STEP 1: Registering your business and forming a legal business entity with Maryland’s State Department of Assessments and Taxation (SDAT)

The first step in creating a business in Maryland is to determine which legal business structure is most relevant to your operations. When starting a restaurant, the most common legal business structures initially include limited liability companies (LLCs), sole proprietorships, and partnerships. Under an LLC, your restaurant acts as a separate legal entity while, under a sole proprietorship, you and your restaurant are the same legal entity. Partnerships are very similar to sole proprietorships with the exception of multiple individuals or parties owning the business versus just one. These basic differences lead to several advantages and disadvantages for each structure and deciding between the three ultimately depends on what you value most. Additional information can be found in our Guide: Choosing Your Legal Business Structure.

Once you have decided on a legal business structure for your restaurant, the next step is to complete the necessary registration requirements. ​You can either register online through the Maryland Business Express Website or in-person at the Maryland State Department of Assessments and Taxation (SDAT) office (address and contact information included below). For more information on how to register your business online, refer to our [Guide: Registering Through The Maryland Business Express Website].

After completing the registration, SDAT will issue its own identification number, usually beginning with a “D”, “F”, “W”, “L”, or “Z”. However, note that this identification number is NOT the same as the Federal Employer Identification Number (FEIN) soon to be described in STEP 3. The FEIN is generally the number required for opening any new business bank accounts. 

Maryland State Department of Assessments and Taxation (SDAT)
301 West Preston Street, 8th Floor
Baltimore, MD 21201
Telephone: 410-767-1184 | Outside the Baltimore Metro Area: 888-246-5941
Maryland Relay: 800-735-2258
Email: SDAT.charterhelp@maryland.gov

STEP 2: Registering a business trade name with the Maryland Department of Assessments and Taxation 

If you decide to file your restaurant as an LLC, this step is not required as you will already be establishing a separate legal entity for your restaurant. However, if you choose a sole proprietorship and want to operate your restaurant under a different name, then registering a business trade name with the Maryland Department of Assessments and Taxation is required. This process of creating a fictitious business name, also referred to as “Doing Business As” (DBA), is generally the simplest and least expensive way for a small business to legally conduct business under a different name.

For example, if Al Jones wants to open a sole proprietor burger business called “Burgers by Al Jones,” he needs to file a DBA for “Burgers by Al Jones.”  The rationale is to create an official public record for identifying what individual(s) are running the business.

For more information on how to register your trade name online, refer to our [Guide: Registering Through The Maryland Business Express Website]

STEP 3: Obtaining a Federal Employer Identification Number (FEIN) from the IRS

The FEIN is a unique nine-digit number used by the Internal Revenue Service (IRS) to identify a business operating in the United States. The IRS generally expects your business entity to be formed with the Maryland State Department of Assessments and Taxation (SDAT) before applying for a FEIN number. In other words, you will need to first register your business with SDAT as described in STEP 1 and STEP 2.

Again, note that your FEIN is different than the identification number assigned by SDAT after completing your registrations.

***Note that STEP 3 is the same task as Tax Requirement 1 in the Tax Workspace***

STEP 4: Registering your necessary tax accounts with the Comptroller of Maryland

After registering your restaurant with SDAT (STEP 1 and STEP 2) and obtaining your FEIN (STEP 3), you will need to register your necessary tax accounts with the Comptroller of Maryland.

We highly recommend registering through Maryland’s Business Express Website. In this portal, you can implement a Combined Registration Application, which registers your restaurant’s tax accounts for Sales and Use Tax, Employer Withholding Tax, Unemployment Insurance, Admissions and Amusement Tax, Tire Recycling Fee and Transient Vendor License. While you may need additional tax registrations depending on your business, this should cover the majority, if not all, the tax registrations initially required for your new restaurant.

For more information on how to do this, see our Guide: Registering Through the Maryland Business Express Website. You can also download the registration form here and fax or mail it to the below address. However, note that this registration form is far more difficult to navigate than doing it through Maryland’s Business Express Website.

Central Registration
Comptroller of Maryland Revenue Administration Center
110 Carroll Street
Annapolis, MD 21411-0001

For additional information, you can refer to each of the Comptroller’s taxpayer service offices. In all of their locations, you can obtain personal assistance for setting up tax accounts and asking questions regarding your business.

***Note that STEP 4 is the same task as Tax Requirement 2 in the Tax Workspace***

I. Staff Size (1. FTE Cost Methodology)

In general, full-service restaurants generally have labor costs between 30-35% of sales and 25-30% for limited-service restaurants. If you find that it’s costing you more, you need to find ways to cut those costs or increase sales. When determining employee count, you should leverage the Full-Time Equivalent (FTE) Cost Methodology. This involves calculating how many full-time (40 hour week) employees you have on staff by combining part-time employees to equal one full-time employee.

