Negotiating for restaurant equity, and how much I should ask for

[Tim Chambers]

Hello Chefs, 

 

   A friend of mine has recently made plans to open a restaurant. We had always planned on starting the new place together, with me filling the position of sous chef and eventually chef de cuisine as we opened other restaurants. He pulled together a business plan, and just needed investors.

 

   Enter my uncle, whom is very wealthy and very interested in opening a restaurant, though not interested in operating it on a day to day basis. I introduced the two, and have been a big part of making sure that the two stayed on track and that they were moving forward with their plans. 

 

   Now everything is official. We are planning on opening in september of next year, the LLC is formed...Nothing has been discussed as far as my pay or shares in the restaurant are concerned, though i feel as if I am entitled to something more than if they had hired someone else, due to the fact that I introduced the two, and am going to dedicate the next 5-10 years of my career to the restaurant(s). 

 

So what is reasonable to ask for? Any experiences that you can share would be great. I know that there can't be a black and white for this situation, because there are a lot of variables, but any answers are appreciated. 

 

 

Thanks

 

 

[gfweb]

This is a tough one.

 

You may have been done a favor if the thing goes belly-up.  As a non-owner you can't be expected to work for free in bad times.

 

I'm not in the industry, so take what I say with a grain of salt.

 

I might ask for middle of the range sous chef pay and perhaps a piece of future restaurants that spring from the success of this one.  Or to get the first offspring as your own franchise...or something.

[Deryn]

So, you are NOT a partner in the business (even though it sounds as though you had planned, at some time, on going into business with this friend of yours - but this time he went ahead and has pursued it on his own and left you out)?

Seems, hate to say it, as though you perhaps have more of an employee mentality than business savvy since you have been aiding him without any official status or even promises. The LLC has been formed and they didn't include you in the stock/share plan at that time?

Perhaps though, you might discuss some kind of 'finder's fee' with your friend - you found his investor for him after all. Probably should have done that before telling him who the investor might be but perhaps he will be 'nice' to you if he is depending on you at all to be his chef! I would play (carefully) on that need he has for you to operate the kitchen or at least be a major part there - since that could have a lot to do with whether the restaurant will succeed or fail.

As far as what you will earn when/if you are chef at the restaurant when it opens some day, that will probably just be negotiated as any salary would if you are just to be an employee, though since you had a lot to do with the 'idea' and the 'investing' etc. you could include 'more status' (good for your resume), better salary/benefits, and perhaps some sort of future considerations/bonus in those negotiations.

If he wants you to 'care' enough to work your butt off, it would be in his interest to make you feel a 'part' of the operation somehow. But, I bet he won't part with shares and I agree with gfweb - you should be cautious about taking them too since it could leave you liable if the restaurant fails.

And I would be careful now too to be friendly with your uncle (but arm's length in terms of the restaurant 'business' part) as well if you want to have a good future relationship with him and/or hope to open your own restaurant in future and may want to tap him yourself. Presumably your uncle is a good business man if he is wealthy, and he went into all this with his eyes and ears open and not just because you are who you are (his relative) but, if the restaurant doesn't work out, you don't want him blaming you somehow either.

Good luck with that - I do hope your 'friend' is a true friend and not a 'fair weather' one. The good thing is that if you find out now that he is not the good friend you had hoped, there is time for you to figure out how else you might want your culinary career to go - and it will be a lesson learned for the future.

Edited December 2, 2015 by Deryn (log)

[gfweb]

One thing that you don't want is to get what looks like a bad deal to you... and then go to work there anyway. No good will ever come of that other than perhaps having a visit from Robert Irvine one day.

[gfron1]

I'm in agreement that the boat has left the dock. Maybe a generic question like, "Will there be opportunities for employees to buy into the business (hee hee) or finders fees for major investors?" But even that feels awkward and risky to me.

[Alex]

Three questions:

 

Could you be much more specific about how you were "a big part of making sure that the two stayed on track and that they were moving forward with their plans"?

 

You wrote, "We are planning on opening...", but I don't see anything that justifies a "we," except perhaps some sort of verbal discussion about your being a chef there. Could you elaborate in much greater detail on that "we"?

 

Are we all assuming correctly that there's nothing in writing (i.e., something that could be construed as a legal document) about your participation in this venture?

