From start-up to global chain: Law firm provides hospitality checklist

Box-ticking: Pitmans says businesses need to take steps to protect themselves legally when expanding

Whether you are taking your restaurant from ‘pop-up to permanent’, starting an innovative new hotel concept or planning to open a new chain of destination bars, law firm Pitmans has provided seven top tips for entrepreneurs looking to avoid any legal pitfalls.

Securing finance is usually the first hurdle for hospitality businesses looking to expand, but it is not the only one. As Daniel Jacob, a corporate partner at Pitmans, explains, ‘the step from single sites to multiple units is often about more than just replicating the original business plan’.

“As businesses grow, take on larger lease obligations and employ greater numbers of staff, it is important to understand how the business can protect itself from legal perspective,” said Jacob.

“We have found that whilst clients have benefited from using pop up restaurants at alternative venues to grow brand awareness and to generate a greater social network following, the cost, compliance issues and management time required mean that it is something to be carefully considered and to compliment a developed marketing plan."

"Taking care over the detail from day one is also important. It is hard to recover from giving away too much equity to investors, getting the lease terms wrong or finding yourself in a legal structure that does not allow the business to grow as intended or exposes it to unnecessary risk."

Pitmans, which delivers specialist legal advice across the hospitality sector, gave BigHospitality the following seven key pieces of advice for any businesses looking to grow.

1. Structure

There are many ways to structure a business and this should be considered at an early stage in the planning process.  Each structure involves different responsibilities and liabilities, as well as being treated differently for tax purposes. 

The method of extracting profits from the business will also vary depending on the structure chosen.  Whether you are considering trading as a sole trader, a limited company or a partnership you should discuss the benefits and drawbacks of each structure with specialist advisors.

2. Investment

Funding for a new business may come from various sources, whether that be your savings, bank loans or so-called ‘business angel’ private investors or venture capitalists.  Where investment is being provided by a third party, ensuring the terms governing the relationship between the entrepreneur and the investor are recorded will be key to the ongoing relationship between the parties.

It is important to ensure that a balance is kept between allowing you creative freedom to grow the business and providing the investor with some level of control over their investment.

3. Property and licences

Location and fit out are not the only issues to consider when setting up premises for a new enterprise.  You will need to negotiate leases and may need to deal with planning issues, each of which may take a significant amount of time to finalise.

Various licences may also be required, such as liquor licences and those permitting the playing of music.  All of these matters will need to be in place prior to opening and the time these will take should be factored into any launch timetable.

4. Staff

It is not uncommon for staff in the hospitality sector to be employed on a short term basis, so it is possible to obtain well trained staff relatively quickly.  You will need to gauge your requirements for such staff, together with longer term staff to fill management roles, and put in place contracts of employment. 

Employment contracts can be put together using a generic form and can therefore be relatively cheap to put in place.

5. Branding

There are several issues to consider when creating a brand for a new venture.  You will need to ensure you are not breaching the rights of third parties when designing any slogans, logos or brand names. 

It will also be important to register any brand you create to prevent the infringement of your rights by third parties and potential damage to your brand. The overwhelming use of the internet has meant that many entrepreneurs are having to come up with quirky new names to ensure they can secure web addresses and intellectual property rights.

6. Contracts
Any new business will involve dealing with a number of different parties and so robust contracts should be put in place to govern relationships with suppliers. Having agreements set out in writing will mean that any problems should be easier to resolve further down the line.

7. Future Plans
It is essential that your business planning does not end when the doors open, but that it continues as the business progresses.  This will enable you to take advantage of gaps in the market, or expansion and funding opportunities as and when they arise. 

It will also enable you to identify and combat risks to your business, whether that be from changes in legislation or rival businesses.

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