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Setting Up a Restaurant in Italy

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With Italy’s complex employment laws and fiddly bureaucracy setting up a restaurant and making it successful appears to be no easy task.

My other half was involved in the closure of a mixed bar stroke restaurant here in Milan and the business just was not making any real money.  Why?

Staffing Costs

Well, one of the main reasons was the staffing costs.  If you do everything legitimately in Italy then things appear to be very expensive.  Chefs are the highest paid and can command around €2000 to €4000 a month and more in Milan .  Then you need waiters and waitresses plus a trustworthy manager, if you are not running the place yourself.

Trustworthy managers can be hard to find, and if they start pocketing payments, then the business ends up in trouble pretty quickly, as you may imagine.  And this does happen.

The bar/restaurant my other half was involved in shutting down was open from 8 in the morning all the way through to 2am the next morning.  This meant that two groups of staff were required.  Day time and evening/nigh time staff.

Poor Design

Despite the fact that the restaurant was well patronised at lunch times, another problem was down to the number of clients which could be served at any one time – the design of the restaurant just did not allow enough people to dine to make enough money to cover costs.  Not enough covers, not enough or no profit.

I know of another person who is running a supposedly successful restaurant in Milan, but the profits are really just at a break even level.

Whilst chatting with friends, often while in restaurants, the subject of setting up an eatery that pays has come up on more than a few occaisions.  We’ve even speculated that unless you keep it family run or are part of a money laundering operation (!), then it is very difficult to make a restaurant profitable, especially here in Milan.

Poor Planning

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Another problem seems to be poor or non existent planning.

It appears as though enthusiastic mini-consortiums, often composed of small groups of investors, set themselves up in business without having prepared a business plan and costed everything out properly.  And once the business is up and running, it can be very difficult to increase menu prices without putting off many of your regular customers.

Offsetting Excessive Costs and Taxes

Aside from money laundering sources of finance, which is suspected by more than a few people, the other common alternative is to employ people without any contract or ‘in nero’ as it known here.  While this can work in the favour of profitability, it can also backfire when disgruntled employees take you to court for not having provided them with a full employment contract.  And Italian courts are renown for finding in favour of former employees, especially in these cases where the attempt to employ people illicitly is viewed as being simply a way to cut tax liability, which, in part, it is.

Other employers employ people partly on a fixed term contract and pay ‘top ups’, which are not part of the contract – another form of ‘pagamento in nero’ – untaxed payment.  This system keeps employers and employees happy generally.  It appears to be quite a common practice in Italy too.

Yet another method, a potentially dangerous one at that, which was used to keep costs down was to employ immigrant labour.  People without work permits used to be popular employees because they could be paid peanuts and could not complain.  Recent legislation has ended this system though, and if restaurateurs are found with illegal immigrant labour on their premises, then their businesses can be closed down.

One has to have a little sympathy with business owners who often find that Italian taxes eat away profits fast and credit for business is hard to come by.  Of course, credit is yet harder to come by as a result of the credit crunch.

Moral of the story:

If you want to set up a restaurant in Italy then plan very carefully and engage the services of a good consultant if finances permit, someone such as Emma Bird of How to Italy would be a good start.  Emma knows a fair bit about setting up businesses in Italy, and she has even co-authored a book on the subject: Starting a Business in Italy: How to Set Up and Run a Successful Business in the Bel Paese (Amazon.co.uk).

While expat career and entrepreneur coach Megan Fitzgerald of Career By Choice may prove useful too.  Another good strategy is to aim for the top end of the market because it is less likely to be affected by rising prices.  However this tactic will require greater initial investment and thus, potentially, greater losses if things do not go according to plan.

Otherwise rope in everyone in your family, including the dog, and pray you can get by…

Only one thing is certain though, setting up a profitable restaurant in Italy is not easy.  It can be done though.

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