You love great good, want to bring people together, and have the soul of an entrepreneur. And today, you want to know how to open a restaurant in California.
If you’re thinking about how to open a restaurant in California, you’ll need more than just a good idea. Opening a restaurant is a long, complicated process that could take months or years to complete. On top of creating a concept and finding a location, you’ll need to work through the details to get your restaurant registered and properly licensed before you can even think about opening your doors.
In this article, we’ll cover all of the steps you need to take in planning your restaurant to give it the best possible chance for success.
First, Some General Reading on How to Open a Restaurant
This article has tons of information specific to California, but you may also want to take a look at some general articles that apply to opening a restaurant no matter where you live. Here’s a roundup of some general sources:
- How Much Does it Cost to Open a Restaurant?
- Forecasting Restaurant Sales Before You Open
- Choosing the Best Restaurant Point of Sale System
- How to Begin Staffing Your Restaurant
- Menu Pricing: How to Calculate Food Cost Percentage
- Interior Restaurant Design & Exterior Restaurant Design
- Guide to Buying Restaurant Equipment
- Restaurant Inventory Management & Software
- How to be a Successful Restaurant Owner
Now, How to Open a Restaurant in California
If you’re interested in understanding how to open a restaurant in California, here’s what you’ll need to know.
- What kind of insurance you need to open a restaurant in California
- Information about taxes, registration, permits, and licenses
- How California restaurant health inspections work
- Tips to make sure your restaurant is ADA and health code compliant
- How to choose a location for your restaurant in California
- General information about bylaws, zoning, and planning
- Tips for building your expert restaurant team
Now that you know what we’ll be covering to teach you exactly how to open a restaurant in California, let’s get started!
The Insurance You Need to Open a Restaurant in California
A solid insurance policy gives you peace of mind. You know you’ll be covered in the event of an incident, which, let’s face it, can definitely occur in the restaurant industry.
But what kind of insurance do you actually need as a restaurant owner in California?
To give you a good idea of what you’ll need, we’ll use Los Angeles as an example. Insurance policies may differ slightly based on city requirements, but they are generally the same. Here are the basics of what you’ll need along with cost estimates:
- General liability insurance ($300–$5,000 annually): Protects you in the event that someone is injured on your property. It also covers property damage, damaged reputation, copyright infringement, and costs related to foodborne illness.
- Property insurance ($8,000–$10,000 annually): Protects your building, equipment, furniture, and other property. May be necessary in addition to building property insurance if you rent, to cover the contents inside the property itself.
- Liquor liability insurance ($1,000–$13,000 annually): Protects your business in the event that an intoxicated patron injures someone, damages your property, or commits a crime.
- Workers’ compensation (depends on employee wage): Protects your employees from the expense of work-related accidents and illnesses as well as lost wages. This type of insurance is required by California law and often includes employer’s liability insurance.
- Business interruption insurance ($1,000–$20,000 annually): Protects your business against closure due to hail, fire, windstorm, vandalism, equipment damage, and other events.
- Food contamination insurance ($500–$25,000 annually): Helps the business recoup any costs associated with spoiled or contaminated food in the event of a power outage.
- Automobile liability insurance ($750–$1,200 per vehicle annually): Covers any vehicles your business uses for deliveries, catering, or other purposes. Commercial auto insurance is needed to protect you against the legal, medical, and repair costs due to an accident.
Purchasing all of these insurance policies can be expensive, but you’ll find that the cost is well worth it the first time you need to submit a claim. Your insurance needs will vary depending on certain factors, but California law requires you to have the following:
- Workers’ compensation insurance
- Unemployment insurance (tax)
- Automobile liability insurance (only needed if your business owns/operates a commercial vehicle)
To get an accurate quote for an insurance policy, you’ll need to know:
- The size of your business
- Your venue type
- The age of your building
- Your projected sales
- Estimated number of customers
- Value of your inventory
You may also need to know how many employees you plan to staff and what kind of equipment you’ll be using.
Since every restaurant business is unique, you should really work with a licensed small business insurance broker when opening a restaurant in California. Here are two California associations that can help you find one:
- Insurance Brokers and Agents of the West (IBA West)
- Western Insurance Agents Association (WIAA Group)
FURTHER READING ON RESTAURANT INSURANCE
How to Open a Restaurant in California: Taxes
Yeah, yeah: the only two things certain in life are death and taxes.
Morbid as it may be, it’s true – and taxes for a business like a restaurant can be pretty complicated. So which taxes do you need to pay, and how do you file them?
As a restaurant owner, you’ll be responsible for paying several types of taxes. Here are some of the taxes you’ll need to become familiar with:
Income tax: You’ll be filing your income taxes based on the type of business you have. As a sole proprietor, you would file your business income tax on your personal tax return. Corporations and LLCs, however, must file a business tax return.
