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Salary, Profit, Equity

post #1 of 3
Thread Starter 

I am entering into a relationship with with a small group of investors as Executive Chef/ Chief Operating Officer. Basically I am running the restaurant - head chef and overseeing FOH and BOH operations. They are bank rolling this venture and doing all the branding, designing, etc. I like their concept and vision but want to be compensated for my sweat ...

 

Salary is good (90k), profits share is good (10%)  but equity seems low (3%)

What is a good percentage of equity? 

 

Any feedback would be great!

post #2 of 3

I can not provide a direct answer to your equity question without knowing more details of your total arrangement and those details should already be understood by your lawyer, who would be well versed in the usual arrangements of such agreements. I will say that on the face of it, I think you are making out quite well. Remember that liability is also a concern and with a low percentage of equity I would imagine your liability is limited as well. While you are putting in the hours and providing sweat equity, you are also getting paid immediately and 90K is nothing to sneeze at plus the profit sharing (and we are assuming there are or will be profits). Does the equity increase over time? How is the remaining equity distributed among the investors? 

     Should the enterprise go out of business after two years, you will have gained 180K in salary from the business. How much of their investment will  the others have made back? With 3 percent equity, how much of the business loss will you be expected to suffer? 

     Then there are intangibles, such as being left alone. If you are the operating partner, how does decision making occur? Do you put up with  meddling investors who have money but no experience but still wish to influence daily operations? What is the review process for your performance to insure you are not hurting the others' investments?  What guarantee do the investors have that you will not walk away? Should you do so, what recourse do they have? 

     These are, of course, purely rhetorical questions but answering those questions for yourself should help you gain a better perspective on how much equity is appropriate for your situation.  

post #3 of 3
I will give you the short version of what I do with my managing partners, keeping in mind we are in Sweden. They have no investment into the opening of the restaurant and no liability if things go bad. They run the entire restaurant with a chef and all the other staff, their direct work is foh and oversee the entire operation. No bookkeeping other than daily controls and cash management. They work as needed about 45 hours a week and I pop in a couple times a week at least and handle all the bookkeeping, deal with purchaceing and venders, with the chef, pay the bills, ect ect. For this they get a nice base and 25 percent of the post tax bottom line. The base is in the 60k ballpark. I take a salary from each restaurant. Everyone is happy with that arragement, not one of them make less than a 100k a year. We run tight but not stupid and we pay the staff well. Chef gets a bonus based on food and kitchen labor cost percents and a simular base. The only difference in thenplaces is at the cafe we dont have a chef, just bakers and cold kitchen people so the partner is responsible for the kitchen there also, the again is a cafe not a full on restaurant.
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