contract help

Discussion in 'Growing and Managing a Business' started by Customized, Feb 27, 2010.

  1. Customized

    Customized
    uix_expand uix_collapse
    New Member

    Joined:
    Feb 27, 2010
    Messages:
    3
    Likes Received:
    0
    I reconnected with an old friend of mine recently and mentioned that I had some extra money I was interested in investing. He approached me recently with a business deal. We have an opportunity to open up a restaurant at a great location in a metro area. The location had been established for 3 years previously but for what ever reason they restaurant owner has gotten out of the lease and now we have the opportunity to sign a 6 month lease with the landlord to start out with. The rent is 5000 a month and for this location that isn't bad at all considering and seats about 50 people plus a back room that could be used as a lounge with a bar. My friend would be putting up 40k as well as pretty much running the business daily. His family currently owns a restaurant for several years and has received good reviews. Basically this would be a sister restaurant with the exception that we have a full bar. He has all the restaurant experience so most of the issues with starting up a restaurant would be left up to him. IE: chairs, kitchen equipment, labor etc... He also thinks dinner only would work with some type of happy hour. I would be investing 10k and helping out on the weekends as I have a 9-5 m-f job. I have the following questions:

    1. Does the liquor license pertain to property owner and not the people leasing the property? state is CA

    2. I'm trying to figure out how to draw up a contract for my 10k investment and wanted to know what would be a fair request for return on my money.

    3. Should I be included on the lease or will the contract I present to my partner be enough?
     
  2. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    Welcome to Business Advice Forum Customized and good luck with that business opportunity. I'm not in the US myself, so not familiar with CA liquor licensing laws. However, you should be able to find the information you need at the Californian Department of Alcoholic Beverage Control website. They provide contact details on their site, so it might be a good idea to email or phone them with any specific questions you have.

    It's difficult to say what would be a fair return for your money, without knowing the specifics of the actual deal. One approach you could take is to calculate how much return you could get from depositing the money in a savings account and base your requirements on that. Obviously you would hope to earn a lot more from this business deal, because the risks are higher.

    Another approach that you could take is that you get a share of the business in proportion to the share of the investment you are putting in. If everyone was paid a fair hourly rate for the time they put into the business, this could get over any issues arising from the fact that some partners are putting more in than others.

    Business partnerships often run smoothly when everything is going well in the business, but can quickly run into difficulty if the business starts going through tough times. Hence, it is important to all sign off on a written partnership agreement before you go into business. The partnership agreement should cover areas like;

    • Who is responsible for what in the business
    • Sharing profits
    • Handling losses
    • Working hours
    • Pay rates
    • What to do if one or more partners want to leave the business
    • Death of a partner
    • How decisions will be made
    • How will any conflicts be handled
    • Expansion and diversification of the business
    • Partnership meetings
    • How to deal with the eventuality that a partner gets ill.
    Good luck with everything and please post back with your thoughts.
     
  3. Customized

    Customized
    uix_expand uix_collapse
    New Member

    Joined:
    Feb 27, 2010
    Messages:
    3
    Likes Received:
    0
    thank you Fergal for your quick and detailed response.

    My question really lie's on how I should structure the return on my investment. I want 10% of the venue's profits in addition to my 10k being paid back but I'm not sure how this should be drawn out over a 5-6 month period. EX: 2k for 5 months plus 10% of venue profits if any. So the 2k would be apart of the overhead before any profit is taken then the profit after that I would take 10% of. Does this sound like a legitimate request?
     
  4. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    Would you not look for 20% of the profit, given that you are putting up 20% of the investment?

    Five months appears to be a very short period for having your investment paid back. Will the business be able to afford to pay you back 2K per month? Taking more cash out of the business, than what it can afford to pay, will not help anyone.
     
  5. Customized

    Customized
    uix_expand uix_collapse
    New Member

    Joined:
    Feb 27, 2010
    Messages:
    3
    Likes Received:
    0
    I agree, the more I thought about it I came to the same conclusion 20%. I do have to take into consideration that my partner will be running the business day to day most of the time but I will ask for 20% of profit and see what he says.

    Well I think the liquor license alone will support the overhead if indeed we are able to sell alcohol. The venue is located in good area close to a city college. Plus we plan to do a lot of fundraiser events etc... at the venue.
     
  6. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    That's why I suggested that all partners get paid a fair hourly rate for the work they put into the business. That would allow you to keep the investment and hours put in separate, hopefully making it fairer for everyone - your partners get a fair return for the hours they work and you get a fair return for the investment you put in.
     

Share This Page