It’s common knowledge by now:
Escape rooms are hot, and they’re here to stay.
If you’re interested in starting an escape room business on your own, you’re probably wondering what kind of steps you need to take to cover your bases legally.
That’s where I come in.
This guide will walk you through the main things you need to deal with when opening an escape room business.
Let’s get started.
Protect your escape room business
First, your top priority:
Protecting your new escape room business and your own personal assets if you get sued.
When you’re running an in-person event, there are many things that could go wrong.
Any time you have a physical business location, things can go wrong.
Particularly when the following are involved:
- kids
- teenagers
- fun and games (people get wild and accidents happen)
Add to that the possibility of getting sued for infringing intellectual property, breaching contracts, not following all safety or employment regulations – any number of other things that bring you legal liability.
These are serious risks, even if you don’t intentionally do anything wrong.
If you’re doing business as a sole proprietor (that is, without any kind of separate legal entity), these risks fall upon you personally.
That’s not good.
A judgment against you could result in losing your assets, whether it’s a house, a car, or your savings.
How do we prevent this?
There’s 3 main things you need to do:
Limiting liability – form an LLC or Corporation
If your business gets sued because of something related to your escape room, you want to make sure that there is a shield.
Seriously, pay attention to this.
A limited liability company (LLC) is the simplest type of business entity for a small business like an escape room. The LLC acts as the shield to protect you from personal liability.
First, you need to form the LLC. This is done by filing some forms with your state’s Secretary of State. While it seems simple, I would recommend using an attorney to file your LLC.
In my law practice, I’ve had many clients come to me to clean up mistakes made from either filing the LLC themselves or using a service like LegalZoom.
This is especially true if you’ve got more than one owner. You want to make sure that the relationship between the owners is clear on paper and reflects each owner’s expectations.
This could mean any of the following:
- How much each of you owns
- Whether you can sell off your portion without the other owners’ permission
- Who gets to vote, and how much is needed for something to be approved
- How much time each of you needs to put into the business
- Who gets to manage the day-to-day operations of the business, versus who is a “high level” decision-maker
So not only are you protecting yourself from the outside, you’re also protecting yourself from the other owners, essentially.
Again, this is extremely important.
Don’t skip this step.
Have an airtight customer release
I said the last one was important.
This one is, too.
When customers walk through the door and want to use the escape room, they need to sign a release.
We’ve all read and signed these things – They are exhaustive lists of the things that could possibly go wrong, and they basically say that you have no rights to sue if something does go wrong.
Whether someone reads it or not (there are court cases saying this), a well-written, airtight release document signed by a customer can protect you from being sued.
Think of all the things that could go wrong!
- You’ve got adults and possibly children playing with puzzles and rushing around in your escape room.
- You’ve also got physical objects that might be heavy, sharp, or any number of other ways to injure someone
- There’s also the possibility that someone has a heart attack, injures their back, or has another injury based on a pre-existing medical condition
The best way to get around this, aside from having the LLC to protect you, is to get every customer to sign a release.
I’ll say it again – don’t skip this step!
Get the proper business insurance
One other option for protecting your business from risk is to get insurance.
In most cases, this will be optional, though for some types of businesses it is required by law (or by contract).
Insurance can cover any number of things, including:
- Customer injuries on the premises
- Damage to your property (by customers, vandals, fires, or weather, for example)
- Intellectual property claims against you (we’ll get to that next)
- Your cybersecurity and data privacy
- The officers and directors of your company, against any kind of liability for what they’ve done during the course of their job
As you can see, there are a ton of things that you can insure your escape room business against.
There are some important questions you want to ask when dealing with an insurance underwriter. You want to make sure that you fully understand the limits and the costs of the policy you’re going to be getting.
Be sure to ask:
- What kind of coverage will I have, and what else is available?
- Is this the kind of coverage that others in similar businesses get?
- Do you need to pay any claim up front, and get reimbursed by the insurance company later?
- Will the insurer handle your defense in court or settlement talks, if you get sued?
- What are the limits to the policy (both monetary and claims-wise)?
- What do you need to do in the event of a possible claim? Is there a time limit for notifying the insurer?
If you’ve got an insurance underwriter who takes the time to explain what’s going on and what you need, that’s a good thing.
Don’t rush into this – get a good recommendation from someone you trust, and have a serious discussion with the insurer.
You don’t want to miss something important, that could cost you later on.
The specific types of business insurance that an escape room will want to seek usually include the following:
- Commercial General Liability Insurance
- Commercial Property Insurance
- Possibly Director’s and Officer’s Insurance
- Possibly an Umbrella Insurance policy, which will fill in the gaps in the event of a catastrophic loss beyond the limits of the above policies
We made it!
The business is protected about as well as it possibly can be, once you’ve got your escape room business entity, your business insurance, and a well-drafted customer release.
Now what?
Let’s talk branding.