For example, if you have two waiters each working 20 hours a week, together they equal one FTE since one full-time shift would be 40 hours. If you have hostesses working for 8 hour shifts, you need 5 of those shifts to equal one FTE. Two part time servers, one that works two 8-hour shifts a week and the other that works three 8-hour shifts, together equal one FTE. Using FTE can help you keep track of how many employees you have, and whether you need to hire more.

When thinking of costs, remember that you need to pay each employee AT LEAST minimum wage. Determine how many FTE employees you have and use this formula:

   FTE Employees* Min Wage/hr * 40 = Base Employee Cost

If your base employee cost is under your target %, you may want to consider raising the hourly salary for more important positions as opposed to increasing your general employee count. This may help in attracting better talent (e.g. chefs) and retain good workers.

I. Staff Size (2. Relevant Job Positions)

Restaurants need certain staff to run smoothly. When first opening, some staff can play multiple roles such as hostess / manager or waiter / delivery staff. However, you definitely want to keep track of these dual roles and avoid overworking any employee.

Below are a few common restaurant job positions to fill.

• Manager
• Chefs (chief cook)
• Cooks
• Dishwashers
• Serving Staff
• Hosting Staff (seating guests, taking reservations, etc.)
• Buspersons (cleaning tables, filling water, etc.)
• Bartenders
• Delivery Personnel

Relevant positions will vary depending on your restaurant, so make sure to adjust who you hire based on your most important needs. For example, if you are opening a high-class establishment, you’ll definitely want hosting staff as well as people to bus tables. In contrast, if you are opening a quick lunch spot you likely won't need such positions. 

I. Staff Size (3. Cooks / Waiting Staff)

The two most important positions to fill are cooking and waiting staff. If you want to hire a executive chef who knows what they’re doing, it will generally cost you between $53,000-$76,000 a year. If outside of your budget, you may want to consider hiring regular cooks.

Many restaurants start with at least three cooking staff, two full-time and one part-time. One full-time cook can work during the day and the other during evenings. The part-time employee can help out during peak hours like Friday or Saturday nights. The cook who works in the mornings can begin preparing food before the restaurant even opens and the evening cook can help clean up afterwards. If you want a complex dessert menu you may also want to consider hiring a pastry chef to work part time.

The number of waiting staff you hire will depend largely on your restaurant concept and how many customers your restaurant will attract on a daily basis. Below are general guidelines for common restaurant categories.

• Diner: Low expectation for service and higher volume of customers, but low tips on average
• One waiter can handle 6-8 tables handling an average of four people (24-32 people)
• Causal: Slightly higher service standard, lower volume, tables take longer to flip, but tips are significantly more
• One waiter can handle 4-6 tables (16-24 people)
• Fine Dining: Several course meals, expectation of waiter attentiveness, high tips
• One waiter can handle 3-5 tables (12-15 people)

Obviously adjust the number of waiting staff and cooks you hire depending on your specific needs and experiences. If you find that your waiting staff are always over their head, hire a few more. If chefs are struggling to get food out in a timely manner, hire more.

IV. Employee Management (1. Defining Rules / Principles)

To ensure that no staff members get out of line, you should define rules that every individual must abide by. Think of these as the 10 commandments of your restaurant, rules that must be followed under all circumstances. The first of these rules should be “The Customer is Always Right.” Others should include things like, “Always wash your hands when using the bathroom,” or “Do not talk negatively about the restaurant in front of customers.” Do not create too many of these rules or your staff will find it overbearing. But make sure to explicitly state the rules you do have and enforce them strongly.

Also think of some defining principles that exemplify your restaurant. Make these more general and consult your staff before you finalize any. An example would be “Create a fun environment,” or “Encourage customers to come back.” These should not be strictly enforced but rather encouraged by yourself and other staff members. Decide these principles based on the type of restaurant you want to be.

IV. Employee Management (2. Providing Feedback)

Nobody will improve what they are doing unless you give them feedback on what they’re doing wrong. Feedback can be a tricky area for managers, as they don’t want to appear negative or condescending to staff. In order to avoid appearing this way, stick to the following guidelines:

• Never give feedback in public or during someone’s peak hours. Wait until the restaurant is closed or someone’s shift is over, and make sure to do it privately so the worker is not embarrassed
• For every piece of negative feedback you give, try to give something positive as well. Try to disassociate feedback as something inherently negative, so workers don’t fear getting pulled aside
• Keep feedback a regularly occurring thing, like once a week or twice a month. If you only give feedback when you have something negative to say, people will fear getting it. If it’s on a regular basis it’s just part of their schedule
• Never insult someone’s character or motives. When you do, the feedback gets personal and can trigger resentment. Always focus on actually tangible instances that you’ve observed or heard about at work. Don’t make assumptions on why they happened
• If you give negative feedback let people defend themselves. You don’t want people to feel like they’re being treated unfairly or judged based on someone else’s observations. Listen to their reasoning
• Let employees give feedback to you. If you set up feedback sessions as a two way process, you reviewing them and them reviewing you, it won’t be seen as so demeaning. Listen to what they say and make changes based on it

IV. Employee Management (3. Internal Promotions)

It’s a good idea to make various roles and titles available in your restaurant to keep employees motivated to work hard in hopes of a promotion. For every part of your staff (cooks, waiters, cleaners, etc) you should have one or more employees act as a manager. You can call these positions head chef, lead waiter, or managing hostess. At first put someone with restaurant experience in these posts to help teach new staff and set an example.

