An Example of WhyRestaurant Owners Should Incorporate

If you’ve recently started a restaurant business, congratulations. I wish you much success. However, allow me to share a cautionary tale.

A few years ago, my husband, I, and a partner bought an existing Marble Slab Creamery franchise. Now, a franchise and an independent restaurant have many key differences, but this tale will apply in either situation.

The business had been in place for several years, and seemed to have done pretty well. The owner said he was ready to move on to other things (in foresight, maybe he saw the recession coming). We settled in for a few months and figured out what we were doing.

But just ten months in, we realized we couldn’t afford to keep it running. We were bleeding money. No one wanted to pay $6 for a bowl of ice cream when the unemployment rate was so high. So we decided to cut our losses. However we:

  • Still had several years left on our retail lease
  • Owed vendors we couldn’t afford to pay
  • Had some machines and assets we could sell

And here’s where I get to my point: fortunately, we had incorporated ourselves prior to taking over the business. Otherwise, we could have been in serious hot water. Our suppliers, angry that we couldn’t pay them, could have taken our personal assets. We didn’t have much personally, but we might have lost our cars or other higher-valued items (we didn’t own a home, but had we, that could have been taken had litigation ensued).

We ended up filing bankruptcy because of the hole the business caused, but if we hadn’t incorporated, we would have suffered much more personally.

Why You Must Protect Yourself

I know that right now you see no possible way your little cupcake shop or cafe could ever fail, but you have to admit that it’s a possibility in life. So why would you go into starting a business without first protecting yourself? Consider a corporation as insurance. If you have it and don’t need it, it’s so much better than needing the protection that a corporation offers without having it.

Corporations serve as their own business entity, which means if your business is sued, your personal assets (home, cars, boats etc.) can’t be touched. If have not incorporated your business as a corporation or an LLC,  incorporate your business or form an LLC for your business today to avoid having your personal assets are at risk. It’s simply not worth it to me when it’s so easy to incorporate a small business.