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# Some tips on what not to do in the restaurant business
- URL: https://www.smdp.com/some-tips-on-what-not-to-do-in-the-restaurant-business/
- Published: 2003-06-09T15:00:00.000Z
- Updated: 2026-10-25T00:13:24.000Z
- Author: David Pisarra
- Tags: Business, Santa Monica, #archive-import

A restaurant can go under for any number of reasons — bad food, bad service, bad location, fighting partners, employee embezzlement, but probably what kills more restaurants than any other cause is the lack of cash.

Underfunding will result in the chef cutting corners on quality, the staff feeling insecure, the purchasing manager buying second rate goods, the bar manager not providing the selection of wines and spirits that the market requires. Lack of advertising leads to low turn rates on the tables which leads to second rate staff due to low tips which leads to a bad reputation for quality and service which leads to lower turn rates... soon the business is dead.

So what do people do to get around the perpetual cash flow problem? What most people do is they start using their sales tax and their withheld payroll monies as an interest free loan from the government. They figure that they can use the monies that they collect for the Board of Equalization and the IRS for a short-term loan, since they are not required to be deposited immediately.

This is the absolute most dangerous thing that can be done in any business. Under no circumstances should the sales or payroll tax be collected and used as an interest free loan.

The minute that any business begins to use the collected sales taxes for day to day operating expenses, they are getting into trouble. The fact of the matter is that every business person who begins to use taxes will swear on a stack of bibles that by the time they are due to be paid, the business will have made enough money to pay them back. This is where the trouble starts, soon the owner is robbing Peter to pay Paul, all of which is fine until, Peter meets Paul.

Aside from the mental anguish it causes, the truth is that a business person who collects sales tax, or payroll taxes is really a trustee for the government. They have a fiduciary duty to hold and then transfer those funds to the government when they are due. This is why failure to remit the funds to the government makes this a non-dischargeable event in bankruptcy.

Choose the right partner The choice in partners is an age old problem dating all the way back to dawn of time. One theory is that you should work with someone you can trust with your life since after all they will be representing you when you are not around. The other theory is that you should be partners with your most bitter enemy and get the wait over.

The fact of the matter is that most people in the restaurant business are going to be good partners so long as things are running smoothly. Then the first day begins.

When picking a partner the things to look at are: ■Ego, yours and theirs ■How do each of you handle a crisis? ■Are you team players? ■Why do you want each other? ■Who has more to lose? ■What are each of your duties going to be? ■What are each of your strengths? This process requires both parties to very objectively look at the reasons they are going into business together.

More important than the lease, the staffing, the concept and the food is the relationship between the partners. It will carry through the entire organization and staff, and customers will pick up when there are problems and it will effect the quality of food and service.

Before the partners set up a business they should sit down with a list of what they each see as their roles and see if there is overlap. Sometimes overlap is a good thing, both people should be gregarious. However, if both people want to work the floor, someone has to take of the back of the house (kitchen, pantry, bakery and office functions), which is where the food comes from.

Alternatively, if both want to work the back of the house, someone needs to be on the floor to deal with the customers and the staff.

A primary rule that is frequently ignored because no one ever thinks it will happen to them is that the banking be done by countersigned checks. No matter what pair are running a business, the checks over a certain dollar limit should always be countersigned.

This goes for everyone, including married couples, best friends since diapers and old war buddies who saved each others lives.

More good businesses have gone under due to one partner taking the money and leaving town than I care to remember.

Never let the bookkeeper sign the checks. This cannot be said often enough or loud enough. The bookkeeper can sign your signature better than you can. The need for controls with the books is paramount.

One restaurant, which shall remain nameless, had a bookkeeper who stole more than $20,000 because the owner trusted them. Granted they were best friends for years, had been through loves, deaths, kids, sicknesses, life. They used to play cards together every other week and lived just blocks apart.

When the theft was finally discovered and the bookkeeper was confronted, she said she couldn’t help herself. She did not even need the money, she just did it because she could.

This scenario has played itself out time and time again. One company, which was a court appointed property management firm, had a controller who stole $50,000, His reason was the same, he did it because he could get away with it. Or so he thought, in the meantime the paying back of the stolen funds will take years, but the stealing of it took only months. (David Pisarra is a partner in the Santa Monica law firm of Pisarra & Grist. He (310) 664-9969 or by e-mail at)

*Originally published in the Santa Monica Daily Press print edition on June 9, 2003.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/060903.pdf?ref=smdp.com)