Restaurant partnership venture

[Dan101]

Hi All,

Having previously fared well as a restaurant owner, I am interested in getting back in the game, but this time on a bigger scale. To do this I will need partners, not just to invest financially but also to share the huge responsibility of running the place.

I have a great concept, business model and proven ability to deliver. I wish to hold the position of MD and want 3 or 4 Directors, all with equal investment. Where things get a little more complicated is I want a cast iron contract in place that enforces certain requirements such as each Director must work x amount of hours per week at the restaurant in the role of General Manager on minimum wage for hours worked and then will receive dividends and profit share. For this to work I need very strict regulations in place to the point where the contract will look similar to that of a what a big brand franchise contract would look like. Should a Director wish to sell his interest the incoming investor must agree to the same terms, should a Director not be performing their requirements the company can take back their shares etc.

This is a great opportunity for someone to own a restaurant business at a far smaller stake than if they were to do it alone whilst benefiting from someone with experience holding their hand along the way and other partners to share the brutal schedule. For that though I need people willing to roll their sleeves up and be very hands on.

Does anyone have any tips from a legal standpoint and which kind of Solicitor do you feel would be most apt and drawing up a partnership agreement such as this?

Many thanks in advance for any help.

Dan

 

[Mr D]

I would raise one issue. What if a director did not want to sell to an outside investor?
What if they wanted out but no one is buying externally. Not exactly the best investment - and a small group who would want to do the work too. So may not be a suitable investor wanting to buy at the right time / ever.

You are doing more than many appear to start with, an agreement. Sadly way too many start with simply all wanting the same thing and nothing in writing. Ending badly.

Commercial solicitor for that I think.

Not sure cast iron applies, but great if you can get people agreeing.

 

[Mark T Jones]

Solicitor - you want one who can demonstrate a strong specialism in the area of shareholder agreements.

Of course, negotiating good contracts is a 2-way street; anyone worth their salt in this role will have their own ideas and their own wish list. If you want people to fall in line with your ideas, you will attract flunkeys and chancers

 

[Chris Ashdown]

Why would investors want to waste their time working on the minimum wage, presumably they will have other far more profitable use of their time in their own businesses

There would be nothing to stop one leaving in selling his shares to another director and being able to out vote you and basically take over the business if it was a success

How are you going to find these punters in a high risk business and what size investment are they required to invest

 

[olivermason99]

You have to increase the cut if you really want to influence an investor.

 

[Dan101]

Many thanks for the replies everyone.

The thinking behind the needing to work x amount amount of hours and at minimum wage is to ensure we are all on the same page....working hard to reach decent yearly profits that we all get an equal cut of. Running a restaurant requires long, tough hours with a major impact on your personal life. Having others, equally invested, to share the burden to me would be worth its weight in gold. The min wage is to provide a living whilst working until the bigger hits of dividends and profit share etc. kick in, obviously also smart income tax wise.

The argument as to why would anyone invest if they can only sell to a limited selection of people I disagree with in that this is exactly the same as if you have a franchise with a big chain. McDonalds, Subway etc. have very strict rules on who you can sell on to. This is no different in my opinion.

I am looking for people to invest £25k. A fraction of what it would cost to do this alone, plus I am there to lead from experience.

 

[Mr D]

Many thanks for the replies everyone.

The thinking behind the needing to work x amount amount of hours and at minimum wage is to ensure we are all on the same page....working hard to reach decent yearly profits that we all get an equal cut of. Running a restaurant requires long, tough hours with a major impact on your personal life. Having others, equally invested, to share the burden to me would be worth its weight in gold. The min wage is to provide a living whilst working until the bigger hits of dividends and profit share etc. kick in, obviously also smart income tax wise.

The argument as to why would anyone invest if they can only sell to a limited selection of people I disagree with in that this is exactly the same as if you have a franchise with a big chain. McDonalds, Subway etc. have very strict rules on who you can sell on to. This is no different in my opinion.

I am looking for people to invest £25k. A fraction of what it would cost to do this alone, plus I am there to lead from experience.

Well good luck.
£25k for a minimum wage job is quite a bit lower than some places want.

 

[Dan101]

Well good luck.
£25k for a minimum wage job is quite a bit lower than some places want.