Payroll taxes: There are two types of payroll tax: deductions from employee wages and taxes you pay based on your employees’ wages. Payroll taxes cover employee Social Security, Medicare, and Federal Unemployment taxes.
Sales tax: This type of tax is imposed by the government for the sale of goods and services. In California, the sales tax is 7.25%, which is made up of a 6% state sales tax and an additional 1.25% local tax. You’ll need to include these taxes on every bill of sale. And remember: there is no federal sales tax in the United States.
Taxes on tips: Many restaurant employees work for tips, and they are required to report those tips as taxable income. If your employees earn more than $30/month in tips, they are classified as tipped employees and must claim their tips. If the total calculated tips reported by all employees equal less than 8% of your gross sales receipts, you are required to allocate the difference among the employees who receive tips.
These allocated tips are reported on form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. You will need to indicate allocated tips on the employees’ Form W-2, Wage and Tax Statement, in the box titled “Allocated tips.” No income tax, social security, or Medicare taxes are withheld on allocated tips.
To save yourself the hassle of handling your business’ taxes on your own, hire a California restaurant accountant to do them for you. You’ll learn more about adding a restaurant accountant to your expert restaurant planning team later in this article.
FURTHER READING ON RESTAURANT TAXES
Understanding Business Registration, Permits, and Licenses for Restaurants
On top of learning which taxes you’ll need to pay as a California business owner, you’ll also be required to obtain certain permits and licenses. The permits and licenses you need will depend on some variables:
- The size and legal structure of your business
- The physical space you’re buying or renting
- The activity that will take place in your business
- Any equipment or emissions
- Inventory you sell outside your restaurant
- The square footage of indoor and outdoor space
- Renovations or changes to the building
- Staff insurance and training requirements
- Waste disposal and vehicle operations
- Entertainment options and promotional events
At the very least, you’ll need a California business license, which you can apply for here.
Here is some more detailed information about the permits you’ll need as a California restaurant:
Business license: To legally run a business in California, you’ll need to obtain a business license and register your business with the state. For Los Angeles in particular, you can register your business here.
Food facility permit: To open a restaurant, you’ll need a food facility permit issued by the County of Los Angeles Public Health Department. Here’s how to get your license.
Public health permit: To safely serve food to the public (which must be regulated for public safety), you’ll need a public health permit. We’ll cover this in greater depth in the next section, but here are the permit fees and how you can apply.
Food service license: To actually serve food, you’ll need to receive your food service license. This legally gives you the ability to serve food to paying customers.
Liquor license: In the state of California, you’ll need a Type 41 liquor license to serve beer and wine in an eating establishment. A Type 47 license allows you to sell beer, wine, and distilled spirits. Here is some more information about California ABC license types and how you can apply.
FURTHER READING ON RESTAURANT REGISTRATION, PERMITS, AND LICENSES
Passing Your Restaurant Health Inspection in California
Before you can open the doors of your restaurant, you’ll need to pass a California restaurant health inspection. A health inspector will come to your restaurant unannounced to review the quality and safety of your operation. Inspectors check for the following:
- Compliance with food handling laws
- Safe food storage temperatures
- Employee personal hygiene
- Pest control measures and sanitation
As the inspector works their way through your restaurant, they’ll keep a tally of any violations. Each violation is worth a certain number of points and, at the end of the inspection, the inspector will tally those points for your final inspection score. The grading system is pretty straightforward — A (100 to 90 points), B (89 to 80 points), and C (79 to 70 points) are all passing scores. Anything below 70 points means that you’ve failed your health inspection. Failing your health inspection won’t just mean a bad grade, it could lead to closure of your restaurant, a negative reputation, and loss of thousands of dollars.
Keeping your restaurant up to code can be tedious, but you can do it with good processes in place. For a detailed description of how the inspection process works in Los Angeles, read this in-depth guide.
FURTHER READING ON PASSING YOUR RESTAURANT HEALTH INSPECTION
Making Your Restaurant ADA Compliant in California
In California you need to make sure your restaurant is safe and accessible for people with disabilities.
TheAmericans with Disabilities Act (ADA) is a federal civil rights law that prohibits the exclusion of people with disabilities from everyday activities. You need to make sure that your business is accessible for people with disabilities and that you’re able to make accommodations for them as outlined in the act itself.
Here are some of the things you’ll need to think about to make your restaurant ADA compliant:
- Architectural barriers: An architectural barrier is a physical feature that may limit or prevent people with disabilities from obtaining the goods or services offered by the restaurant. Examples may include difficult door hardware, narrow aisles, fixed seating, and more.
