Adding a partner business

[gfron1]

I'm very happily operating a gourmet and international grocery in the middle of nowhere. We've been in the black from day one (I don't know how that happened) and have received accolades from across the country. We've recently added cooking classes which have all been sell-outs, and started monthly international themed dinners to tie in with our local international film society movies. These latter forays into prepared foods have had people looking at us differently, and now everyone who considers themselves a chef and didn't have their own kitchen wants to partner with us.

The chef who is doing many of our classes wants to do gourmet to go - which she will be great at - but she only wants to do dinners.

Another person approached us to do paninis and deli-counter foods (high end to match our store). He has an impressive resume (which we will confirm) such as managing a San Fran Whole Foods deli counter. I asked him to make a proposal which was only conceptual. I was hoping to get a business plan that talked finances, insurance, marketing, facility maintenance and upgrades, etc. Part of our mission is to incubate local food businesses, so I'm not totally scared by his weak response since I will now make sure he thinks about these matters.

Has anyone done this before? Any warnings you have for us, or positive suggestions? I want to be very careful writing up our agreement just in case they don't work out, so as to minimize the impact on our solid reputation. Thanks in advance.

[K8memphis]

I have always been on the other side of that coin wanting to find an established place I can work from. But I never actually do it because it just seems wrong somehow. I would always want to know that they are solvent. And that is none of my business kinda sorta. One time I had myself all talked into it and talked myself out of it again. And shortly thereafter the uber awesome artisinal bread shop in the chi-chi location location location went out of business.

I mean you gotta share everything and all the what if's start taking you out in a rip-tide.

I'm no help at all am I.

You got cleanliness issues.

Dude, I had this one prospective partner once and I saw them take a spoon out of the drawer, measure something dry and put the spoon back in the drawer . AGHHH!!! She could not write out a break even plan. Even though I explained how to do it. How much of your stuff do you have to make to make x amount of overhead money?? It's simple math. Eff that idea.

You got taxes, you got insurance liability, you got time & space issues to resolve.

What about your inventory? You will be all exposed there. You can't lock up the lychee nuts. In my city you have vastly different codes for different types of food facilities.

Agh, I would have people telling me, "Oh so & so brought me a Coke the other day, I guess I owe you for it." Well I dad gum guess you owe me for it. And who the hell is so & so to provide you with my inventory??!!! And where's the rest of yah's???

You're never 'closed'. You're never secure. What if What if What if.

Are they gonna employ workers? Who are they?

You gonna give 'em a key? Where they can open the door

when you're not there?

Obviously I do not have the temperment for it.

I raised a hyperactive child and I have no patience left.

I guess to try to end on a positive note --{ the valium is kicking in }-- Be sure to address any control issues you might have or learn to develop.

[K8memphis]

I would think adding an employee would be a wiser decision.

You can then give them a great latitude, they can use the kitchen

somewhat for their own purposes as well.

You can be very creative with the pay. But you so neatly eliminate so many headaches and retain the lion's share

of control for the most part.

}--Valium set in even better --{

Now that was positive! I knew I could do it.

[gfron1]

I think bringing him on as an employee is a great suggestion...if he'll go for it. He's owned his own restaurant so ego may drive that decision. The win-win is that we get his experience and he gets a space without the facility hassles. Many of your concerns are ones we've talked through (you've given me some new ones) and some are manageable through a good contract. We've looked at this like a marriage...and ultimately a divorce. But there's often a fight that leads to that divorce isn't there. Thanks for the drug inspired feedback

[Carolyn Tillie]

Actually, there is an easy way to sell him on the employee concept -- as part-owner, he would also be responsible for all of the other problems like taxes, insurance, etc. Even just paying an attorney to write-up a partnership agreement would cost him and you money.

You could hire him as a contract employee; you pay for the ingredients and he gets a percentage of the profit as seen by HIS part of the business. That will encourage him to make it better if he sees profit-sharing as part of the deal (although it could be an accounting nightmare for you).

