Biz Talk: What You Don't Know Can Hurt You

If there's one thing that can totally wipe out your capital investments and leave you with nothing but debts and frustration, it's probably the legal problems caused by negligence or violation of government regulations, both local and federal.

The food service industry has one of the most stringent requirements on public health and safety.  So before you open your own restaurant, coffee shop, bakery, or any food service business, be sure to check with your city or county health department.  If you’re planning to operate in San Leandro, visit City Hall for your business start-up requirements and the Alameda County Environmental Health Department for information on health and safety standards.

You will need all the information you can get to be able to determine how much it will cost you to comply with all government codes and regulations before you make that critical decision to open your own or buy an existing restaurant business.

Gather as much information and advice as you can from local restaurant owners, suppliers and professionals, such as accountants, who have experience dealing with food service business clients. You do not want to commit yourself and your financial resources to what could be a very costly mistake.

Before we bought out Johnny’s Cafe and Donuts for our CoffeeShop Treats* store location, I interviewed its owners about their business history — previous owners, purchase price for transfer of ownership, tenant-landlord relationship, lease agreement, current customers, sales performance, menu list, building security, other tenants, and so on. We were happy with the purchase price we negotiated because we still had some funds left for improvements.

The donut shop was in a very poor condition in terms of lighting, kitchen equipment maintenance, furniture arrangement, overall cleanliness and sanitation. But nobody was complaining, neither the customers, nor city government officials.

In fact, it had been like that for more than six years, as long as the donut shop owner could remember. So we thought we could do much better if we just cleaned up the whole place and made some minor renovations — repainting, replacement of old equipment and furniture, fixing floor cracks, repairing walls — before we resumed store operations.  

We decided to close the store for two weeks — which turned into three months due to unforeseen events and further delay in equipment delivery — to work on those renovations during the transition for a clean and fresh start. We wanted to impress our potential customers with an extreme makeover of the former donut shop.

Moreover, the previous owner’s health permit had to be renewed, so we invited the county’s designated health officer for a site inspection in order to get approval to resume store operations.

Little did we know that we were in for a big surprise, more like shock. The health inspector gave us a long list of more than 12 items we had to fix, replace and purchase, even after that ‘extreme makeover’ project.  

As she was moving around the store, it seemed like she was scrutinizing every square inch of wall, ceiling and floor space. She frequently looked at her notes and took out her testing equipment, making sure she did everything by the book and to the letter. She seemed like a new employee trying to impress her boss so she could pass her probationary period. And I am not exaggerating: she required us to replace all the wall, ceiling and floor materials "to comply with the standards.

We hired an engineering company to design our store layout and paid a premium to expedite the store plan approval by the county health department. We also hired a construction company for the store renovation project and purchased all the materials necessary for its completion.  

Then we hired another company to design and fix the hood (the oven ventilation system). Fortunately, a different county health official, an experienced one this time, was assigned to inspect our newly renovated store. He told us that he would only be very strict on two critical areas: the water heater and the hood. So we passed the site inspection this time around.

To make the long story short, we spent another $120,000 for the total project cost. Needless to say, we were already flat broke before we could even open the store.  

We still tried to proceed with the grand opening, but at that point we had already lost most of our donut shop customers to a nearby store. After maxing out our business and personal credit limits, we could no longer afford to fund our marketing and promotions efforts. We finally decided to sell the business.

I have to admit that we made a very grievous mistake of assuming that since the previous owners’ business had survived with very poor conditions, we would be much better off because we made some improvements.

Let this be a lesson to all who are planning start their own food service business. Inquire thoroughly about the rules before you play the game.  

Find out first if you can stand the pressure. If you can’t stand the heat, you have to get out of the kitchen, before it’s too late. Your business venture could either be the most rewarding or the most devastating experience of your whole career life.

*CoffeeShop Treats LLC, a bakery-café business, was sold in 2007.