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Cooking & Restaurant Management/managing partner compensation


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.

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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