[alanamoana]

i was going to suggest something like hiring these people on as contracted employees. i don't think i'd want to partner with them, especially if that meant some sort of profit sharing. you're the one who has spent the time building a successful business. you need to maintain the control. i don't think that ego has anything to do with it. if this person (prospective employee/partner) has run a successful business/restaurant in the past, what is to stop them from doing it again? if they don't want that responsibility, but they want to share your profits, i'd think they're looking for the easy buck. they'll never look at your business in the same way that they'd look at their own.

of course, down the line, if after some time working for/with you, you decide that they are committed to building your business, then you might want to consider partnership, but only after a reasonable amount of time has passed. i feel like that is how it has been done in the past with restaurant owners and chefs that i have known or heard of in new york, etc. by that time, you'll have a better feeling about the person and a better idea of the mechanics of writing a partnership agreement. by then, you'll probably have a lawyer to do it for you! always cover your own butt!

good luck rob, it sounds like you have some great ideas for building your business and helping out others in your area.

[Holly Moore]

I'd make them both sub contractors, if anything. Partnerships are notorious for the problems they create. And the divorces are often very messy.

Sub lease the space to them under very specific conditions and hours of operation, and, initially at least, under a month to month basis. They pay you rent for the use of your space. They supply their own ingredients. They provide their own insurance. They pay their own employee benefits.

You have veto power over menu offerings (must be consistent with your image). Same for pricing and marketing.

Edited October 6, 2007 by Holly Moore (log)

[gfron1]

This has been very helpful - thank you all. We had never thought about business partners - and now we definitely won't. We really just want to lease out the space to him and have tight enough reigns that we feel comfortable. I had not thought far enough out to him having employees because right now it would be just him and just when we are open. But, just as our business has grown, so might his - and we would expect it to if he's housed with us.

[Pam R]

Any news Rob?

[gfron1]

Why yes, yes there has...

The more I've learned about this guy, the more red flags there are. But then the chef who teaches many of my cooking classes approached me about a gourmet-to-go operation out of our kitchen, and we know her, trust her, and she can handle me. We've even done some meals together...so we're talking down that route right now. We haven't given up on the previous partner because his concept would be a better deal for us. I'll post the very rough BA that we wrote up. Its not really a BA so much as talking points.

[gfron1]

Here is the document that we started with...

Business Entity:  We would like to see you formally incorporate as an LLC (or appropriate) for liability reasons.

Hours of Operation:  Our preference would be to have the counter staffed by your staff between 10-2.  Prep and cleanup will be added on top of those hours.  Staffing during pre-dinner times is recommended but not as high of priority to us.

Marketing & Signage:  All signage and marketing should be consistent in design and quality with existing signage (font, color, etc).  Tyler would be happy to assist in the design process.  All signage will be designed to be added on to existing signage except for any internal signs that you want in the counter area.  All signage will be done completely at your expense.  If in the future we choose to create joint signage then costs will be appropriately shared.

Advertising:  We would like to have you co-op with our advertising which we will split at 35% your expense (newspaper, newsletter, radio).  Any advertising that you conduct solely will be at your expense. 

Facility Usage:  Usage of the facility/kitchen and storage will be non-exclusive to allow our staff to perform food prep, as well as our classes and special events.  We retain the right to lease the facility to other businesses or individuals outside of your guaranteed use times.  Other users will be held to the same usage agreement as you.  Any equipment purchased by you will be for your exclusive use unless by permission.

Facility Upkeep:  Since this is a shared use kitchen, it must be maintained at all times.  All dishes and equipment will be cleaned and properly stored at the end of each shift.  The floor will be swept and mopped at the end of each shift. Damage to the facility caused by your use or your equipment will be solely your expense.

Facility Upgrades:  Minor upgrades to the facility (those that do not alter or effect the existing facility) are at your expense, and require our approval.  Any alterations to the facility that will alter or effect the existing facility require approval, but may include cost sharing with us.  The determination of who will pay for the improvements will depend on what impact they will have on future facility use.

Equipment & Fixtures: Any equipment or fixtures necessary for the operation of your business will be at your expense.

