The Family Owned Restaurant

Family businesses are the bedrock of the U.S. economy. “Family owned businesses contribute 57% of the U.S. GDP, employ 63% of the U.S. workforce (FEUSA, 2011), and are responsible for 78% of all new U.S. job creation.

Business schools have entire courses dedicated to examining the dynamics of family businesses. According to Rocki-Lee DeWitt, Professor of Management at the University of Vermont’s School of Business Administration: “When family and business are ingredients in a restaurant business, be ready for some tasty treats and momentous flops. The family must ask themselves ‘What would this business look like, and how would it run, if my family wasn't involved in the business?’”

Psychologically, families tend to be driven by a deep concern for both the well-being of individual family members and the family legacy. When a family works together, normal family goals may come into conflict with the economic goals of the business.

With proper planning, many of these challenges and conflicts can be avoided. Here are four “must- haves” if you are considering owning or currently running a family-owned restaurant:

Have a Written Partnership Agreement

Many families assume they do not need to formalize their partnerships with family members. By the time they realize they need an agreement, due to a dispute, it is often too late. You must have a written agreement that should include: the division on ownership; an outline of the amount of, and stipulations for, taking salaries; and how to handle any profits or losses. Additionally, and possibly most importantly, family partnerships must have defined job roles – who is going to do what? Just as a corporation would have specific written job descriptions and job roles for executives, so should a family-run restaurant. Do not assume how the responsibilities and work load will be divided up. If you are formally registering your company as an LLC, a Corporation or a Partnership, some of these factors will impact how you structure your business.

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Have Written Standardized Procedures and Strict Internal Controls

The challenge of any family owned business is how not to run it as the family unit. Standard operating procedures (SOP’s) should be followed by all employees, whether or not they are family members. Having written manuals outlining SOP’s for all procedures in the restaurant, ensures that all employees are held to the same standard.

For example, the owners or family members should not be doing their personal grocery shopping intertwined with the restaurant’s food ordering. Furthermore, if a family member has always been great with money, you still need internal cash controls in place. Ensure that your policies and procedures are just as stringent as they would be if an outsider was doing the work, and have your cash and internal controls reviewed by your CPA.