Starting a Restaurant in NYC

[Bond Girl]

Never kknew this thread could be so popular.....when I embarked on this, I thought it'll be years before i get anywhere. Who in heaven's name s going to give me a million bucks to start a business? But, as one of my friends pointed out: it happens every day to people with less business knowledge...so I plod on.

Here is the latest: I've got another friend who's got a little bit of money and wants to own a restaurant. Through some friends, we found this kick ass chef who also has a bit on money to invest, so we have our operator's equity. The three of us is talking to an investor that can give us the million bucks that we need to start the venture, but he wants all his money back first before any one of us sees a penny of the profits in the restaurant.

We think we are okay with that as long as his equity gets reduced down to a smaller percentage once he's paid off.

Paul, do you see anything wrong with this arrangement so far?

[paul o' vendange]

Never kknew this thread could be so popular.....when I embarked on this, I thought it'll be years before i get anywhere.  Who in heaven's name s going to give me a million bucks to start a business?  But, as one of my friends pointed out: it happens every day to people with less business knowledge...so I plod on.

Here is the latest: I've got another friend who's got a little bit of money and wants to own a restaurant. Through some friends, we found this kick ass chef who also has a bit on money to invest, so we have our operator's equity.  The three of us is talking to an investor that can give us the million bucks that we need to start the venture, but he wants all his money back first before any one of us sees a penny of the profits in the restaurant. 

We think we are okay with that as long as his equity gets reduced down to a smaller percentage once he's paid off. 

Paul, do you see anything wrong with this arrangement so far?

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Bond Girl - I humbly submit your financial acumen is light leagues ahead of mine, but in terms of a startup arrangement, it sounds reasonable to me - I presume you are building adequate management compensation into the arrangement, though, so you have a regular salary (presuming your active involvement in the company)? I'm no lawyer/accountant, but we organized as an LLC as we intended on taking nominal, consistent, "guaranteed payments" monthly in lieu of any presumed profits at the end of the year (hahahahah). Such an arrangement results in a better tax situation, as I understand it, than in a S corp or the like. We were careful, however, to draw only a nominal amount - what we absolutely needed only, as Chef (me) and Front of House Manager (my wife). Many months we drew nothing.

[CFO999]

Hey Bond Girl,

Your prayers may have been answered.

There is a new private equity firm in New York, run by real restaurant guys looking for new concepts to develop.

Contact me if you are interested.

[Bond Girl]

CFO 999 I am more than interested.. There are lots of people I know who is looking for that support.

As for my own venture, we scoped out a space downtown, and started negotiating the lease. The seller wants half a million dollars in key money, so somewheres in october, we got him down to 3 hundred and change. But, guess what? He had so many liens on the place and back rent that the owners ended up getting him evicted. That didn't stopped him and his pals from showing up at the leeches (sorry, brokers) office trying to negotiate a deal with us. The broker told us that he worked out a deal with the landlord temporarily where he would pay all the back rent owed within a certain time. Given the situation, we made him a really low offer. the three of them looked pretty insulted and in a show of great drama, they got up and walked out.

The brokers accused us of "poisoning" the deal. Of course, his commission is on the line.

A day later, he told us, the seller took our deal, but he wants the money upfront and in cash. Forget about it! A day later, the ladlord called and told us, he now officially owns the place, so we are now negotiating with him.

We are glad we had a kick ass lawyer, although now we wonder if our legal bills has coubled.

[CFO999]

CFO 999 I am more than interested.. There are lots of people I know who is looking for that support.

As for my own venture, we scoped out a space downtown, and started negotiating the lease. The seller wants half a million dollars in key money, so somewheres in october, we got him down to 3 hundred and change. But, guess what? He had so many liens on the place and back rent that the owners ended up getting him evicted. That didn't stopped him and his pals from showing up at the leeches (sorry, brokers) office trying to negotiate a deal with us.  The broker told us that he worked out a deal with the landlord temporarily where he would pay all the back rent owed within a certain time. Given the situation, we made him a really low offer. the three of them looked pretty insulted and in a show of great drama, they got up and walked out.

The brokers accused us of "poisoning" the deal.  Of course, his commission is on the line.

A day later, he told us, the seller took our deal, but he wants the money upfront and in cash. Forget about it! A day later, the ladlord called and told us, he now officially owns the place, so we are now negotiating with him. 

We are glad we had a kick ass lawyer, although now we wonder if our legal bills has coubled.

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The never ending swampland of brokers,agents, and lawyers.

Seems a little harsh just to lease a space.

Forget the key money, fixture fees and other strange goings on.

Find youself a rep broker......and good attorney

[MarkIsCooking]

Bond Girl -

I haven't seen any posts in days and I'm wondering how things are going. I've been very fortunate in business and I'm so scared for you. It seems you're about to enter a business you have no experience in and you're doing so in a very big way - all at once. As a dispassionate observer of this thread, it looks like you've been caught up in the emotion of it all. I give you a lot of credit for the analysis you've done and you've certainly received some terrific advice here in this thread. Maybe the amount you plan to personally invest is money that you can afford to lose and you'll be OK with whatever happens.

Since I'm the father of 3 and mentored dozens of people over the years, my (unsolicited) advice is to slow down. People will still be eating in restaurants a few years from now. There is nothing about your concept or your location that is so compelling to justify needing to do this NOW.

There are two fundamental things that give me pause. They are:

1. Since you have no experience in the industry, how do you know that you'll love and be passionate about this business after you see it 'naked'? Your passion right now is less about the business (since you don't really know it) and more about the idea of opening your own place.

2. I don't know if you've ever been in business partnerships, but - from experience - the dynamics can be very challenging (just like a marriage, but usually with more players - i.e. investors, bank, operational partners, etc.). It seems that you're coming together with people (either investors, chefs, etc.) that you don't really know and haven't dated much, so making the marriage work becomes that much riskier. Whichever direction you go, it's CRITICAL that the documents outlining your agreements with various parties outline (among other things): (a) what happens if you reach an impasse, can't agree and need to part ways, (b) what happens if a central party becomes ill or dies, © how needs for additional capital will be handled, both in terms of where the money comes from and how that impacts equity ownership.

I have always looked at every business investment from a risk/reward point of view. How much do I need to risk? And, if successful, what could my upside be? Ideally, your upside is far greater than your downside (at least if you're leaning conservative like me). If you're personally putting in a limited amount and disproportionately sharing in the upside, that sounds a bit more palatable to me. I'm not sure how you're constructing your deal. Analyzing a deal in this forum is extremely difficult because we typically get pieces of info as opposed to all the info.

Whatever course you follow, as many others here have, I do wish you all the best.

I love going to NYC. If you do this, perhaps I could help your revenue just a bit.

-Mark-

[Bond Girl]

My partnership fell apart at the last minute. All the good advice here...My latest experience shows that: 1. you can be best friends with all the key people involved, and a deal can still fall apart, 2. everything Markiscooking says about the partnership is true, 3. when someone gives you a lot of money, sometimes, there's a heavy price involved and 4. never go into business with people who is business challenged and don't know enough to ask.

Anyone who wants details should pm me.