- Accessible parking: Designated accessible parking spaces must be provided, and you’ll need to insert additional space to the right or left of those spaces so that people using wheelchairs and other mobility devices can get in and out.
- Accessible entrances: Businesses must have accessible entrances that provide physical access to the facility from sidewalks, parking, or public transportation. Modifications such as installing a ramp or lift and removing steps can make a business accessible.
- Maneuvering space: You’ll also need to make sure that there is space for maneuverability inside the building, like adequate space between tables and counters for people in wheelchairs.
Be aware that lawsuits are often brought against restaurant owners who believe their business is fully ADA compliant. What’s more is that these lawsuits are often enhanced in California by the Unruh Civil Rights Act.
Under this act all people – regardless of sex, race, color, religion, ancestry, national origin, disability, or medical condition – are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all manner of business establishments. What this means is even a minor infraction could snowball into a litany of state-level charges.
But keep in mind that the state of California has adopted new measures to fight against what may be frivolous lawsuits. These modifications were presented in part of Senate Bill 1608 in 2008:
- A plaintiff must have personally encountered a barrier to accessibility before filing a lawsuit.
- Even if there were multiple barriers to access in a single encounter, the plaintiff can only file one claim.
- Encourages property owners to use a Certified Access Specialist to inspect and certify their restaurant. The main benefit in doing so entitles the restaurant to a 90-day stay (cap on court proceedings) and early court evaluation conference meant to determine the merits of the claim.
If you’d like, you can read more detailed information about making your California restaurant ADA compliant, including common myths and misconceptions.
Making renovations to your building to comply with ADA requirements can be expensive, but tax credits are available to help you offset the costs, with a maximum deduction of $15,000 per year.
Choosing a Location for Your California Restaurant
Choosing the right location for your restaurant is more important than you can even imagine. (Or maybe you can.)
Not only does your location determine your potential profits, but it affects the whole vibe you create for your customers, too. You need to choose a location that suits your restaurant concept and target audience. (For example, East LA probably doesn’t need another Mexican restaurant.)
So, what do you need to think about when you’re considering a location for your restaurant in California? Here are some of the important questions you’ll want to ask yourself:
- Is the neighborhood a good fit for my concept?
- What is the population base for this area?
- What are customers in this neighborhood looking for?
- What is the average net worth and disposable income of residents?
- What is the ethnic breakdown of this area?
- What kind of buildings and restaurant spaces are available?
Once you’ve answered some of these questions, you’ll want to perform a more detailed location analysis to see whether the numbers line up.
Here are some basic steps to conducting research on a location:
Step 1: Determine the minimum number of target market customers you’ll need to keep your restaurant profitable.
Step 2: Do some research to see whether the neighborhood has a sufficient density of your target market.
Step 3: Check out your complementary businesses and competitors. Is the market saturated?
FURTHER READING ON CHOOSING A RESTAURANT LOCATION
The Best Neighborhoods for a Restaurant Location in Los Angeles
If you’re still not sure about the best location for your restaurant, here are a few suggestions for the best neighborhoods in LA to open a restaurant:
- Beverly Grove
- Atwater Village
- Culver City
Let’s take a closer look at each of these neighborhoods and what they offer in terms of potential for a new restaurant business.
- Beverly Grove
Snapshot: Bursting with old LA charm,Beverly Grove is home to The Grove, a giant outdoor mall where you can find everything from delicious food to high fashion.
With West Hollywood to the north and Beverly Hills to the west, Beverly Grove is a booming hub of shopping and retail districts. The Grove is home to movie theaters, novelty shops, pop-up restaurants, and an amazing farmers’ market, but the area beyond the mall is just as rich in fine food and sippable cocktails. You’ll also find plenty of bars and lounges where you can catch a show.
A one-bedroom apartment is $2,700/month, and the neighborhood is full of young singles.
- Atwater Village
Snapshot: A diverse blend of culture and ethnic eateries, Atwater Village is a little off the beaten path, but it’s easy to get to and the neighborhood has a fun and funky vibe that draws a crowd.
Conveniently located between Glendale and Silver Lake, Atwater Village is one of the most diverse neighborhoods in Los Angeles. Here you’ll find everything from authentic pupusas on the cheap to swanky dive bars and nitro cold brew. The neighborhood itself is an architectural rainbow where no two houses look alike and the only thing more diverse than the homes are the people who live in them.
Atwater Village is situated right at the 5, so you can easily hop on the 134, 101, 170, or the 110. Whether you’re headed back to northeast LA or anywhere on the east side, you won’t even need to take the highway.
A one-bedroom apartment is $1,800/month, so, while it may not be the most affluent neighborhood in LA, it has a lot of potential for a budding restaurateur.
