversity in cooking, and redundancy. I'll eventually add another 300 series after the first 3 years, upon success (you can never have enough pit!)

As for money in the bank - it's been part of the reason why I was thinking of going 1099 for employess to begin with, but after all the questions that have been brought up (which I do truly appreciate) I am now very anxious to get with my CPA (who I have been working with on this plan) to discuss the details that have come up here. I am going to acquire lines of credit and form an LLC (which from what I have found is what most restaurants start up as - at least here in Minnesota) with a C-Corp tax structure.

Regarding the Q - the only other Q joint that is true Texas Q up here has been in business, in the same place (which is not a really ideal location, but does have foot traffic from other shops near by) for 14 years, so I know it will work if I can find the right location. Still wanting to get the right spot, and then apply a lot of the good advice that I have read out here thus far.

I'm going to start a different thread here in a bit on Quickbooks, so perhaps we could also discuss some items there too.

Thanks again, and sorry that this is more summary than questions - ask away though if you have some thoughts or questions or ideas.
FM Former Member
I can give you the benefit of 20 years in the commercial insurance business and the 1099 issue. If you accountant says it is a good idea, it is time to get another accountant. There is a lot of information on the internet regarding 1099 vs. employee issues. The only safe way to use a 1099 is if your worker has their own business and their own insurance for that business, sets their own working times, uses their own equipment. If you need to cut your employee cost so much you want to try your luck, you need to re-think opening a business.
FM Former Member
quote:
Originally posted by PorkQPine:
I can give you the benefit of 20 years in the commercial insurance business and the 1099 issue. If you accountant says it is a good idea, it is time to get another accountant. There is a lot of information on the internet regarding 1099 vs. employee issues. The only safe way to use a 1099 is if your worker has their own business and their own insurance for that business, sets their own working times, uses their own equipment. If you need to cut your employee cost so much you want to try your luck, you need to re-think opening a business.


Hi PorkQPine - Thank you for your response.

The reason I was looking to go with a 1099 structure was to simplify the end of year taxes - not cut employee costs, so much. But it obviously is not the best move (since posting this thread, I have decided, most certainly, that there is just too much Federal risk involved).
FM Former Member
Just got back from the NBBQA Conference. One of the seminars was on starting a BBQ Restaurant. Towards the end of the session someone asked the 3 restaurant owners, had they opened a catering only business and it was successful would they then have opened a restaurant? To the man they said "NO!".

I'm in the process of taking over a small BBQ joint that is currently closed. My heart sez - open as a restaurant - my brain sez - open as a catering op only and build that up to where people are demanding you open as a restaurant.

Catering allows you to pinpoint all your expenses. Food cost - you just buy what the customer orders. Labor - you hire only who you need for that job - contract labor. No food waste or spoilage. No employees standing around getting paid when it's slow. And there's a lot less chance of theft from your catering op if you're there all the time on every project.
FM Former Member
I used to be on the board of NBBQA and I know most of those guys teach those seminars.

The main reason they say cater, over a restuarant, is the issues. There are SO many more with opening a restaurant, and with catering you can control a lot of them.

The successful caterers I know make more money than they ever did in a restaurant and that's a big reason. Look at the overhead of a restaurant vs catering.
T toys4dlrMember
I will add a little knowledge, from the bank side. A little background on my is I have been a commerical banker for 15 years (Up until last Feb, as the anks aren't making loans). I spent 6 years in SBA lending, 7 in Small Business lending and the last 2 doing middle market stuff so I have a pretty good understanding on what you should be able to borrow.

It was mentioned a "Line of Credit". For what and what is the collateral?? A line of credit is secured by some asset, typically A/R's and the total line is only a % advance on those elegible A/R's. Typically 70-80%. In a Rest operation there are no A/R's or very minor in doing some catering where you give the client terms.

At best you wil be looking at a combo Equipment and working capital loan. However, I would typically only lend 60-70 Percent of the total, the borrower has to put something into the game.

Banking is a dumb business, as the bank gains none of the upside and 100% of the downside. Hence the need for the client to pony up funds, offer more collateral or a combo of both. This secures them to this project. To eaasy to walk away in tough times, when you don't have anything into the game.

Even with an SBA loan, it is only 75% guaranteed, the other 25% is carried by the Bank. My first senior lending officer put it best, it is a loan not a grant. How are we getting paid back.

Now if you think a start up LLC will be able to not personally guaranty the loan you are mistaken, especially in todays lending environment. A PG (Personal Guaranty) is almost always going to be required on all deals. Even the established businesses.

This is were the banks are taking the biggest hits right now, the industry as a whole got to loose with their underwriting, but that is a different discussion.

I too, have been sitting here trying to figure out what I want to be when I grow up, thanks to my unsolisited vacation. Even thinking about the Rest idea. But I just wanted to throw out the realities on the bank side of what to expect. Have a strong business plan in place for the financing, not a novel with a bunch of graph and charts. But a true plan that was thoughtfully created, with both the expected, the low and the high side. Broken out, on a month to month basis for a minimum of 12 month, but more like 24 months.

Best of luck in your venture
FM Former Member
Zero start up funds is the elephant in the room, as is no restaurant experience. If you really want to get in the food business work for someone else to gain experience, save money and open a small restaurant with your own money and don't get a loan. Loans will kill your dream and put you under faster than anything I can think of.

Add Reply

Post

Membership Required

We're sorry. You must be signed in to continue. Sign In or Register
×
Are you sure you want to remove from your Block List?
×
Loading...
×
When you block a person, they can no longer invite you to a private message or post to your profile wall. Replies and comments they make will be collapsed/hidden by default. Finally, you'll never receive email notifications about content they create or likes they designate for your content.
Note: if you proceed, you will no longer be following .
×
Link copied to your clipboard.
×