What is the best way to be a part owner in the restaurant I'm helping design?

June 8, 2009 3:13 PM

What is the best way to be a part owner in the restaurant I'm helping design?

I have been working closely with an associate of mine to help design a business plan for the restaurant he wants to open in the near future. I've invested many hours in the project and I've basically been his right-hand-man for the most part. The funding for the restaurant is virtually assured once a final business plan has been reviewed so we have been working day and night to iron everything out.

The restaurant is his vision, and he's had a lot of success opening previous establishments in the past for other people. This is his first attempt to open his own restaurant.

We both agree that together we make an excellent team and he has asked me to come on as the bar manager (I have a decade of experience in the industry). I have an excellent full time job that I can't afford to leave right now, so the role of bar manager is a pretty good fit since I can work around my existing schedule. I am very interested to learn about the ins and outs of opening a restaurant as well, so this is a great learning opportunity for me.

One thing that sticks out in my mind though is that I'd really like to be a part owner as well as an employee. I don't mind if it's only a 5% share or anything like that but I would like to have more incentive to invest vast amounts of my time and creativity into the establishment. Sadly I don't have the liquid assets available to invest upfront.

In an ideal world, I'd be able to take a smaller salary than he'd originally intend for the bar manager and use the difference as my share of the investment. In return I'd own a small percentage of the restaurant and would benefit from it for years to come if we're able to turn it into a successful business. But I'm not experienced in the art of entrepreneurship finance and I have no real understanding of how these ventures usually work. Do the investors just loan him the money and he ends up with 100% ownership after he pays them back plus interest? Or do they usually want a piece of the pie in the long term?

Does anyone have experience or insight into this situation? How do situations like this normally work when it comes to investors funding the owners idea?

Any suggestions you can give me would go a long way!

posted by anonymous to work & money (4 comments total)

In an ideal world, I'd be able to take a smaller salary than he'd originally intend for the bar manager and use the difference as my share of the investment.

This would really only be fair to the owner and other investors if you bought into the restaurant after it had opened. To expect them to allow you partial ownership based on future salary is absolving yourself of the risks of investing. I think that in most scenarios, unless you have some investment funds up front, you will have a very hard time getting in as a partner.
posted by Burhanistan at 3:21 PM on June 8, 2009

I'd structure this as a vested interest situation. Say you want 5% but vest it over the course of 4 years so 1% up front for the work you've done and each year you work you earn a 1% stake each year you work at a discount.
posted by bitdamaged at 3:34 PM on June 8, 2009

It all really depends on what you are bringing to the table (no pun intended).

There are no written rules for this, so pretty much anything goes. If you are valuable in the long run, a stake in this venture might be good for everybody.

I know a bunch of people that have restaurants and/or bars and have seen all kinds of partnerships. There are even people that get a partnership (a very small one) just on the condition that they show up every X days with at least Y people. Really.

I say you ask to be a partner as soon as possible. Don't invest anymore hoping your work might earn you the partnership. Just ask and get that out of the way.
posted by edmz at 3:40 PM on June 8, 2009

Issuance and distribution of Preferred Stock and Common Stock is determined in the Articles of Incorporation, which are drafted prior to application for a business license and Federal Tax Employee Identification Number. Said distribution is the at the sole discretion of the Board. What percentage of ownership goes to whom and for what contribution to the establishment is a matter to be determined BEFORE first contact with the local Chamber of Commerce or the State Tax Commission.

Your work on the business thus far, properly accounted for in an hourly rate manner, qualifies as equity. Work you have not done yet behind the bar does not, but that need not hinder your idea for salary reduction in lieu of shares, provided it sits well with the Board.

You are not going into business with a friend. No matter how much you like or respect the guy keep that firmly in your head. Then tell the people who are going to become the Board what you want and what you will do to get it.
posted by EnsignLunchmeat at 4:25 PM on June 8, 2009