How to structure a Restaurant Partnership

I found it interesting that I came on to FOHBOH and searched "Operating Partner" just to find myself giving someone else advice.

Well rolls are reversed and find myself in an interesting position. In my travels, I stumbled into a concept that blew me away. Curiosity killed the cat and yet, I had to go and see what the franchise package was.

Long story short, I was connected with an investment group looking at the same market as myself. They lack the industry experience and are interested in partnering with me.

Basically, 5 store market (maybe 6 depending on locations) over a 3 to 4 year time frame.

So how would you approach this? Any experience out there that people would like to share.
I can't afford to go it alone. I be hard pressed to do a single operation.
Do I invest or profit share with an operating contract (which is what I am leaning towards).

Lastly, the market is awful. Everyone knows it. I personally would want to sit on it for 6-9 months before opening store 1.

Tags: Franchise, Partnership, ownership, profit, restaurant, sharing

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Permalink Reply by MAWorking on August 12, 2008 at 11:42am

Seems this type of subject is tough to approach.

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Permalink Reply by Nathan on August 12, 2008 at 2:16pm

I have no experience in doing formal, legal partnerships - and what you're asking is probably better for a lawyer to get involved with.

Someone that might be able to point you in the right direction is Brandon O'Dell: www.bodellconsulting.com

Regards

Nathan
Restaurant Revolution

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Permalink Reply by Tony Martinez on August 12, 2008 at 3:20pm

I am currently involved in a partnership and I have to tell you, the best way to approach this is to have a great Attorney! Make sure you have someone who is well versed in this arena and one you can trust to represent your best interest.

Secondly, be sure that whomever you're partnering up with, or may partner up, is not currently, or has a record of litigation against them. If there is a trail of disgruntled individuals that have taken up suit against the individual(s) you're looking to hook up with, it may be a trend you want to avoid.

Next, ask a lot of questions about the individual(s) capitol...let me say that again, ask a lot of questions about where the money has come from, how the money is getting to where your involved and how great of a supply is there. Don't get yourself into a situation where you're partners owe you money, trust me, it's not a good place to be.

Finally, I would say, trust your instinct. Don't make your decisions based on emotion. Get to know the individual(s) you're looking to partner with and trust your gut. We don't put enough emphasis on our instincts these days. If everything looks good but it's just too good to be true, it probably is! But, if it feels right, it can be a wonderful and rewarding experience.

I'm hope I've helped a little. I'm sure I've not revealled any great secrets, but sometimes, as I know, it's good to hear it from someone else. Best wishes in this and keep us all posted on the outcome.

Tony

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Permalink Reply by MAWorking on August 13, 2008 at 4:17am

Tony,
That helps alot. I have been in partnerships in the past (good, bad and ugly).
The question here is the difference between being an Operating Partner (no investment but earned shares over time and performance) or an Owner Operator (less investment then investor group, but still investing)

History:
2 groups looking at same market.
Group 1 has money and desire but no operational background.
Group 2 has operational background but not enough money.

Group 1&2 are introduced by the franchise group.

I guess it will ultimately come down to risk and short vs long term gains.

I am looking at it this from the stand point that this could be an opportunity to improve my finances while doing what I do. I currently fix or open concepts all over the US. What this will entail is nothing I do not do daily... a cake walk of sorts, but now... I could be doing it with long term financial opportunities.

Tough one.... I know. Kind of using FohBoh as my own personal sounding board.

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Permalink Reply by Tony Martinez on August 13, 2008 at 2:47pm

Isn't that what FohBoh is for, to be a sounding board? Gosh, I hope so!!

In either instance, Operating Partner or Owner Operator, the points I made are still valid, I think. Regardless of the route you choose to take, be certain that in the end, you're not the one getting burned.

Both are great options but it really comes down to what works best for you and you're family (assuming here). Look at your personal plan and see which one will allow you to meet your goals. It sounds to me like if this is going to be a "cake walk of sorts" for you, than the Operating Partner may be the way to proceed. If it's based on performance, than you should be able to excell and earn shares quickly.

I do wish you the best in making a decision of this magnatude. I know first hand how difficult these decisions are, but again, either way, make sure YOU are protected!

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Permalink Reply by MAWorking on August 16, 2008 at 3:42pm

Tony,
Thank you for the help. What I am struggling with right now is being the operator (salary, bonus and sharing in profit) or owner operator (salary and ownership)
It is hard to balance between the risk and the gain.

I think if the economy was better I would go with the straight line ownership. But I have to be realistic and no the risk involved in opening anything right now. We have a solid 12 months of more bad news before the market ever starts to come back.

But... that is obviously a short term view of a long term investment.

I have consulted with an attorney who handles this very scenario. She has basically laid it back to me and said "what do you want?" Then we structure the protections around it.

I also have to think about the implication of decisions today that will effect the packages I can present to attract GMs in the future. Not that that is public information, but I do want to set a standard.

I have looked at a few "chain" offerings for their managing partner options. They have modest 5% offerings, but nothing that really seems appropriate.

It would be great if this was a clear cut 50-50. It isn't and that rarely occurs.