Key Rules Every Restaurant Owner Must Know

You don’t have to watch Kitchen Nightmares to know that opening a restaurant can be risky. Depending on the source, between 50 and 90 percent of them fail in the first five years. What is seldom discussed, however, is why these businesses go belly-up. Probably the number one reason is the inexperience of the new owners. How do we know?

Most successful owners had their fair share of failure in the early days. Even the great Gordon Ramsay (host of Kitchen Nightmares) had to close several of his high-end eateries. Now, his establishments are hugely successful. Why? In addition to his culinary experience, Mr. Ramsay had to learn how manage costs, which is probably the single greatest advantage he has over new owners.

Starting Out

When examining the postmortem of any restaurant, the cause of death always reads: “We ran out of money.” The only way to avoid that undignified end is to keep costs under control. Payroll is often the single largest expenditure for eateries, so it is important to know what you must pay and when.

Minimum Wage

As a group, food workers are some of the lowest paid employees around. They are also a very large group, which means governments pay attention to them. As a result, both state and federal laws require that all dining establishments pay their workers a minimum wage. Failure to do so will not only result in hefty fines and penalties, it can also damage an eatery’s reputation beyond repair.


Whether they serve customers at tables or counters, tips always belong to the employee. Bosses are not allowed to collect them for their own profits or to redistribute them. In some establishments, servers may pool their tips so that everyone gets a living wage. This practice is completely voluntary and is not to be monitored or controlled by the owner.


One of the most common mistakes that new owners make is paying too much out in overtime. According to federal law, all hourly workers must be paid time and a half for every minute they work over 40 hours in a week. These costs can really add up for new eateries that are understaffed and overbooked. The good news is that they are entirely preventable. Reducing, even eliminating overtime pay can be accomplished with proper planning. To do so, you must make a work schedule each week and have selected employees who can fill in for scheduled staff members should someone call in sick.


Many restaurant owners mistakenly assume that they can get away with paying younger workers less. In many cases, these first-time employees don’t know about the minimum wage, and their bosses fail to inform them of their rights. Because they believe it is exploitative, state and federal governments do not look kindly on this common practice. To avoid fines and public embarrassment, it important to pay all of your employees fairly, despite their age.

Alien Workers

Because English proficiency is rarely a prerequisite, the food sector has always attracted a disproportionate number of undocumented workers. With that said, all restaurant owners face heavy fines if they are caught hiring ineligible workers. We should also mention that all employees, regardless of the language they speak, must be paid the minimum wage.

As simple as they may be, following these rules can help you control costs, which will give your restaurant a much better chance of success.

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