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Top Risks for Restaurant Owners

Anyone who has ever owned or operated a restaurant will tell you that it is a tough business. According to the Restaurant Resource Group, the average profit margins are 2-6%. The more services offered, the lower the margin. Profit maximization involves adding to revenue, reducing expenses or both. When considering the budget, it is important to understand the critical risks facing your business and to not increase the risk, by trying to save on the costs of mitigation. Insurance is only one part of the equation.

1. Being linked to a food borne illness
Not only are the direct costs of claims (sickness and even death of customers) difficult to overcome, but the loss of reputation and stigma may not allow a restaurateur to recover. The FDA reports that 1 in 6 Americans contract food sickness each year. Food imports to the US have increased dramatically over the past 10 years. The FDA is only able to inspect 1% of shipments received. There is also very limited capacity for oversight of US producers, processors and suppliers of food. Food safety training is also a challenge in industries with high turnover rates. These issues, coupled with increased sophistication in tracking the source of these illnesses, have created greater risk.
Risk Mitigation:
Know who you are buying from. Many food illness breakouts result from unsanitary production and handling. Basic questions about operations can enable a restaurateur to know if the firm is up to date and actively engaged in safe practices. There is also the ability to find any news or reports of current or past press releases or claims.

Educate all employees on safe food handling upon hire and at least annually. Include self-inspections in your overall operational plan. These practices will protect your operation from loss as well as adverse health inspections.

2. Fire
According to the United States Fire Administration, cooking was the leading cause of non-residential fires (29%). A majority of these fires extended beyond a single room. The common hazards are open flames, cooking oils, hot equipment, electrical connections, cleaning chemicals and paper products, all of which can contribute to a flame getting out of control. Whether it’s the initial fire damage, exposure danger to employees and or customers, or the time in which it takes to make repairs and re-open; fires present a costly risk.

Risk Mitigation:
Proper fire suppression backed up by portable extinguishers makes for a solid foundation for managing fires, but scheduled routine maintenance and inspection of the suppression system, extinguishers, exhaust system and electrical equipment are also critical.

Employee training, both upon hire and annually, will ensure that your team understands both how to prevent and manage a fire situation.

3. Employment practices
Employment practice issues involve discrimination, including third party, wage and hour, wrongful termination, ADA, EEO and a host of other exposures. According to the Insurance Journal, these types of claims reportedly make up 60% of civil actions in our court system. Whether it is a third party discrimination claim or an internal wage and hour investigation, these issues present great risk and potential financial impact to your operation.

EEO complaints involve claims of discrimination base on age, race, sex, gender national origin or religion. There are also protections in place for individuals who complain of discrimination, even if the complaint was unfounded. Allegations of discrimination by patrons are "Third Party" claims. The Fair Labor Standards Act governs wage and hour issues.

Risk Mitigation:
A well-developed Employee Policy and Procedures Manual is critical. These policies, once in place, should be consistently and fairly applied. Managers and supervisors who understand the law are also critically important.

Restaurateurs should also have a written and well-communicated complaint process so that the appropriate levels in management can investigate and deal with complaints and allegations.

Lisa Foster, Frost Insurance

Source Material
United State Food and Drug Administration, US Fire Administration, a division of FEMA, National Restaurant Association