Gross Receipt Taxes:  We invite you to have your products checked through our register to make it simple for the customers.  Since your food will require GRT, you are 100% responsible for payment of GRT.  These are due at the end of each month, and would be paid through our existing account.

Insurance: You will need to have your own liability insurance.  We will explore the impact of this business addition with our insurance agent, and if there is an adjustment to our insurance, that will be at your expense (ie regular use of kitchen equipment may increase our facility rates).

Compensation: $150 per month for the first 12 months of occupancy plus 35% of utilities (estimated at $250 per month based on previous year of activity plus slight increase due to your usage).  Starting year two will re-visit the entire agreement, but we would like to see an increase to $350 per year plus utilities OR some form of facility re-investment/improvements.

Dissolution:  If your business should terminate during the terms of this agreement, all equipment and supplies that you solely purchased will be your possession.  Any jointly purchased equipment and supplies will be negotiated as to who they will belong to, or if they will be sold and the assets distributed in proportion to the purchase cost sharing.  If you should terminate this agreement, any facility modifications that are made will be unchangeable and not subject to reimbursement.  In the event that we terminate the agreement, expenses will be negotiated with the understanding that we have a responsibility to compensate you at 65% for facility modifications.

I share this with my eGullet family for anyone to use. Its a very rough document so there's nothing valuable in my opinion. I'd appreciate feedback.

[sugarseattle]

i think that's a good document. but yes, i agree with your gut that those red flags are a sign that something is not right. after learning the hard way, i always trust my gut. I think the idea of hiring that dude as a manager and giving him a budget to work with would be good; however I can see the allure of having him be a sole proprieter so he can take on the expenses of building out that part of the business (including adding necessary equipment etc.) It's important that his plans will benefit YOUR business, and he's not trying to just get use of your kitchen to build his own business OUTSIDE of your shop. That is what I was actually perceived of doing in a similar relationship.

i was involved with a catering company where i shared part of their kitchen space, and they had a shop out front where they sold some of my pastries as well as their own stuff. i sold stuff to them wholesale, and they took care of it. they kept telling me that i could decorate the space around my desserts however i liked to promote my stuff. this was fine in theory, until they started getting desserts from another bakery as well and hers were made from mixes so after that I just wasn't motivated to do anything with the shop out front. i gave them their desserts, then they mislabeled and mishandled them. the shop was run so poorly that i just lost interest in it.

I probably could have pursued and resolved the situation, but there was some weird energy there...i sort of knew they as a company weren't on the up and up all the time so i basically stayed quiet. probably a mistake on my part, but that's the effect weird energy had on me in that given relationship.

eventually, they decided to expand the kitchen and kicked me out. they basically said i had more employees than they did (i had 2, they had 5), and that they were not comfortable with me around. Of course he completely neglected the impact his super ANGRY chef had on my employees, even making one of them cry. Anyway, even though they were very backwards about how they eventually told me to move, in the end they gave me a full 3 months notice which i thought was nice, even though we didn't end on great terms.

[gfron1]

I appreciate that story Stephanie. I've just started watching Heroes on DVD and I need to be the dude that reads minds. I think in this case I may get blank space with this guy, but it would be good to know what he's up to. We've pretty much moved beyond him however. We have someone we know and trust, and want to nurture her business as it grows - and eventually grows beyond us. Our focus now is figuring a way to grow together, but stand solid (not slip) when her business leaves our space. And leaving really is the only option with our existing space, but it would be nice to ride out two or three years with her.

[gfron1]

The deal is done and here is our agreement. We agreed to keep this document friendly and non-legalese, and that we would continue to revise it as both businesses evolve. We recognize the risk inherent in this agreement, but its risk we're willing to take in our town that deals mostly in handshakes. I'm offering this in case its useful to anyone.

BUSINESS AGREEMENT

The following Business Agreement is made between <Details snipped>.