Protect your escape room brand
Your physical location and all the puzzles and decor are extremely important for any escape room.
But there’s another aspect to your business that’s just as valuable, in my opinion.
That’s your trademark.
This can be any of the following:
- Your escape room name
- Your company name
- A slogan that you use to identify your business with customers
- Your escape room logo
- Your company logo
All of those are trademarks, in that they identify your company as the source of that particular escape room experience with consumers.
I’ve written about trademark a lot on this blog, but I’ll touch upon the main points below, specifically for an escape room.
Do a proper name clearance search
Think you’ve settled on a name already?
Think again.
Before you start using any name for a business, it’s important to do a proper clearance search.
The reason for this is that if someone else is already using your name (or one that is very similar), they could come after you for trademark infringement.
That’s not something you want, obviously.
Before we get into the search process, I just want to expand on the definition of “similar” in the context of trademarks.
The main goal of trademark law is to protect the general public of consumers. They want a consumer to be able to buy a product or service, and know exactly what they’re getting and where they’re getting it from.
So if every business was allowed to call themselves McDonald’s and sell food, consumers couldn’t ever be sure they were getting what they expect (McDoubles or Big Macs, or whatever).
The same is true for escape rooms – you want a name that is unique enough that when people come to your escape room, they know that it’s yours.
Other escape rooms and other types of businesses, similarly, don’t want you using their name, either.
How similar is too similar?
Clients usually have the same misconceptions about how close they can get to another business’s trademark before it’s infringement.
So here’s my quick list:
- Treat singular and plural forms of words as if they were the same (adding an “s” to the end of a word doesn’t make it not infringing)
- “Phonetic equivalents” (sound-alikes) are still infringing, so MacDawnaldz would still be infringing on McDonald’s.
- Sticking 2 words together won’t get around a pre-existing mark that is the 2 words used separately
- Foreign language equivalents (or english equivalents if your trademark is in a foreign language) are often treated the same
The list can go on, really. Trademark clearance is more of an art than a science – where things aren’t really blatantly similar, it takes experience to decide what is and is not too similar.
When beginning a trademark clearance search, I usually recommend that a client come up with at least 5 options.
Many of these, we can “knock out” of the list with a quick search, or no search at all. Sometimes they’re just bad trademarks.
Usually, bad ones are trademarks that just aren’t distinctive of your brand. This can mean that:
- They are generic terms for the service being offered – naming your business “Escape Room”
- They are merely descriptive of the services being offered – naming your business “Escape the Room” or “Puzzle Room”
While you can certainly go with a name like that, I wouldn’t recommend it.
It doesn’t lend any distinctiveness to your brand, and customers won’t attach an particular value to going to YOUR escape room versus any other generic escape room.
A quick google or trademark office search can often knock out a lot of others.
Once we’ve narrowed the list down to a few good candidates, we will do a more comprehensive search on various search engines to see if there are any conflicts.
We do this, until we settle on the best one. This may not always be your first choice, but it will generally be the one with the least risk and the most distinctiveness from other brands.
Then what?
Register your trademarks
Next, we file a federal trademark registration.
While your rights in a trademark generally only begin when you’ve started offering that service to the public, we can file what’s called an “intent to use” application to reserve your name.
This will give you exclusive rights to use that particular escape room name throughout the US.
Once approved and registered, you will also get access to federal courts in order to sue others who are using infringing trademarks.
Additionally, having a registered trademark will allow you to use it as a shield, to protect against any escape rooms or similar businesses that want to come after you.
Having a registered trademark can also help you to go after people who registered domains hoping to trade on the goodwill from your brand name.
When you think about franchising (which we’ll get to below), a registered trademark is also a must.
What goes into a trademark registration?
First, the clearance search we did above is essential.
If we don’t make sure that the risk of a conflict is low, you may be wasting your money on filing an application. An examiner from the USPTO will certainly find the same conflicts that we found in the clearance search.
Next, we prepare the trademark application to describe your service as broadly as possible. This is because you want to claim as many rights as you possibly can, without going too far into goods and services that you don’t actually plan to offer.
- Will you be selling t-shirts? We should think about registering that.
- Will you be licensing your escape room setup, so that other companies can use your pre-made puzzles? That’s a separate thing to register, in addition to your escape room itself.
These are just a couple examples – your actual use may be broader than you think.
Once that’s all planned out, we will fill out the form and file the application.
Is this something you can do by yourself?
Technically, yes. It can be done through the USPTO’s TEAS website.
But I wouldn’t recommend it.
There are too many pitfalls in the trademarking process, which many non-lawyers just don’t know about or fail to take care of.
I can’t tell you how many of my clients have come to me because they made a mistake during filing, and needed someone to fix it. Often, this costs more than just having an attorney do it correctly in the first place.
It’s just not worth potentially losing out on rights, just to save a few hundred bucks. This is a new business that you’re going to be sinking a ton of time and money into – trademark registration is one of those things that’s worth doing right.
