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Thread: Partnership advice

  1. #1
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    Smile Partnership advice

    Hi all,

    Im new to this forum .

    I would just like everyone's opinion and advice regarding a recent business offer i received

    I have been in contact with a business duo who would like to open a restaurant with me.

    They actually already have the restaurant.

    They have no hospitality experience at all as their other businesses are three 7 eleven stores.

    So they want me to run the whole restaurant for them. Including hiring staff, stock order,menu,opening and closing and hours that include breakfast shift till late night 7 days a week as the head chef.

    They have offered me 20% of the business and a wage. They will not be involved with the running of the business

    I would like to mention that i am a qualified chef with 15 yr exp and i have helped 4 different restaurants open up.

    My question is how much do you all think i should be asking for per hour? (I was thinking $30ph)

    Also what conditions should i be putting in my partnership agreement with them?

    And is there anything else i should be thinking about before going into something like this.

    I am currently working as a chef and i would have to leave a secure job for this oppertunity so i want to be sure before i begin.

  2. #2
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    Generally, it's difficult at best to have an idea of an appropriate profit-share percentage without seeing much more of the underlying details. That said, though, 20% seems light. The only thing they're bringing to the party is the location and facilities. Everything else is on you:

    They have no hospitality experience at all as their other businesses are three 7 eleven stores.
    So they want me to run the whole restaurant for them. Including hiring staff, stock order,menu,opening and closing and hours that include breakfast shift till late night 7 days a week as the head chef.....They will not be involved with the running of the business
    So what is their contribution worth? Are they providing an expensive facility in an excellent location, with a themed, first-class decor that practically guarantees high traffic? Or an out-of-the-way joint that'll saddle you with a mighty battle to make a go of it?

    Hence, first point: No way to effectively establish appropriate profit-split percentages until you've evaluated the entire fact-set of this particular situation. But again, from the brief sketch you've outlined, 20% does seem underweight considering what you're bringing to the deal. (And the fact that you've helped four other restaurants to come out of the starting gate should count for quite a bit!)

    Second point: Until you've made a fair attempt at projecting the likely profitability (or a reasonable range thereof), the 20% offer (or any other %) tells you nothing. 20% of 30K a year is one thing; 20% of 700K a year is a whole other story. Projecting profit is usually a difficult exercise, and it's highly unlikely that your crystal ball will prove--in hindsight--to have been laser-accurate, but nevertheless it's an exercise you must slog through. A lot of other important business decisions will emanate from this planning exercise.

    Before you and your proposed partners have put in some time developing a reasonable set of forecasts, plans, budgets, etc., it's premature to be discussing percentages. After reviewing the plans and projections, it should then be clearer to all the parties the extent to which the anticipated success of the restaurant depends on the individual inputs: your experience and expertise, your talent at hiring good labor, their location and facilities, and so on. Then you're all in a better position to negotiate percentages.

    A third point segues from the prior one. A big part of your go / no-go decision has to do with your opportunity cost; in this case your opp'y cost is the secure job you'd be leaving (as well as a host of other possible opportunities you might have, given your extensive experience). But you can't begin to compare this proposed partnership against your secure job until you've developed some business plans (budgets, projections) on paper. Again, would you be chucking your current job for 20% of $X, or for 20% of $Y?

    Best of success with the project, Chef!

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    Well I think with your experience as a Chef, You have the right to demand on your rate. This is a very tough decision on you. Good Luck.

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  6. #4
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    Hi,

    Thank you for your response. I will take everything you said on board and i agree with you about the percentage. I think i have to have a talk with my solicitor before i go ahead as i have received a phone call from one of the partners today saying he is not happy to give me 20% because he thinks its too much. to be honest my gut feeling is telling me that even though this seems like a good oppertunity on paper, these guys dont know what they are doing and are all over the place.I think i will just stick with my current job until i am financially able to open my own restaurant as solo owner.Thanks again for taking the time to respond to my question guys : )

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    I'm pro-business and pro-entrepreneurship in general, but this one's throwing off vibes which suggest approaching carefully with eyes wide open (or even staying on the sidelines and weighing your options a bit longer, as you mention).

    Looking at it from a reverse-angle view, is it worth it to you to give up 80% of the profits in exchange for having a facility to work from (which seems to be all that the other party is providing)? Figure out the cost of the building, the furnishings, and the equipment. Then make a rough estimate as to what 80% of the restaurant's profits might be. Compare the two, and see what that building is really costing you under their proposed arrangement.

    You might find that you could obtain comparable facilities on your own, whereby the rent / mortgage payment thereof is something less than 80% of the total profits of your solo-owned operation.

    If on the other hand you decide to pursue this particular deal, make sure you (and your attorney) have provisions written into the partnership agreement protecting you from being ousted unfairly, or at least without fair compensation for your share of the value. You don't want to invest hundreds of hours of your time to build up a successful restaurant from scratch, only to find yourself booted as soon as your majority partners feel they can "take it from here".

    Two things you'd want in particular in the agreement:
    1. In the event you are ousted, the partnership is to be valued based on upon an independent appraisal of the operation's cash flow value; none of that "book value" nonsense. Further, you get your 20% of that value as your exit settlement reasonably quickly, and with at least a large chunk of it in cash. To the extent that you take an IOU for some portion of the exit settlement, you either continue to earn some % of the operation's profits, or a reasonable interest rate on the IOU, or you take a security interest in some assets (or some combo of the three) until the IOU is fully paid out. That way, you'll at least be paid for your share of the value you've created.
    2. If you are ousted without cause, all noncompete covenants are waived. You are free to open a competing operation without restrictions, geographic or otherwise.


    Again, best of success, whichever way your planning takes you.

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  9. #6
    Senior Member Mark T's Avatar
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    Thanks for the insight, ArcSine. The situation like this seems to be quite a tough thing to decide into. Well, handling a restaurant isn't that easy - and will almost all the responsibilities relayed to you.

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    Hi,

    Thank you for your help and i will think about all you have adviced. Highly appreciated : )

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    ArcSine's advice is very good. I would just add that partnerships are very delicate arrangements and that if you have any unsettled concerns going into the arrangement, you should listen to your feelings. Even good, strong partnerships have to weather some very tough storms. If you go into a partnership with misgivings before you even start, surviving those storms will be a miracle.

    That is not to say that your concerns cannot be addressed. Perhaps they can. If so, you need to make sure all that is done BEFORE you commit by quitting your current job. Don't leave any key details for later.

    I will say that if you have concerns about the business acumen of your partners, that is probably a bad omen, particularly if they have voting control and can make decisions that you have to live with. I'd be very cautious about proceeding under the circumstances.




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