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Old 04-13-2011, 06:38 PM
 
5 posts, read 15,340 times
Reputation: 11

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Greetings!

First of all, let me start off by saying I stumbled upon these forums today and spent a good majority of my day checking them out, especially this business section. So, you can call me a newbie or whatever you'd like. I'm okay with it.

I'm deciding to post this thread b/c a lot of you seem really smart and I've been wrangling with some ideas/proposals in my head for a while. Here goes:

The owner of a restaurant I'm the GM of said I would be able to buy in to the restaurant one day. We have not yet held further discussions, but I'm excited nonetheless. My question to you is if I bought in for 10% would that number be based on annual gross sales? Or does it require an appraisal?

Also, if I bought in for 10% would I get 10% of profits after all payroll, food/bev costs/rent and other misc. expenses?

Clearly, I'm in over my head at this point. Any advice would be greatly appreciated.
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Old 04-13-2011, 10:14 PM
 
28,900 posts, read 49,189,534 times
Reputation: 46323
ALWAYS get an appraisal. In fact, get two. What's more, do exhaustive research on running a restaurant profitably, including what the ratios should be. You simply cannot get enough advice on this front.

Do not rush into it. Ask a million questions. Don't take any answer at face value. And walk from it if there's a hair out of place in anything.
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Old 04-13-2011, 10:26 PM
 
5 posts, read 15,340 times
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So, in other words, I should hire my own lawyer before I sign papers of this sort? Will they contact an appraiser for me on my behalf?

Thanks for responding!
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Old 04-14-2011, 08:31 AM
 
28,900 posts, read 49,189,534 times
Reputation: 46323
Quote:
Originally Posted by TheGuy79 View Post
So, in other words, I should hire my own lawyer before I sign papers of this sort? Will they contact an appraiser for me on my behalf?

Thanks for responding!
You shouldn't go to the bathroom in this situation without the advice of both a lawyer and an accountant. And by accountant, I mean an accountant versed in business acquisition who understands restaurants, not some slob who just cranks out tax returns.

I know what you're thinking already. You're thinking, "Wow, that's going to cost a lot of money and take extra time." Well, the money it will cost is nothing compared to the expense of a business going under or the lost revenue of entering hastily into an unequal partnership. And as for the time issue, as I stated before, don't be in a hurry. In fact, if the other person is trying to rush you into signing the partnership papers, that's a really bad sign right off the bat.
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Old 04-14-2011, 09:35 AM
 
1,096 posts, read 4,249,686 times
Reputation: 1096
Quote:
Originally Posted by TheGuy79 View Post
Greetings!

First of all, let me start off by saying I stumbled upon these forums today and spent a good majority of my day checking them out, especially this business section. So, you can call me a newbie or whatever you'd like. I'm okay with it.

I'm deciding to post this thread b/c a lot of you seem really smart and I've been wrangling with some ideas/proposals in my head for a while. Here goes:

The owner of a restaurant I'm the GM of said I would be able to buy in to the restaurant one day. We have not yet held further discussions, but I'm excited nonetheless. My question to you is if I bought in for 10% would that number be based on annual gross sales? Or does it require an appraisal?

Also, if I bought in for 10% would I get 10% of profits after all payroll, food/bev costs/rent and other misc. expenses?

Clearly, I'm in over my head at this point. Any advice would be greatly appreciated.
Do you really know and trust the owner? A restaurant depending on the type is generally a cash business so if your not with somene honest you could really get screwed out of your 10%.

Also, find out about the financials of the restaurant before buying in. It's an investment so like anything else if the business isn't thriving you dont get any money back.

The othre negative thing is 10% isn't enough % to have any control over anything. This guy can do what he wnats, sell the place etc and you have no say.

The % upi got is more like profit sharnig than it is ownership. A buddy fo mine has been GM at a midwest burger chain. He was going to buy the place he and the owner worked out a deal where he would pay a percent of profits back each year and put some money down up front.

Deal wound up falling through b/c they tacekd on renovation costs to what they wanted him to pay for the place but they wanted to keep him as an employee as he'd been there like 15 years so gave him 5% and then 1% every year there after. Also if the owners decide to sell he gets option to buy first.
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Old 04-14-2011, 09:50 AM
 
28,900 posts, read 49,189,534 times
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Quote:
Originally Posted by rfr69 View Post
Do you really know and trust the owner? A restaurant depending on the type is generally a cash business so if your not with somene honest you could really get screwed out of your 10%.

Also, find out about the financials of the restaurant before buying in. It's an investment so like anything else if the business isn't thriving you dont get any money back.

The othre negative thing is 10% isn't enough % to have any control over anything. This guy can do what he wnats, sell the place etc and you have no say.

The % upi got is more like profit sharnig than it is ownership. A buddy fo mine has been GM at a midwest burger chain. He was going to buy the place he and the owner worked out a deal where he would pay a percent of profits back each year and put some money down up front.