Haha it is the potential you are working for...min wage + potentially what would amount to more than 1k a week once the profits are shared out. My profit was more than that in a small, off track location with no alcohol licence. My thinking is the buying power with several investors means we could do things on a much bigger scale.

 

[bodgitt&scarperLTD]

Haha it is the potential

BEEP BEEP BEEP BEEP BEEP!!!

 

[Mr D]

Haha it is the potential you are working for...min wage + potentially what would amount to more than 1k a week once the profits are shared out. My profit was more than that in a small, off track location with no alcohol licence. My thinking is the buying power with several investors means we could do things on a much bigger scale.

Potential is a VERY overused word. Not always an attractive word either.

Great if the business makes a profit. As you are aware not all restaurants make a profit all the time.

 

[RobinBHM]

Jamie Oliver might be interested.

 

[Chris Ashdown]

Your experience was it not manager of a small takeaway with a few tables

Will you be on the minimum wages as well?

 

[Dan101]

Your experience was it not manager of a small takeaway with a few tables

Will you be on the minimum wages as well?

I owned, operated and then sold a hamburger diner that seated 40 people inhouse, did deliveries and private catering. I turned over around 5k per week, keeping 50/60% of that, without selling alcohol and from a reasonably hidden location. So you can appreciate my optimism in finding success again. I want to do the same simple concept again, but on a bigger scale and in a better location.

Absolutely the venture could flop. I do believe though that there are plenty of people out there with a dream to have their own restaurant but just don't have the funds or the confidence to do it alone. If it does flop wouldnt it be better to lose 25k instead of 100k?

Yes absolutely I earn minimum wage too. I want this to be as fare and as even as possible. The only reason I wish to hold MD status is because it is my concept that I need to ensure certain systems and processes are followed within. I will not receive any more renumeration than any other partner.

I know a Solicitor is the next step as obviously being voted out of the company or having the business model changed without my approval is something I I want to protect against. Franchisees or places like McDonalds are utterly powerless to make changes so it must be possible to put similar rules in place.

 

[Mr D]

I owned, operated and then sold a hamburger diner that seated 40 people inhouse, did deliveries and private catering. I turned over around 5k per week, keeping 50/60% of that, without selling alcohol and from a reasonably hidden location. So you can appreciate my optimism in finding success again. I want to do the same simple concept again, but on a bigger scale and in a better location.

Absolutely the venture could flop. I do believe though that there are plenty of people out there with a dream to have their own restaurant but just don't have the funds or the confidence to do it alone. If it does flop wouldnt it be better to lose 25k instead of 100k?

Yes absolutely I earn minimum wage too. I want this to be as fare and as even as possible. The only reason I wish to hold MD status is because it is my concept that I need to ensure certain systems and processes are followed within. I will not receive any more renumeration than any other partner.

I know a Solicitor is the next step as obviously being voted out of the company or having the business model changed without my approval is something I I want to protect against. Franchisees or places like McDonalds are utterly powerless to make changes so it must be possible to put similar rules in place.

You know MD status is jus a title unless the business is set up to give one director more responsibility?
If you want control then the investors may be that much harder to find.
Can save themselves £25k and get a job working in a restaurant for at least the same wage.

Avoid being voted out? Keep sufficient shares to prevent that. Again investors may not want you to have that. Plenty of investors also want sufficient control too.

Franchise model is not what you are aiming for. Completely different setup in terms of ownership and contract.

 

[Dan101]

You know MD status is jus a title unless the business is set up to give one director more responsibility?
If you want control then the investors may be that much harder to find.
Can save themselves £25k and get a job working in a restaurant for at least the same wage.

Avoid being voted out? Keep sufficient shares to prevent that. Again investors may not want you to have that. Plenty of investors also want sufficient control too.

Franchise model is not what you are aiming for. Completely different setup in terms of ownership and contract.

I really do appreciate the input, thank you. OK so in searching for investors I need to be transparent in conveying to potential investors that they are investing in a stake of a restaurant that I will control. They will be a part owner and will have a loud voice in business decisions, but x are the terms that I will enforce.

I feel very right about the minimum or living wage thing. I previously worked as Regional Manager for a multi country food business where I looked after partnerships with 12 different franchisee locations. All of them paid themselves minimum wage whilst working at their locations and msde their real money through dividends. This kept income tax low and on paper operational costs lower making the business more attractive to sell later on.