1.  <Details snipped> will occupy space at the Curious Kumquat (111 E. College St., Silver City, NM 88061) as specified on site plan [see attached] to operate Mel’s Café at the Kumquat (dba Addi’s Food Supply, Inc). Meeting the following requirements:

A.  Café at the Kumquat will carry her own liability insurance policy at $2 million coverage.  Full policy will be made available to The Curious Kumquat;

B.  Café at the Kumquat will be providing phone access via cell phone until this becomes cumbersome to the Curious Kumquat, and or their staff, due to phone traffic that may arise via the Café’s association to the store.  Appropriate arrangements will be made if the need arises;

C.  Any and all improvements to the kitchen of a cosmetic nature will be done by <Details snipped> and appropriate labor to enable opening, in alignment with current motif and by approval of owners;

D.  Any equipment for the kitchen, dining, baked goods area, etc. that is not a permanent fixture or trade fixture will be provided by <Details snipped> with approval from owners;

E.  Café at the Kumquat will carry its own NM Environmental Department permits and be responsible for fees associated therein;

D.  Café at the Kumquat will pay the difference of all utilities based on usage from PNM 2007, but accounting for any rate increases in 2008.  This will be the only cash entitlement to the Curious Kumquat for the initial 90 days of occupancy and will continue for the life of tenant contract.  The installation of central AC and the correlation between installation and increase in utilities will be re-examined after the AC is operational;

E.  After 90 days the Café at the Kumquat will provide a 10% net payment per month of all sales to include but not limited to menu sales, gourmet take away, and catering.  This will not apply to fees for cooking instructions or professional consultation fees that may not involve use of the Curious Kumquat;

F.  Café at the Kumquat will have access to Merchant services, POS reports, activity, sales staff limited to orders and monetary collection in exchange for:

1.  A fee per transaction based on cost to the Curious Kumquat;

2.  An extension of 20% staff discount to all purchases and 40% to owners, excluding arrangements that are offset by professional courtesy rates i.e. catering at cost of food and labor only will not be subject to discount.

3.  Subject to review if the Curious Kumquat staff can not perform daily duties due to interference of Café business.  The Café at the Kumquat will then provide adequate means of staffing and or POS assistance to enable business to occur with limited interruption to the Curious Kumquat.

G.  Advertising and signage required for the Café will be at the expense of <Details snipped> with approval from owners;

H.  Cleaning supplies necessary for the daily sanitation of the kitchen, an appropriate fraction of this cost may be shared with the Curious Kumquat;

I. Daily cleaning to be detailed in Standard Operating Procedure, to include empty and clean prep tables, debris-free floors, waste removed at the end of each shift.

2.  In return for meeting the following requirements, the Café at the Kumquat will be entitled to the following:

A.  Daily business operations Monday through Friday from 10:30 to 1:30 including prep time before and cleaning time after;

B.  Access to refrigeration space, collectively deemed appropriate, for gourmet take away sales in the merchandise area of the Curious Kumquat;

C.  Access to “tea” room / lunch counter when not in use Monday through Friday;

D.  Keys to premises that will remain strictly in the possession of <Details snipped>. No unauthorized copies will be made, and the Café at the Kumquat will be responsible for re-keying expense in the event provided copies are lost, stolen, or damaged beyond use.  No guests will be allowed in the premise at times other than when owners are present with the exception of paid employees of Café at the Kumquat.  The actions of the employees are the sole responsibility of <Details snipped>;

E.  Limited use of storage shed behind facility;

F.  Shared use of walk-in.  Renovation and maintenance of the walk-in will be at the Curious Kumquat’s expense;

G.  Shared use of dry storage room for non-food items;

H.  Installation of non-permanent trade fixtures that will facilitate daily operations of the café at the expense of <Details snipped> with approval by owners (i.e. Pot rack, shelving unit, additional stainless steel tables, dish washing station, floor mats etc);

I.  Identified use of retail space for several tables and seating provided at the expense of the Café at the Kumquat with all approval by owners;

J.  Access to the facility for monthly dinner with the international film society;

K.  Access to the facility for special events planned in advance with agreement from owners that do not interfere with any other event previously planned.  (ie private dinner parties, tasting menus, fundraiser dinner for scholarships etc…);

L.  <Details snipped> will have preference for events before subleasing to a third party, subleasing not to conflict with café hours, scheduled classes or events.

