In the restaurant industry, it’s very common to venture into business with family or friends. In fact, some of the most well-known restaurants, including Red Lobster and Buffalo Wild Wings, started out as partnership ventures before being sold or turned into restaurant corporations. Under the right circumstances, joining forces with a partner can be a successful way to buy and operate your dream restaurant.
However, opening a restaurant with a partner is not as simple as just combining together your favorite family recipes. Partners must agree on a variety of issues from their respective roles in operations to their stakes in ownership if they want their restaurant to have a chance at success. Jumping ahead without clarifying these issues jeopardizes the success of your restaurant operation and can turn your partner relationship into a toxic one down the road.
By following the five steps below, you’ll not only ensure a smooth partner working relationship, but also the financial success of your restaurant venture.
1. Select the right partner(s).
The single most important component of the partnership process is partner selection. Although it is very common to open a restaurant with relatives or close friends, keep in mind that these relationships do not always guarantee a smooth or strong partnership. Look beyond your personal relationships and evaluate potential partners on their skill sets and resources. Do they have the knowledge needed to run the restaurant? Do they bring different skills, expertise and perspectives to the business? Are they dependable? What additional resources, either financial or personal connections, can they bring to the business? All of these are important to consider when selecting a partner. Don’t let personal biases cloud your judgment.
2. Agree on your business goals.
After you find a potential partner, sit down and discuss exactly what type of restaurant you would like to purchase, if you haven’t already, and what goals you have for the restaurant. Think about whether you would prefer to operate the restaurant for the long term, or if you would rather grow the business and then try and resell it as quickly as possible. Make sure you agree on growth plans (single location, multiple locations, growth by franchising, etc.). It’s critical you and your partner share the same ownership goals, or you risk having major clashes later on.
3. Outline ownership stakes.
Partners also need to agree on their ownership stakes, financial commitments and voting stakes. It’s common for partners to join forces out of financial need. For example, sometimes one person has the skills and ambition to operate the restaurant, and the other partner has the financial resources needed to purchase the restaurant. In cases where the partners are not making equal financial contributions, or one buyer is a “silent partner,” it is especially critical to agree on these ownership issues up front.
4. Clarify partner roles.
If both partners plan on being active in operations, it is important to define the areas of business and decision making for which each partner will be responsible. Ideally, partners should bring complementary skills to the restaurant. For example, perhaps one partner is better at overseeing the staff, and the other is better at running the kitchen. Having separate responsibilities with minimal overlap prevents inefficiencies and arguments over how things should be done. Still, it is wise to create a set of procedures for resolving the inevitable differences that will arise between you and your partner.
5. Get a partnership agreement in writing.
Remember that your relationship with your partner, like any relationship, will change over time. Therefore, it’s imperative that you create a solid partnership agreement before jumping into business. Your broker and attorney can help draft an agreement that outlines financial contributions, ownership stakes, roles and decision-making, an exit plan and other potential issues upfront. Having this in writing gives you something to reference when disputes come up. Just remember to have the agreement updated if anything changes down the line. For example, agreeing on a fair valuation process before going into business will help ensure a smoother sale or partner buyout, but that valuation number also needs to be consistently updated to reflect the restaurant’s current value.
Don’t let the excitement of your new restaurant venture keep you from considering all the above issues. Remember, you can never be certain that you and your partner are on the same page without having an open, direct conversation. So, set the table for success by taking the time to reach an agreement on the above issues, and put that agreement in writing so that it is not remembered differently down the road