Food businesses are potentially very lucrative when done right. Investors here will earn a small wage whilst working and if targets hit a profit share that equates to 50k+ salary. All the while getting a decent work life balance as there are 3 or 4 other Directors on rota to run the place. I made these figures previously so why can't I multiply that at a better venue and adding in alcohol which is a huge earner I didn't have before.

 

[Martin Kennington]

It's an interesting idea - but I wonder whether someone who has £25k to invest (risk) in a restaurant is going to be the sort of person who's happy to put the hours in just for minimum wage - or even be content with a potential £50k pa salary once things get rolling.

 

[Financial-Modeller]

I'm not sure if you have considered the practical implications of your business model?

On day one, your restaurant will have 3 or 4 full-time general managers? Plus one or more chefs and waiting staff?

It would seem much more straightforward to separate your requirement for money from your requirement for staff.

Also, if you raise £100-125k, what will you spend it on?

 

[Mr D]

I really do appreciate the input, thank you. OK so in searching for investors I need to be transparent in conveying to potential investors that they are investing in a stake of a restaurant that I will control. They will be a part owner and will have a loud voice in business decisions, but x are the terms that I will enforce.

I feel very right about the minimum or living wage thing. I previously worked as Regional Manager for a multi country food business where I looked after partnerships with 12 different franchisee locations. All of them paid themselves minimum wage whilst working at their locations and msde their real money through dividends. This kept income tax low and on paper operational costs lower making the business more attractive to sell later on.

Food businesses are potentially very lucrative when done right. Investors here will earn a small wage whilst working and if targets hit a profit share that equates to 50k+ salary. All the while getting a decent work life balance as there are 3 or 4 other Directors on rota to run the place. I made these figures previously so why can't I multiply that at a better venue and adding in alcohol which is a huge earner I didn't have before.

Due diligence by the buyer when you sell should point out the wages the owners get.
So they factor in what they plan to pay.

Yes you can make money on a huge earner. Or lose it.
Have seen and used briefly a lot of restaurants over the years. Good for client meetings good for family or friends meals out.
Some open just 3 months. Plenty do not last a year.
Have seen one last 3 years, an Indian restaurant but they are in trouble now and will close in less than 2 weeks.

Just not attractive, an investment with low paid job in a risky sector that cannot replace the person controlling.
May struggle to find suitable investors with skills needed.

 

[Mark T Jones]

Absolutely the venture could flop. I do believe though that there are plenty of people out there with a dream to have their own restaurant but just don't have the funds or the confidence to do it alone. If it does flop wouldnt it be better to lose 25k instead of 100k?



.

Sadly, you are absolutely correct on these points. The key question here is are you looking for people who are likely to flop, or people who have a high chance of succeeding.

Your offer, a presented here will be most attractive to the former.

 

[The Byre]

To the OP - your business model is totally unworkable! Sorry, but that's the way it is! If you want to open a burger joint and it will cost you £100k, I suggest you get £100k and employ staff.

You just will not get four people to fund YOUR ambition!

Instead of trying to reach the brass ring, boot-strap the whole thing and do it cheaply. For example, you can place an order for £50k with Nisbets, or you can approach a catering repair guy and ask him to keep an eye out for good used stuff that will last a year or two until the business can pay for newer equipment and fittings. If you wait and collect the right stuff over a year or so, you will get there!

If you can't wait for those near-give-away bargains, eBay is full of used catering stuff and if you do the pick-up-only bids, dirt cheap! I picked up four lights that each cost over £1k new and sell used for £250 - they were pick-up only and so nobody else bid. I got them for £2.30 for all four! I will only need them in a year or so, but so what! Meticulous preparation can save thousands and thousands of pounds!

You can buy a 2.6m double-bowl catering sink for as little as £100 if you pick it up yourself - or you can spend £800 with Nisbets. The same applies right across the whole kit-out - chairs, tables, lights, whatever.

Any fool can spend £100k fitting out a burger joint, now use your noggin and do it for under £20k!

 

[Opinion87]

Five General Managers in a small business like that is never going to work. The control and influence you want won't work. You want people to invest money for them to have a job, you as their boss for all intents and purposes.

I'm shuddering even thinking about how you'd write a shareholders agreement that everyone agrees on.

