Licenses, Permits and Insurance: What Your Restaurant Needs

Get ready to jump through hoops to satisfy the government — and protect your business — before you open your doors.
restaurant-lead
A restaurant requires detailed licensing and permitting before it can open for business. (Photo: wavebreakmedia/Shutterstock)

You have your restaurant business plan written, your financing in place and a location picked out. But before you can start serving up mouthwatering house specialties to eager guests, you’ll need to dot a lot of i’s and cross a lot of t’s. Those i’s and t’s come in the form of licenses, permits and types of insurance you need (or should want).

Requirements vary from location to location, so check in with your city, municipality and/or state to make sure you don’t miss anything. The Small Business Administration (SBA) has a list of state business license offices for each state. It’s a good place to start.

Here’s a general checklist of what you might need.

Permits and licenses

resized-permits

Permits legally authorize you to do certain things necessary to run your business. Specific permits needed can depend on your city, county and state. (Photo: Tashatuvango/Shutterstock)

Employer Identification Number (EIN). This isn’t a permit or license, it’s a tax ID number given by the IRS. You’ll need one of these to operate — and to get the permits and licenses you’ll need.

Building permit. This gives you official approval to renovate your space. If you’re granted a permit it means your plans meet the local authority’s standards for land use, zoning and construction.

Health department permit. This also goes by other names, such as food service establishment permit, and is issued by the Department of Health after an inspection of your facilities. It often follows from the building permit.

Certificate of occupancy. You’ll get this after the final building inspection is complete. As with most of these permits, you can’t open without it.

Business operating license and resellers permit. The business operating license is usually granted by the municipality or the state and gives you the right to operate a business. In some locales, this license will be the same thing as your reseller’s permit (aka seller’s permit), which allows you to buy things in bulk from food preparers or suppliers tax free. In other places, you’ll put your your sales tax number (see below) on a form and use that as your reseller’s permit. Or the reseller’s permit will be a physical permit given to you by the state.

State and local tax permits. You’ll need a sales tax ID or license, an income tax withholding permit and an unemployment insurance tax permit.

Food handler’s permit. Employees can get this permit after completing a state-approved food handler’s course. In some states, just one person in the restaurant needs to have this permit, according to David Kincheloe, president of National Restaurant Consultants. In other states, everyone who handles food needs one. In many locales, the permit holder needs to be on location during all hours of operation or designate a person in charge.

Related: How to Pass a Health Inspection With Flying Colors

Sign permit. You may need one of these from your city or local government, which wants to ensure that your sign isn’t too big or bright for its tastes.

liquor-license

There are a variety of liquor licenses. Research which is best for your restaurant if you plan to serve alcohol. (Photo: rawf8/Shutterstock)

Liquor license. If you plan to serve wine, beer or alcohol, you’ll need a license. Do some research. “There are lots of different types of liquor licenses depending on what you’re doing and the municipality you’re in,” said Kincheloe.

Related: Should Your Fast Casual Restaurant Add Alcohol to the Menu?

Liquor handler’s permit. This is called different things in different states, but it’s similar to a food handler’s permit, only it’s for people who handle alcohol. It’s proof that the bartender and restaurant have gone through appropriate training on how to serve liquor safely and responsibly.

Outdoor patio permit. If you have an outdoor patio, some cities, such as Denver, require an outdoor patio permit.

Music license. You can’t just plug your iPod into a speaker and play whatever music you want. Music generally needs to be licensed for retail use. Using a music service provider will give you access to licensed music so you don’t have to worry about it.

Insurance

General liability insurance. This is essential. It protects you and your business from a variety of claims from third parties (including customers), such as claims of bodily and injury and property damage. If you’re sued, it covers the insurance company’s investigation, attorney fees and any settlements or court-ordered judgments.

Commercial property insurance. According to the SBA, this covers loss and damage of company property due to events such as fire, smoke, wind storms and vandalism. “Property” includes lost income, business interruption, buildings, computers, company papers and money.

workers-comp

Workers’ compensation will protect your restaurant in case a work-related injury occurs. (Photo: zimmytws/Shutterstock)

Workers’ compensation insurance. This is mandatory. It helps cover medical costs and lost wages for an employee who has a work-related injury or illness.

Liquor liability insurance. If you sell or serve liquor, you’ll want this insurance, which protects you in the event a patron gets intoxicated and suffers an injury or causes property damage as a result.

Related: How Generous Should Your Bartenders Be?

Employee practices liability insurance. It’s not that hard to make a HR mistake when hiring, disciplining or firing that comes back to bite you because you didn’t follow the letter of the employment law. Employee practices liability insurance can protect you in the event someone sues for something like wrongful termination, discrimination or sexual harassment. “It’s an insurance a lot of people skip. It’s a little pricey,” said Kincheloe. But, he noted, some states are very tough on violators, and if you’re in one of those states, employee practice insurance could prove to be extremely important.

Related: 6 Legal Mistakes Small Business Owners Make (and How to Avoid Them)

General umbrella insurance. This protects you when something potentially devastating to your business, such as a big lawsuit, happens and your other liability insurance policies don’t cover all the expenses.

auto-liability

Automobile liability insurance is only necessary if food delivery is in your restaurant plan. (Photo: Africa Studio/Shutterstock)

Automobile liability insurance. If your restaurant delivers, you’ll want this. It helps cover the costs if you or an employee is at fault in an accident and people are injured or property is damaged.

Credit card chargeback insurance. This protects you from credit card fraud.

Sign insurance. Yes, sign insurance. Usually your sign is not covered by generally liability or property insurance. You need a rider for that, according to Kincheloe.

How to get the right insurance

“Find somebody that is familiar with restaurants when you’re going out and getting your insurance policy,” advised Kincheloe. “Ask around. Usually the associated restaurant group within the state will have some recommendations and will have approved vendors. It’s usually a good place to start.”

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