3.  Additional points of consideration to include:

A.  Procurement of beer and wine license at shared expense to both entities;

B.  Establishment of outdoor seating area(s) expense to be dispersed appropriately by type and permanence of improvement.  Labor, expertise and enthusiasm free of charge to either party.  This includes but is not limited to improvements to rear carport area, building partial enclosed wall at front of store, purchase of seating, lighting etc.;

C.  Equipment usage to be on a friendly basis with mutual agreement on how to handle breakage, damage, and wear-and-tear prior or following the occurrence;

D.  Establishment of procedure to lease kitchen to potential revenue producers that does not hinder prior planned events of either the Café at the Kumquat or the Curious Kumquat.  This will include but is not limited to equipment usage of both entities.  Usage of the kitchen or facilities by anyone or any group other than Café at the Kumquat is at the discretion and authorization of the Curious Kumquat;

E.  A clear commitment to education is evident by both entities.  The Café at the Kumquat has established a scholarship fund for individuals seeking to further themselves in the area of Culinary Arts.  A mission statement of vision for the purpose of both entities should be established to ensure commitment;

F.  All onsite educational workshops/classes, individual or group will be done through the Curious Kumquat.  Café at the Kumquat will not advertise or solicit classes to be held at locations other than the Curious Kumquat on-site as to not compete.  Additionally, all instructors will be responsible for cleaning of the facility and proper use of equipment in the kitchen.

4.  Agreements for provisions:

A.  Curious Kumquat will provide the hood for the stove, covers for the light fixtures, and a partition for the walk-in;

B.  The Café at the Kumquat will provide labor for all cosmetic improvements to kitchen, bathroom, and rear delivery area as required.  All sanitation equipment, black floor mats, tables, chairs and incidentals for café seating.  Any additional shelving, labels, to go containers, order tickets, menus, etc for daily business operation.

C.  The Curious Kumquat and The Café at the Kumquat will develop a written standard operating procedure, for daily cleaning expectations for all employees and instructors to adhere to; this will be posted in the kitchen.  <Details snipped> will be responsible for the daily cleaning of the café including but no limited to sweeping, mopping, all dishes and sinks cleaned.

This is deemed a living document and therefore subject to revision.  Document with the most current date will serve to identify the most current agreement of all parties.  Signature must be present to ensure authenticity and validity. 

[Doodad]

I was going to respond further, but I see from reading it has reached my conclusions as well.

You certainly have my accolades. Thanks again and you know what; after reappearing it has dried up again. Weird.

[gfron1]

Here's a brief update after just over a month of sharing my kitchen. Overall we would both agree that this is working well. We haven't run across any issue that wasn't covered in the agreement. First the perks: She's investing quite a bit in cosmetic fix-ups and providing sweat equity to improve the property. She has built a back yard dining area that she bartered her food with a local landscaper who is doing a really great job. We also get free lunches - woo hoo! We're sharing on orders which is helping me to order more from my folks, and she's able to get me things from her distributors that I didn't previously have access to.

The glitches. She doesn't have cleanliness standards equal to mine. I'm not saying she's not clean, but when I leave at night I want to know that the roaches will have to fight really hard to find food. We also have a lot of greasy dishes after they wash them. I've been told this is a common problem - not in my kitchen since I change water frequently, but she's doing a lot of volume.

We are doing pretty well at sharing supplies, equipment, etc, but since she's in there more than me now, I can't find my stuff. I've debate creating a "me" storage area, but I don't think its so much of an inconvenience. The perk is I have use of some really nice equipment that I didn't have before.

There have been a few times when I've wanted the kitchen but they went beyond their time prepping for the next day. We've talked about that and they're aware that they can't.

Almost immediately we had two compressors needing replacement. That was a big hit for the building owner - me. But, based on our agreement, I know that with consistent sales, I'll make that back pretty quickly after our 90 day grace period.

Anyway, that's the update.