 

[Dan101]

To the OP - your business model is totally unworkable! Sorry, but that's the way it is! If you want to open a burger joint and it will cost you £100k, I suggest you get £100k and employ staff.

You just will not get four people to fund YOUR ambition!

Instead of trying to reach the brass ring, boot-strap the whole thing and do it cheaply. For example, you can place an order for £50k with Nisbets, or you can approach a catering repair guy and ask him to keep an eye out for good used stuff that will last a year or two until the business can pay for newer equipment and fittings. If you wait and collect the right stuff over a year or so, you will get there!

If you can't wait for those near-give-away bargains, eBay is full of used catering stuff and if you do the pick-up-only bids, dirt cheap! I picked up four lights that each cost over £1k new and sell used for £250 - they were pick-up only and so nobody else bid. I got them for £2.30 for all four! I will only need them in a year or so, but so what! Meticulous preparation can save thousands and thousands of pounds!

You can buy a 2.6m double-bowl catering sink for as little as £100 if you pick it up yourself - or you can spend £800 with Nisbets. The same applies right across the whole kit-out - chairs, tables, lights, whatever.

Any fool can spend £100k fitting out a burger joint, now use your noggin and do it for under £20k!

You are preaching to the converted my friend. This is exactly what I did last time. I was in no way planning to spend 100k on fit out. I want to open in a more central location, with better decor and to create more of a branded business. That 100k is for fit out, solicitors, lease deposit and up front rent, advertising and to cover operational costs until we are established and paying the bills through revenue.

It seems I am viewing this differently to everyone else. I genuinely want to create a viable business run by a group of people that I intend will become friends as well as partners. 4 or 5 people wanting to work hard and work together with the goal of creating something profitable that we all get a cut from. I think there are lots of people willing to work hard for a good annual income that they are invested in.

The systems and processes in place ensure that everything is done consistently. Once these are in place it will never be a case of too many Chiefs because much like McDonalds these systems and processes are bigger than the individual.

 

[Mr D]

You are preaching to the converted my friend. This is exactly what I did last time. I was in no way planning to spend 100k on fit out. I want to open in a more central location, with better decor and to create more of a branded business. That 100k is for fit out, solicitors, lease deposit and up front rent, advertising and to cover operational costs until we are established and paying the bills through revenue.

It seems I am viewing this differently to everyone else. I genuinely want to create a viable business run by a group of people that I intend will become friends as well as partners. 4 or 5 people wanting to work hard and work together with the goal of creating something profitable that we all get a cut from. I think there are lots of people willing to work hard for a good annual income that they are invested in.

The systems and processes in place ensure that everything is done consistently. Once these are in place it will never be a case of too many Chiefs because much like McDonalds these systems and processes are bigger than the individual.

Just thinking that 4 or 5 people each working full time and each in charge is a heck of a lot of chiefs for a business - especially as you'll need experienced people in those roles.
Whats a restaurant open these days - 50 hours a week? 60? And you'd have 160 to 200 staff hours of bosses to filter into that.

 

[Dan101]

Five General Managers in a small business like that is never going to work. The control and influence you want won't work. You want people to invest money for them to have a job, you as their boss for all intents and purposes.

I'm shuddering even thinking about how you'd write a shareholders agreement that everyone agrees on.

Why won't that work? We aren't all there at the same time. We are all Duty Managers, running the shift we work. Set systems and processes dictate exactly what needs to be done, with the Manager there to ensure it all happens. For bigger picture stuff the Directors meet to make decisions and actions together.

If somebody doesn't want to sign that shareholder agreement then best of luck to them the venture is not for them. I will wait to find the next person.

I am yet to iron all the finer poits out and will take legal advice to do that. The gist of it though is as I have listed.

 

[Chris Ashdown]

I don't understand your referral to McDonalds, My understanding is they are franchise operations any individual can apply to buy if they have the cash and run a location

How they run it is up to them and the franchise contract operations manual, but i would think most are actually managed by paid staff with the owner as the only director and shareholder or maybe some other silent partners

 

[Financial-Modeller]

Why won't that work? We aren't all there at the same time. We are all Duty Managers, running the shift we work.

So you don't want people to invest and work for you full-time, you want people to invest and work for you part-time.

If somebody doesn't want to sign that shareholder agreement then best of luck to them the venture is not for them. I will wait to find the next person.