As the staff gets bigger create more mid-level management positions, so experienced staff feel like they have stake in the company and new staff have something to strive for. It would be reasonable to attach a small pay increase with a promotion. Whether or not you do, people like positions of power and feeling like they’re important.

IV. Employee Management (4. Scheduling)

Managing a master schedule of all your employees can often be a difficult task, especially if you have a lot of people working part-time. There are a lot of scheduling applications you can use. [Check out our Vendor to explore some of the options.]

When scheduling make sure that your employees have some flexibility in choosing their own hours. Obviously you’ll need them to work some specific hours and they cannot have complete say in their exact hours, but give them as much leeway as possible. This will keep them happy and satisfied with the job. If you need them to work hours they do not want to, give them some incentive such as extra compensation or free choice for their next shift.

IV. Employee Management (5. Delegating Roles)

It’s your responsibility as manager to clearly state each person’s role and make sure it’s being done properly. If you don’t delegate responsibilities, you cannot expect your staff to do them. If you need someone to perform multiple different roles you’ll have to explicitly tell them what to do.

Every now and then you’ll get a staff member who is eager to always take on new roles and fill gaps, but most of the time your staff will follow the path of least resistance, that is do the minimal work they are required to do. Unless you delegate roles to them they will not do them.

IV. Employee Management (6. Appreciating Staff)

If your staff does something well or makes it through a tough night make sure to thank them genuinely in person and make sure they know you appreciate their work. Everyone likes to be complimented. Make your staff feel like family. Know when their birthdays are and throw them celebrations. Learn about their personal life, their kids, families, etc. As a manager you will need to stay above the fray, so you can’t become best friends with any of your staff, but you can certainly be friendly and kind.

It’s nice to throw a cocktail party or event night exclusive for your staff to show your appreciation. Give your staff and their families free deals on food. Give them merchandise equipment to wear around or put on their car. When they do well give them bonuses. If you treat your staff kindly and get them on board with your restaurant they will promote your brand and get friends and family to come eat there. And a happy employee works harder.

IV. Employee Management (7. Tracking Time)

Having a time management system is a good way to keep employees honest about the amount of hours they’ve worked every week. These systems will allow employees to “clock-in” when they arrive and “clock-out” when they leave, giving you a definitive record of how much each employee worked. This can be attached to the scheduling system or done through another system.

For help in finding the right time management system, refer here.

IV. Employee Management (8. Encouraging Staff)

Working the same job day after day can drain people, and if you don’t introduce incentives and other motivations, your staff will burn out.

Below are some strategies for motivating and encouraging staff:

• Giving Compliments: Compliment your staff if they’re doing a good job. Compliment them on other things like haircuts, clothes, etc. Everyone likes a good compliment
• Daily / Weekly Competitions: Having a competition keeps the job fun and exciting. Maybe see which waiter can sell the most of a certain dish in a night, or which can sell the most drinks. Make sure the winner gets a reasonable prize, like a gift certificate to your restaurant for them and their family. Competitions keep staff working hard and can encourage a certain type of behavior
• Longevity Bonus: Give a bonus to staff who work a certain amount of time. Maybe after a year they get a bonus. This will keep staff from getting discouraged and quitting. If they are shooting for a goal they are more likely to push through hard days
• Free Meals: Give your staff and their families free meals at you restaurant. This will build goodwill and help you establish yourself a caring place that values its employees
• Staff Parties: Every now and then throw a party for your staff. It could be in your restaurant, or in a local park. It can be any type of party ranging from an afternoon picnic to a cocktail party. Decide based on the average age of your staff and whether many of them have families. Throwing parties around Holidays or for people’s birthdays will show your staff that you really care about them

IV. Employee Management (9. Creating a Team)

Perhaps one of the most successful strategies for any manager is to unite their staff as a team rather than individuals. This means encouraging kinship between employees, hopefully creating friends and people who care for each other. This can be done by throwing events and encouraging staff to interact outside of a work setting. Team building activities can also be beneficial in terms of establishing trust between various members.

At the end of the day, if your staff members get along with each other, there will likely be less staff conflict and less employee turnover.