[gfron1]

I'm now thinking a different angle on this. If you aren't cut in, will you be happy and be able to continue working their without a grudge? If not, then be direct, ask, take the fate that's handed to you good or bad, and move on with your life.

[Tim Chambers]

Let me clarify a few things.

We have already discussed giving me equity in the restaurant, but we have not agreed on an amount. I'm asking what I should ask for as we are going to negotiate a salary and equity soon.

Also, no money has been given or invested yet. They just have an LLC, and a start date, and we are all agreed on doing it. I'm just trying to work out the details.

No legal documents have been filed about anything yet, even for my friend or uncle. Which makes me think it's not too late. That stuff will probably be official early next year.

[gfweb]

Oh. That's different.

 

What % is your uncle and for how much $?

 

How many other shareholders?

[gulfporter]

Never been in the restaurant biz, but my DH owned other businesses.  And I was in finance my whole  life.  Doing business with friends and relatives....hmmmm, that's tricky at best, especially in a troika where it appears two have already formed a business bond. 

 

As a matter of principle, when the other two created the LLC and did not include you as a shareholder....I'd be worried.  They've put you in a bad bargaining position.  

 

Though in reading your last post, you say "no legal documents have been filed," which makes me wonder if there is indeed an LLC.  If there is, that's most definitely a legal document.  You might need a business lawyer or accountant if your unfamiliar with legal terms. 

Edited December 3, 2015 by gulfporter (log)

[MattyC]

First, determine what you want out of this. If you're only looking to be involved for something like 5 years or so, then why worry about shares and things like that? That has it's own risks, and if you have other plans for the future, or if your end game doesn't coincide with this group and it's goals/style , then just being an employee is honestly for the best, especially as others have said, things go south.

 

If you're strictly speaking in terms of money, I'm not sure just being someone who introduced a few people is worth a high salary or a lot of money. On the business side of things, everyone involved would be getting paid and rewarded based on what they can contribute to the business, and other than introductions, you say you'll be starting as a sous - every sous working, or at least many, have goals of becoming CDC or what have you, so on paper, you'd really just be offering up what any sous would be able to bring to the table, so I can't see how that would entitle more money.

 

Now, I do have a suggestion, who knows if this would be something people would want, and it would need to be legally done up, but what about inquiring about a profit sharing package? You don't need to be involved as ownership, but let's say you get a contract done up, after X amount is paid back to the investors, or X amount of time goes by with the company, you start getting Y% of the profits? This way, if the first restaurant(s) are successful, you'll be rewarded more than just a regular employee, and it will encourage you to stick it out. And it terms of the ownership looking at it, if things aren't going well right off the bat, they didn't get stuck paying someone large amounts of money, and it would give an employee incentive to work hard, especially in the beginning, and if things go really well, they have an employee well rewarded.

 

Just a thought. I have friends who have done that, and they were always happy with that. They worked hard, helped the resto become successful, they ended up making really good money, and the owners didn't have to worry about paying a ton in the beginning getting a business off the ground.

[pastrygirl]

You're in Seattle?  Does your uncle want to open a chocolate shop?  I'll give you 1%   

 

But seriously, I'm not sure that making the introduction earns you equity.  I like MattyC's idea about profit sharing.  Restaurants are hard, and I think there are way too many of them opening in Seattle.  Are you really going to be the next Ethan Stowell?  I think you may be better off with a competitive salary and some opportunities to earn bonuses as the business grows. 

[MattyC]

 

 

But seriously, I'm not sure that making the introduction earns you equity.  I like MattyC's idea about profit sharing.  Restaurants are hard, and I think there are way too many of them opening in Seattle.  Are you really going to be the next Ethan Stowell?  I think you may be better off with a competitive salary and some opportunities to earn bonuses as the business grows. 

 

That's the other thing too - there are a LOT of restaurants opening everywhere. On top of that, restaurants fail, even potentially great ones. Have you or your friend ever *ran* a restaurant? Opened one start to finish? A lot of people can cook, but I can tell you first hand experience that's just scratching the surface - there are so, so many things can even go wrong, even before it's open - maybe not the worst idea to work something out a little less risky than ownership in the beginning?

 

Again, just a suggestion, I don't want to tell people not to open a restaurant, or be a part of one that's opening, but it may be in your best interest to look at other benefits than a straight form of ownership, especially if there aren't a lot of people involved that have been in the business of new restaurants before.