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Cooking & Restaurant Management/managing partner compensation

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Question
A friend and I want to start a bakery cafe.  He has the money to invest and I do the work of setting up and then running the cafe.  

My friend suggested that after expenses (including my salary), all profits should accrue to him, until the point where the profits he has received equal half of his investment; from that point on, I start sharing in the profits.  This leads me to ask about how to assign a value to my work in putting together the business and how I should be compensated for said work.

Is there a customary percentage by which the ownership is split between two partners in this situation?  Of course, I would like to think that, since I am doing the work of setting up, I should have a larger portion of the company than the partner providing the money.  But I have no previous experience, so am interested to know if customary practice would provide a basis for my feelings.  

Please let me know what you think, as I shall soon be meeting with the prospective partner about this matter.  Thank you.

Answer
Is he putting up the total financial investment?
What return is he wanting on his investment?
How soon does he want the principle paid back?

Normally you treat the investment as you would any other debt/loan. You pay on it monthly like any other debt service - but certainly not all of the profits, all the time. There will need to be reserves held for expenses and contingencies but you should simply create a payback schedule and stick to it. Perhaps up to 50% of profits can go to debt service for the first year then decrease afterwards until you have the principle paid back. Then it's a question of his return over time. Make sure you pay yourself a market salary too.

Debt service is usually carried for at least a year or until you can refinance the business through a conventional business loan and pay back any outstanding investors principle.  

Cooking & Restaurant Management

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Jeffrey Summers

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I am the Founder & Owner of Summers Hospitality Group. We have over 300 years of successful experience in operating and consulting with chain, franchise and independent restaurant & hotel operators around the world. Check us out on the web for more information at http://SummersHospitality.Group or call us toll free at 888-998-8744.

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We have experience on any topic related to the restaurant & hospitality industry - from Menu R&D, Menu Engineering, Marketing Strategies, New Store Openings, P&L Analysis, Lease Negotiations, Staffing, Policies & Procedures, Building & Design, Site Location, Branding, PR & Promotions, Multi-Unit Development, and any other area effecting the operation of your business.

Organizations
The National Restaurant Association. The Society of Hospitality Management. The Gerson Lehrman Leisure & Lodging Council The Professional Business Coaches Alliance The International Council on Hotel, Restaurant and Institutional Education Several state restaurant & hotel associations.

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My articles and opinion pieces have been featured on several industry websites, magazines, blogs and forums including: The Wall Street Journal, USA Today, RestaurantOwner.com, RestaurantEdge.com, FoodService.com, RestaurantReport.com, Restaurant Startup & Growth Magazine, Money Mgazine, American Express' Briefing Newsletter, Nation's Restaurant News, 22 State Restaurant Association Magazines, and much more.

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I hold degrees in Economics, English, Culinary Arts and industry certifications in Hospitality Management and Restaurant & Catering Management.

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Here's a list of some of the brands we have worked with: Hardee's Super X Drug Stores Connie's Pizza Burger King Chili's Long John Silver's The Purple Sage Bistro Applebee's Shoney's T.G.I. Friday's Century 21 House of Realty La Dolce Vita Pastries & Catering Wal Mart 5 Seasons Sports Clubs Wendy's Bennigan's Riverside Publishing Godfather's Pizza Ovations Dining & Entertainment Romaine's Stew's Microbrewery & Eatery Xerox Food Service Double D's Sourdough Pizza and literally hundreds of other Independent Operations.

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