Yeah, send them away and make them join the back of the long queue of investors when they realise the opportunity that they have missed out on!

 

[RobinBHM]

I genuinely want to create a viable business run by a group of people that I intend will become friends as well as partners. 4 or 5 people wanting to work hard and work together

I like your idea and can see your belief in a group of people all having a financial investment in the business.

Sadly I think its a recipe for disaster. They might be friend to start, but business brings out the worst of human nature and it will end up with office politics. The chances are you will get somebody that is lazy, somebody that gets depression and is off sick all the time, you will one person who thinks they are worth more, you might get one person that is an empire builder, or a troublemaker.

 

[Opinion87]

Why won't that work? We aren't all there at the same time. We are all Duty Managers, running the shift we work. Set systems and processes dictate exactly what needs to be done, with the Manager there to ensure it all happens. For bigger picture stuff the Directors meet to make decisions and actions together.

First off, you've got 5 people working part time in the restaurant working for NMW as Duty Managers but...

Who handles the accounts, finance and forecasting etc?
Who handles the marketing, advertising, social media etc?
Who handles the legal aspect, licences, Health & Safety etc?

You're basically asking people that are probably hugely skilled and experienced in certain areas to work 20 hours a week on a restaurant floor in a role that a 21 year old with no GCSE's and a few years experience can do, following a Best Practice manual made by you, earning a token wage on the premise that of its successful they'll earn £1k per week- but who does all the other work?

 

[Mark T Jones]

I'm not sure to what extent you are being naive and to what extent plain arrogant, but the notion that you can get people of any intelligence at all to invest, while falling into line with your conditions is plain ridiculous.

 

[Dan101]

I will manage all business administration until such time that everyone is trained to even levels and we can divide responsibility amongst the BOD.

Over the past few years I have met numerous professional types who have told me their dream is to own and operate a restaurant but have told me they either can't afford to do it or wouldn't know where to start. These people have been teachers, nurses, owners of different businesses. I came from an IT management background but was more than happy to roll my sleeves up and work the grill for days at a time whilst running the business. Am I the only person willing to do this? I would think not.

The biggest concern I am in agreement is working out what the terms would be if someone wanted to exit or if the rest of us want someone to exit. I am not quite there yet and need professional advice to work that part out for sure. Perhaps it will be a contract lock in for x amount of time or until the business has hit certain targets in which case you can sell your share (with a ROI) back to the business or to an outsider who has passed our due dil and approval. When I sold my business I needed my landlords approval for the incoming tenant. They really put the guy through in terms of screening.

Other than this though we are on very different pages with regards to this as an opportunity. People get to be a part owner in a restaurant business that they dont have to work 80 hour weeks in, have a big brother in me to ensure everything operationally is done and 3 or 4 other partners to support them. The buying power we have collaborating means we can afford to be in a very central location. I'm not sure how much you gentleman earn, but earning 1k (or more) per week for a 20 hour week is in many peoples opinion nothing to sneeze at.

Super successful and accomplished business people won't be interested. This is an opportunity for working class people that have to work hard for anything they get and need to start small....like me. All going well we will open additional locations and all of us Directors will move into more of a business owner and area manager role as employees handle the day to day running of each store. In my opinion and experience it is essential initially to be there running things yourself until the business is established and running smoothly. Absolutely there will be a 1, 3 and 5 year business plan in place. But initially I do need people willing to do what I will be doing....grafting and swallowing a fair amount of crap. I will be taking more on at no additional money than everyone else.

The constant references to McDonalds and other big brands is because their success is built on systems and processes that are more important than any individual. I have worked as a GM at a global branded restaurant, a Regional Manager at a multi country food brand and of course been an owner operator myself. If a franchisee doesn't play by the rules you know they are eventually kicked out of the business and lose a lot of money right. Why can't there be similar penalties here. These are people who could have invested 500k+.

 

[Dan101]

I'm not sure to what extent you are being naive and to what extent plain arrogant, but the notion that you can get people of any intelligence at all to invest, while falling into line with your conditions is plain ridiculous.

Please watch the based on a true story film The Founder, that's how.

 

[Financial-Modeller]

It seems I am viewing this differently to everyone else.

Yes.

Over the past few years I have met numerous professional types who have told me their dream is to own and operate a restaurant but have told me they either can't afford to do it or wouldn't know where to start. These people have been teachers, nurses, owners of different businesses.

