Emerald Business Systems Blog


The Texas Two-Step to Restaurant Protection

Posted in Restaurant by ebs4pos on October 2, 2009

We all want to run our restaurants – or the restaurants we represent – with zero liability. That’s easier said than done, but there is an excellent way to keep your assets and your liabilities separate. This post will show you how many savvy restaurant owners structure their restaurants to maximize liability protection in two easy steps. I call this the Texas Two-Step to Restaurant Protection.

Step One: Put All of Your Eggs in One Basket

“Putting your eggs in one basket” means that you need to put all of your assets in an entity that will not operate the business. These assets should include any real estate owned, all equipment, all primary banking accounts, etc. There are certain assets, like inventory, that you cannot separate, but the idea is to put all of your really valuable assets into a non-operating entity. I call this entity the Asset Entity.

Step Two: Put All of Your Liabilities Into Another Basket

This next step requires the creation of a second entity, an operating entity, that is also owned individually by you. Thus, the two entities will be brother/sister entities, not parent/sibling entities. The Operating Entity will employ the wait staff, hold the liquor license (if applicable), and buy the inventories. Through a leasing or management contract, the Operating Entity will lease all of the primary assets of the restaurant from the Asset Entity, as well as the premises.

Result

When you separate the operations from the assets, you reduce your liability exposure. That way, if a claim arises that insurance does not cover, you can show that the operating entity (which may be responsible for the claim) has little or no assets, aside from the insurance, to satisfy a judgment. There are exceptions to the above strategy, so be careful if you implement it. Nonetheless, if you use this strategy and manage the operations correctly, it will go a long way toward protecting your hard earned assets.

via The Texas Two-Step to Restaurant Protection.

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