Deal wound up falling through b/c they tacekd on renovation costs to what they wanted him to pay for the place but they wanted to keep him as an employee as he'd been there like 15 years so gave him 5% and then 1% every year there after. Also if the owners decide to sell he gets option to buy first.
This is a good point. Restaurants are dicey enough propositions.
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Old 04-14-2011, 10:37 AM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
27,115 posts, read 45,202,274 times
Reputation: 31335
If there is any proposal on the table it MUST include full disclosure of the books. (Don't even think about the 'food / business / clientele, growth potential, profit potential...)

You are being offered a stake in an EXISTING business.
follow cpg:
Quote:
ALWAYS get an appraisal. In fact, get two. What's more, do exhaustive research on running a restaurant profitably, including what the ratios should be. You simply cannot get enough advice on this front.
.

You can get this data for FREE at the library or your friendly SBDC center. Ratios and CASH FLOWS are what a banker will look at Consider yourself a banker in a very WEAK (10% , un-collaterized position).

I think Restaurants sell for about 2x NET annual Revenues, you would be looking to be an investor of 10% of the value, BUT... You need to protect your position (job / revenue / ownership). I am very skeptical of the intentions of the owner (may want lower cost help, I.E. as low as he has to pay himself).

Food joints are seriously difficult to run profitably for the long term without LOTS of free labor. (usually the owner's). Having seen 5 operations fail in 7 yrs in my last commercial building, I wouldn't touch one. BUT, this is a good exercise for you.

#1, get the sales revenue data, then go to the Library and get the RMA data for similar sized restaurants,


#2, Get the books, 3 yrs tax returns, and make an appointment at your SBDC.
http://www.asbdc-us.org/
(take the owner if he wants to go, might be a good FREE lesson for him as well). Have them run the business financial performance through some software (similar to Optimist, banks too use this) and see how it measures up, and where the opportunities lie. At minimum you will be able to bring beneficial data back to the owner and you will walk away, (or INTO) more informed.

Use each opportunity as an education, you will be well served.
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Old 04-15-2011, 02:48 PM
 
5 posts, read 15,340 times
Reputation: 11
You guys are awesome. Seriously.

Here's the deal. This guy operates the most successful and profitable store this side of the mississippi. We show no signs of slowing down and we've increased our sales every year of existence.

I believe he mentioned the ownership thing because he's tired and realizes that he has finally found his long term guy. I literally bought my first home 1.5 miles away. He's looking to be the absentee owner (save some marketing meetings) while I grind away for him. The ownership is a way for him to release himself but also shows me that this can be my perm. long term future. This I've made clear to him. His restaurant is home to me and I don't want to be anywhere else.
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Old 04-15-2011, 03:49 PM
 
10,135 posts, read 24,736,242 times
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10% of a restaurant is worth exactly ZERO. Any restaurant. You have no power to do anything and the owner can freeze you out or pay you a ton and you won't be able to do anything about it. Just like it is right now for you - without the 10%.

And, you will likely have to pay some money or give up some salary or, God forbid, possibly agree to non-competition if you leave.

Ask for a compensation plan that gives you a piece of the pie. And, the piece should be of gross revenues and not of net income because there will be a dozen discretionary line items in getting to net income that you have no control of and will not even be able to confirm are correct. (You won't be able to confirm gross revenues either but it is much more difficult to get into an argument about gross).

Tell him you love him to death and you wouldn't want to ever be anywhere else. Then, when the time comes for you to buy it, buy 100% and let him finance you.
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Old 04-15-2011, 04:09 PM
 
1,096 posts, read 4,249,686 times
Reputation: 1096
Quote:
Originally Posted by TheGuy79 View Post
You guys are awesome. Seriously.

Here's the deal. This guy operates the most successful and profitable store this side of the mississippi. We show no signs of slowing down and we've increased our sales every year of existence.

I believe he mentioned the ownership thing because he's tired and realizes that he has finally found his long term guy. I literally bought my first home 1.5 miles away. He's looking to be the absentee owner (save some marketing meetings) while I grind away for him. The ownership is a way for him to release himself but also shows me that this can be my perm. long term future. This I've made clear to him. His restaurant is home to me and I don't want to be anywhere else.
If he wants to be an absentee owner he needs someone he knows, trusts and that has an interest in the busines.

You should try to talk him into GIVING you a 10% stake in the restaurant with profit sharing.

This is for you to decide but if you feel you need to throw in a bargaining chip like you'll forgo overtime pay at double time or soemthing like that since you have some ownership and profit sharing and will make money by putting in those extra hours when needed.

My buddy as I said eariler works for a midwest chain and they gave him a stake in the place to keep him around, because they know they can be absent and trust him, etc. Every year he's there he earns an additional 1%.

I know the owner wont like giving up money but i actually works out well. My buddy saved the restaurant a ton of money by switching suppliers, changing some policies, etc. He's looking to cut costs nad be more efficient and drive in business because it means more money in his pocket.
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