Think about the future: licensing and franchising
If you plan to expand your escape room brand and business in the future, you should know a little about they possibilities of franchising and licensing.
Depending on the amount of capital you have available, these offer different options for getting others in on your branding and making money from it.
Franchising is something many of you know about already, but the actual details are important.
When you’ve got a successful brand that brings in money, there are going to be others entrepreneurs who want to buy in. Often, this is done through setting up a franchise opportunity.
It’s like with McDonald’s or other restaurant chains. The main company owns the brand, but individual owners own the locations.
In exchange for use of the brand name, the business processes, and even products from a single source (McDonald’s milkshake powder or whatever they make them out of…), you typically pay an up front fee and ongoing payments to the brand owner.
When your escape room brand takes off, you can leverage this to set up franchises with individual owners in many locations.
There’s bad news, though.
Setting up a franchise operation is extremely expensive and involves a number of different (costly) elements:
- Feasibility study – franchisees are going to want to see how much money they can possibly make
- Franchise disclosure documents – getting all of the information about the risks and challenges regarding your franchise in one document
- Drafting a franchise agreement
- Registering with state and federal authorities, if necessary
All of this costs money – tens of thousands of dollars, easily, but most likely more.
So – what else can you do to expand your brand?
You can leverage your brand name (and registered trademark) with licensing. This looks a lot like franchising, in that you’re allowing another business to use your brand name in running their own business.
The big difference is that you can’t have as much control over how they operate the business, and sharing resources and other things should be limited.
A big danger in taking this way to avoid paying the heavy franchise cost is that, even if you’re calling it a license, you may in fact be running a franchise.
Beware: The authorities don’t care what you call it, they only care how it works. And if it’s working like a franchise, it’s going to be a big problem.
In many cases, a licensing deal is more appropriate for expanding your brand outside of your main business. In the context of escape rooms, there are two main things:
- Creating a board game, “home version,” toy line, or other derivative product from your main escape room brand
- Licensing out your escape room puzzles for others to use in their own business – a “done for you” escape room that’s already been tested on players
Each of these requires its own contract, which are very different from franchise agreements (and usually a lot simpler).
So, as with everything, I suggest that you discuss this with an attorney first. While I handle license agreements for clients all the time, the franchise process is quite specialized.
I would recommend finding an attorney who deals with that kind of thing specifically.
Follow local laws
In our last section, let’s take a look at the local laws that govern any business, but especially an escape room.
Ensure that you are properly licensed
Each jurisdiction has their own licensing requirements for businesses. These requirements can come on many different levels:
- Federal (for certain types of businesses, like franchises above)
- State
- County
- City
- Other municipalities
It’s important that you’ve got all the necessary licensing taken care of before you start operating your escape room business.
This licensing can be about the business itself, for tax purposes, proper construction and zoning permits, or even special licensing requirements for certain specialized industries (running a massage parlor or strip club, for instance).
Escape rooms generally don’t meet that last one, but they usually need a general business license to operate and one for paying taxes.
To find out what’s required, you should go to the website of the specific jurisdiction you’re operating in.
For example, California has a great tool, called CalGold, that allows businesses to choose their city and type of business. It then spits out a list of the various licensing requirements you need to follow. There are links to the appropriate authorities, as well (though these are often out of date and require some follow up research).
Other jurisdictions have similar sites, or have a local government office that deals with this kind of thing. Often, there is a PDF or web page that walks new businesses through the required steps.
So, check your local government’s website and look for something like “Starting a business” or similar terms to get started.
Ensure that your premises are up to code
Similar to the business licensing, it’s important that your business location meets whatever state and local health and safety codes are in place.
The California CalGold site I linked to above also includes the place to go to find more information about these regulations. In your local jurisdiction there is most likely a similar site where business owners can find out what they need to do.
In some cases, you’re required to post certain notices and posters up on the wall at the location, or be subject to an inspection.
Treat your employees correctly
Lastly, if you’re going to be hiring employees to help you run the day to day operations of your escape room business, you need to make sure they’re being treated lawfully.
This could be any number of things, like:
- Minimum wage laws
- Overtime pay
- Required time off
- Meal and rest breaks
- Workers’ Compensation insurance
And more. Getting this all together can be a bit daunting for a first-time business owner, but there are many resources out there to help.
As always, the state and local government websites often have info, and there are accountants and employment attorneys that can assist you, as well.
Conclusion – Opening an Escape Room business
Well, that’s it.
Hopefully you’ve got a better idea of what goes into starting an escape room business, from a legal and business perspective.
If you need assistance with company formation, trademark filings, and your contracts, check out my Escape Room Startup Package by contacting me here.
It’s got all the basic legal services in one package, to help you save on startup costs.
Got any other ideas about the issues involved with opening an escape room business? Leave them in the comments below!