- Culver City
Snapshot: One of Los Angeles’ best up-and-coming neighborhoods, Culver City is a studio town that’s becoming quite hip and trendy.
Once home to Metro Goldwyn Mayer, Culver City is one of the biggest studio areas in Los Angeles. This neighborhood is budding with art galleries, bars, gyms, and restaurants like Vespertine, where the tasting menu will make you feel like you’re dining in outer space.
Spitting distance to the 405 and the 10, Culver City couldn’t be easier to access. Plus, once the Expo Line is finished, it’ll be a straight shot from Santa Monica to Downtown LA.
A one-bedroom apartment is $2,200/month, and the neighborhood is like a more affordable version of fancy LA.
California Restaurant Bylaws, Zoning, & Planning
So, say you’ve chosen a neighborhood and found your dream space – it’s time to deal with California bylaws and local zoning ordinances.
You’ll need to do a building evaluation to make sure there are no unpleasant surprises before you start construction on the inside. You’ll also need to make sure your building is zoned properly for a restaurant to even be there.
Zoning laws dictate which areas can be used for what purpose. They exist to ensure that the surrounding residential community is not negatively impacted by commercial development.
Some areas will be very obviously zoned for commercial use – your restaurant will be both permitted and welcome in these areas. Other locations, however, may not be so cut-and-dry. You’ll need to review local zoning ordinances to determine if you can open a business there.
You may also need to do some research about liquor restrictions and other special regulations that might apply to your district. Purchasing a building that already has a liquor license is one option, otherwise you may need to reach out to your city councilor or aldermen to determine if they plan to approve any liquor licenses in the area.
Check out California’s Planning, Zoning, and Development Laws, LA’s Planning and Zoning Laws, or contact your local municipality to find out more.
FURTHER READING ON BUILDING CODES
Building a Top-Tier California Expert Restaurant Team
You need a team to open a restaurant. The sooner you realize and act on this, the better.
Building a team of experts in the industry will not only make the entire process easier for you, but it will also ensure that everything gets done correctly (and legally). Here are some of the people you’ll want to include on your team:
- Restaurant consultants
- Restaurant insurance broker
- Restaurant real estate broker
- Restaurant accountant
- Restaurant attorney
- Restaurant construction and remodeling
Now, let’s take a closer look at each of these experts and review some of the best options in Los Angeles, California.
A restaurant consultant will advise you on key elements of planning a restaurant, like developing a business plan, creating a concept and planning a menu, selecting a location and securing funding, marketing and brand management, as well as compliance issues, hiring, training, and more.
When you’re choosing a restaurant consultant, you want to find someone local so they know the area.
Here are some of the top restaurant consultants in Los Angeles:
Restaurant insurance broker
A restaurant insurance broker will assess your insurance needs during the planning process and, after the restaurant is open, assist you in the event of a claim.
Here are some of the top restaurant insurance brokers in Los Angeles, California:
Restaurant real estate broker
Even if you find the perfect building for your restaurant, you’ll need to do a ton of behind-the-scenes work t to secure it. A restaurant real estate broker can help you find potential listings (even private listings you won’t have access to yourself) and will also help negotiate any sale or lease agreements as well as the transfer of all licenses and permits.
Here are some of the top restaurant real estate brokers in Los Angeles:
The day-to-day legwork to run a business is complicated enough, so you’ll definitely want to hire a restaurant accountant to do your bookkeeping. On top of general bookkeeping, a restaurant accountant will also perform cost analyses, manage your payroll and bookkeeping, not to mention doing your quarterly and/or year-end taxes.
Here are some of the top restaurant accountants in Los Angeles, California:
There’s a lot of paperwork that comes with starting a business, and a restaurant attorney is someone who provides legal guidance for things like registering your business, financing the business, obtaining permits and licenses, enforcing trademarks and copyrights, settling labor disputes, and ensuring compliance with labor laws.
Here are some of the top restaurant attorneys in Los Angeles:
Restaurant construction and remodeling
Taking your California restaurant from the planning stage to reality takes a lot of work, so you’ll need a restaurant construction and remodeling team to redesign and renovate the space you’ve chosen.
A restaurant contractor will draw up plans and make sure they comply with all necessary codes, while an architect will handle the structural work and an interior designer will take care of the aesthetics.
Here are some of the top restaurant construction and remodeling teams in Los Angeles:
FURTHER READING ON BUILDING A TEAM OF RESTAURANT EXPERTS
While there is a lot to consider when planning how to open a restaurant in California, don’t let the details discourage you. Following this guide will give you the direction needed to move forward with everything from restaurant insurance and taxes to bylaws, zoning, and planning.
If you have any detailed questions about how to open a restaurant in California, contact the Secretary of State Office at (916) 653-6814.