But teachers and nurses are teachers and nurses and probably don't want to spend 20 hours a week waiting tables / being a general manager in a burger restaurant.

...but earning 1k (or more) per week for a 20 hour week is in many peoples opinion nothing to sneeze at...

Actually its more than that if you're planning to pay them minimum wage for 20 hours per week, then pay them £50k pa dividends.

...I have worked as a GM at a global branded restaurant, a Regional Manager at a multi country food brand and of course been an owner operator myself. If a franchisee doesn't play by the rules you know they are eventually kicked out of the business and lose a lot of money right. Why can't there be similar penalties here. These are people who could have invested 500k+.

But if your business plan is sufficient that you will be able to pay £250k dividends from first year net profits from a single high street site, why surround yourself with unqualified 'partners' who will cost you a wage, and potentially deliver very little value?

As I asked in my first post, why not ask for the investment that you need from an investor, and pay staff to do the work?

 

[Chris Ashdown]

No profit no dividends no £1000 per month but still get to do the 20 hours

Quite a few McDonalds and Beefburgers have gone bust with all the assistance of the franchisor as well as many high street restaurants

 

[MOIC]

I don’t think the general idea behind the concept is bad.

However, I doubt 100k will be sufficient for the first year set-up and covering all costs. What if more funds are required?

Finding 4 like minded business people should also not be hard (if it’s only 25k that is required), as long as EVERYTHING is planned, agreed and there is an exit plan which can be easily accommodated. That’s the difficult part which I am pessimistic on.

Like any plan/idea, the devil will be in the detail and the agreement needed to entice investors needs to be worked on to make it easy to understand, implement and with a clear and uncomplicated exit strategy.

Also, there has to be provision for a further round of investment, if this is required in the future.

There are many hurdles involved.

A competent solicitor drawing up contracts, may well take a large chunk of that initial 100k.

I wish you luck with your project, your experience suggests you have the skills required to run a successful food business. Owning the whole shebang with working investors on board, will have challenges you have not yet experienced.

 

[Dan101]

Thanks so much everyone for all the input. I am going to use this Christmas dead period to really iron out the issue points and then in January have a consultation with a Solicitor.

My reluctance to borrow the money and do it all alone is because in my experience last time and whilst in management positions for other companies is finding reliable staff who output the level of quality that I do felt at times impossible. It is incredibly stressful and such a drain on your personal life having to work 80+ hour weeks (that's just onsite) with every issue falling to you. Having some backup of in invested partners to share the responsibility is what I seek.

 

[Mr D]

Thanks so much everyone for all the input. I am going to use this Christmas dead period to really iron out the issue points and then in January have a consultation with a Solicitor.

My reluctance to borrow the money and do it all alone is because in my experience last time and whilst in management positions for other companies is finding reliable staff who output the level of quality that I do felt at times impossible. It is incredibly stressful and such a drain on your personal life having to work 80+ hour weeks (that's just onsite) with every issue falling to you. Having some backup of in invested partners to share the responsibility is what I seek.

You want investors that also have the required skills. Which is a much smaller group than either investors or those with the necessary skills.

 

[The Byre]

That's why one adds a profit-share to staff wages.

 

[Chris Ashdown]

What you really need is a good manager who can share the work with you so you don't need to do 80 hours on the front line, and that good manager can have a assistant manager for when he is on holiday or sick, which is why most companies are run on a pyramid structure over a certain size

 

[Mr D]

That's why one adds a profit-share to staff wages.

Or even profit share to key personnel.

Maybe, as business grows, provide shares to senior staff.

Tons of ways of keeping staff. Pay is just one aspect.

 

[Martin Kennington]

This is an opportunity for working class people that have to work hard for anything they get

I think this is where some people (myself included) are having trouble seeing this as a viable plan. You want 'working class' people (eg nurses, teachers, as you say) to join you, and I dare say they might be up for working at minimum wage, taking a gamble at potentially earning some dividends.

But you also need said people to be willing to invest £25k and ideally have enough business and management acumen to act as managers of the restaurant. These are two very different types of people.

I don't know any nurses or teachers who would risk their life savings (if they're even lucky enough to have £25k spare...) and add to their significant workload already with another 20 hours working in a restaurant.