Running a Restaurant/Restaurant Partnership
Hello Chase: I was involved in opening my first restaurant with 2 other partners. Unfortunately, days before we were ready to open the partners (husband & wife) decided to cut me out and take over the business. I took them to court and have been winning but it is still going to take time. The whole concept, business plan, menu, you name it everything was done by me. Now after just 2 years the restaurant has closed and is up for sale. I am looking to buy it with the help of an investor. I had a meeting with the investor today. He has proposed a 30/70 split. The sales of the restaurant is between $375,000 to $400,000/ year. The rent is excellent just at $2300/month.
The restaurant is selling for $150,000. My investor will buy it and I will be responsible for running it. But my concern is that just a 30% stake in the business does not even give me enough money to pay my monthly expenses, which is minimum $5000. Should I ask for a salary and if so how can it be structured? Also, I made it clear to the investor that at some point I will want to buy him out. He said I can but at market price. How can this be structured? What I will be happy with is for my monthly bills to be paid off and I am working towards buying the investor at some point. Please advice on some deals/options that I can present to the investor to meet my goals and negotiate with him. Thank you.
Nik, Thank you for the question.
I’m sorry to hear of your 1st restaurant difficulties. It seems as if you are looking to purchase the closed restaurant in the belief that you would be the deciding factor for success. Please understand that restaurants close for a variety of internal and external reasons. The 1st thing I would ask you to do is to make sure that you are not making a business decision based on the “assumption” that you are the missing piece. Landlords, neighbors, vendors and previous customer experiences can poison a location – only time/tons of money/shockingly different style can change perceptions of a poisoned location.
Now, I’m not sitting with all the information you have and I’m assuming that you are going to be purchasing the business “intact” with all the FF&E in place. Please use every legal means available to confirm that all the items you are buying are “free and clear” – not tied up as collateral for past ownership loans, debts or side deals. Is $150,000 a great deal for what you are buying – because there are spaces that are “great deals” everywhere – due to the present economy? And, who is selling - are you buying back your name and concept from the previous owners (if it is closed – you can’t say that the blue sky/goodwill is worth much) or is this price from a landlord for a “built-out” space?
A restaurant that is closed has no sales. It has a sales history. I’m sure you are confident that that space can produce what you are projecting, but what if it doesn’t – what is your plan B? And, what would it take to improve the sales (why settle for the past) maybe with an extra piece of equipment you could add a day part to the operation. Don’t be confined by the 1st deal’s thinking and don’t be suckered into planning your business off of something that closed.
As far as the deal goes – get the best deal that you can. Everybody needs to get the best deal they can and you have to define that for yourself. Most of the deals I have been involved with provide for the initial investors to get the lion’s share of the profits until they have received their initial investment amount back in full and then the profit split moves to more equitable (agreed in advance) levels. All deals should “plan the divorce before the kiss” and should include the clear path for you to move on if it is a horrible partnership (define the duties of each partner & the penalties if they are not met) or for you to purchase the “money-person’s” shares at pre-agreed upon intervals based upon (bottom line/top line ranges) – if $x then $y or if $v then $Z.
If I may it - sounds a lit’l bit like you need a job (w/benefits) – if you are the “chef” or “GM” and are filling a role that would be normally a salaried position in the restaurant then you could reasonably seek market value compensation. But, an entrepreneurial quest would have you roll the dice w/out a salary – opting for a larger share of the profits. As an incentive to perform you might convince your backer of your choice of a full-time salaried position w/ a monthly bonus plan – until there is a pattern of business established/they have been returned a substantial amount of their initial investment and you move to a higher “no salary” profit split.
Best of luck,
Make More Dough – http://amzn.to/KIc41b