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6 Key Steps to Take Before Starting a Hospitality Business

  • 20 May 2022
  • Studio Legal

Written by Alyce Evans and Jennifer Tutty, Principal

The hospitality industry can be a risky business to get into, and we take our hats off to those who take the plunge and give it a shot. Whether it be a bar, café, restaurant, nightclub, event space or other venue, it is critical to learn before you leap. More specifically, take the time to understand the risks and legal obligations associated with operating a business in the hospitality space.

To help you get started, here is a simple checklist of some of the most important issues facing hospitality operators in Victoria.

1. Get your business structure right

Before getting into business, speak to your accountant about choosing an appropriate business structure.

For example, a company structure may be more expensive to establish and tax-reporting obligations are more onerous. However, choosing a company structure, rather than operating as a sole trader or partnership, will allow you and your business partners to better protect your personal assets from creditors if something goes wrong. 

An accountant will help you to work out the best business structure for you.

2. Negotiate a fair lease

Your lease is everything! The last thing you want is to have to relocate, just when you’re gaining a reputation in a premises or location. You also need to make sure the lease will work for the purposes you need it to. Before you jump in and sign a binding head of agreement, seek legal advice on whether the terms of the lease are commercially reasonable. 

Here are some key things to look out for:

– Can you use the premises for your intended purpose? 

– Do you need to make the commencement of the lease conditional upon getting a liquor licence or the necessary planning permissions from council?

– Have you got enough time on the lease? Do you need additional lease options?

– Are you permitted to carry out planned renovation works?

– Does the landlord legally own the premises and is therefore able to grant you the lease? (You should always do a title search to confirm who is the landlord).

– Are any rent increases commercially reasonable?

– Are ‘make good’ obligations too onerous?

For more tips on signing commercial leases, check out our blog, ‘6 Key Questions to Ask Before Signing a Lease For Your Business’.

3. Understand planning, licensing and permit requirements

When checking out sites for your new venue, make sure you do your due diligence from a planning perspective. Not all sites can be used for hospitality venues! Before you sign a lease or buy a property, make sure you:

– Check the Department of Environment, Land, Water and Planning’s (DELWP) Planning Maps Online to find out what planning zones and overlays apply to the site you are considering.

– Speak to the local council or a building surveyor about your plans and whether they are possible.

– Use the Australian Business Licence and Information Service to work out what licences you will need for your business

– Speak to the Victorian Commission for Gambling and Liquor Regulation (VCGLR) about whether the site has a liquor licence with suitable conditions or whether you would need to apply for a new one.

4. Make sure you can legally use your name (and register it as a trade mark)

Choosing a name for your venue can be one of the most creative and fun tasks in setting up your business. However, there is nothing worse than being forced to change your name after launch because it infringes another business’ trade mark.

To get a preliminary idea on whether your chosen name is available to use, we recommend doing a search on IP Australia’s trade mark database and ASIC’s company and business names register to see if there are any identical or similar registrations.

However, we strongly recommend engaging a trade mark lawyer to carry out a brand check and trade mark application to secure your brand.

5. Understand your responsibilities as an employer

There has been no shortage of restaurants underpaying staff in the news lately.

Understanding employment laws with regard to hospitality workers can be difficult, even for established operators. In addition, hospitality workers often receive entitlements such as penalty rates and overtime, and if you fail to meet your obligations, you could find yourself in front of the Fair Work Ombudsman and up for significant civil penalties. 

Before hiring staff and working out what to pay them, it’s important you are across all relevant laws that apply to your business, such as the Fair Work Act, the National Employment Standards and modern awards such as the Restaurant Industry Award or the Hospitality Industry (General) Award.

Check out Fair Work’s website for more information on your employer obligations.

To learn more about modern awards, check out our blog, ‘Modern Awards Explained: A Guide for Business Owners‘.

6. Get an agreement in writing with your business partners

Going into business with other people can be exciting at the start, especially when things are new and stress-free. Whether you are operating as a partnership, company or other operating entity, we strongly recommend making time to put an agreement in place. It’s so much easier to negotiate and agree on terms when the going is good, and is an important safeguard in case things turn sour.

Key things to agree on include:

– Ownership of equity

– Entitlement to profits

– Decision making processe

– Services and responsibilities of each person

– Rules regarding sale of equity when someone wants to leave

– Default terms

– Deadlock processes

Written by Alyce Evans and Jennifer Tutty, Principal

Further Information

If you have any legal questions relating to the hospitality industry or establishing and running a hospitality business, please contact us through our online form or via email at hello@studiolegal.com.au.

Photo by Carlos Lindner on Unsplash.

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.