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Advice for a chef of an expanding restaurant group?

post #1 of 6
Thread Starter 

Long time lurker here, first time posting. 

 

So I've been an executive chef at one restaurant for a couple of years now, and now we're expanding to open a second restaurant in the coming months. As is relatively typical for my city, I have no contract currently for the position I'm in. I am salaried, get some benefits, and have potential for a monthly bonus depending on sales, food cost, and labor. All pretty standard I think.

 

Well now that we're opening a second concept, I would like things to be on paper, and to make sure I do the best for both the restaurant group and for myself for the future. The restaurant I'm currently exec at is a more "chef driven", relatively low margin concept. The new place is going to be a fast casual, bar driven, high margin place. I will be a part of, if not completely responsible, for coming up with the menu, creating all of the recipes, and developing all of the systems the restaurant uses on the kitchen side. Again, standard exec stuff. I can handle that.

 

My questions are when it comes to compensation and contracts moving forward. The restaurant I am currently at and the new concept will have the same majority owner, with whom I have very good rapport and a good relationship with, but this is both of our first venture into the contract side of the business when it comes to multiple restaurants and we both want to make sure we do it correctly for everyone involved. I've asked a couple trusted chefs for advice, but there aren't many in this city with relative experience. So basically what I'll be is our group's chef moving forward and for every new place that we open. The advice that I was given to best benefit myself is to have either an increased base salary with every new place, or a share of either sales or profits, or both in some form or fashion. Asking for equity was something I was advised against, and although "chef-owner" is something I'd like to be someday, I'm not at a place currently where I'm willing to risk the liability that comes with ownership. Also, a severance contact or clause has been advised to me, stating that for any reason that the ownership decides to go in a different direction, I'm covered for a few month salary and benefits in exchange for not going for unemployment or suing the group for anything. Also this new restaurant is a concept that, hopefully, could expand to a few locations in a few years (gap in the market), and i'd like to know how I can be taken care of if these things happen. If they're using my recipes and systems, and i'm helping open and oversee the day to day functions of all of these places, i'd like to be taken care of for it in a fair way.

 

This is just a whole new world to me, and although I am not completely business ignorant, there aren't a ton of resources I can reach out to to find clear guidance here. I'm sure some of y'all have the experience that I don't. If there's anything I can do to clarify things or help with some answers, let me know. Thank you!

post #2 of 6

I would suggest you both sit down with an attorney who has a good deal of experience in hospitality contracts.

Trying to hash it out with a boss who is also a friend can be emotional and may lead to hard feelings when yall come to a point and cannot agree on the best solution (and what is fair for both parties).

 

Just sayin'

 

mimi

post #3 of 6
Quote:
Originally Posted by flipflopgirl View Post
 

I would suggest you both sit down with an attorney who has a good deal of experience in hospitality contracts.

Trying to hash it out with a boss who is also a friend can be emotional and may lead to hard feelings when yall come to a point and cannot agree on the best solution (and what is fair for both parties).

 

Just sayin'

 

mimi


Flipflopgirl is 100% correct. First of all...sit down with pen and paper and in your mind, write down all you'd personally like to see. Ask the folks you have a good rapport with to do the same then compare notes. On one piece of paper, write down all the similarities you both have and streamline them. The rest talk out and come to a compromise and agreement. When that's all hashed out....take the final list to an attorney and let them put the legal beagle terminology to it and get it back. Then take it to YOUR personal lawyer and let them review it to make sure it's all on the up and up and make sure that anything that needs to be clarified is taken care of.  Always CYA...cover your ass..and my friend...make sure you have an "out" of the contract if necessary and that your job description is laid out!! That's just experience talking to ya!!


Edited by Justa Chef - 4/15/16 at 8:09am
post #4 of 6

     I'd like to know why you were advised against equity ownership.  I think you need to rethink being willing to risk ownership. Liability can be mitigated by the corporate structure and putting in all that work for an expanding operation without being an owner is a risk of it's own. 

If you decide to be compensated based on sales or profits, you need to be able to confirm that there are or are not any profits. Will you have access to all financials if you are not an equity owner? 

     In short, access to relevant information about sales and profits is vitally important if your compensation will be based on it. This helps you and your partner by eliminating issues of trust and openness. He says there is no money this quarter and you can see there is not. You won't be asking for money while he is buying his daughter a new car and you are wondering where the money is coming from. 

     Access to and understanding the financials also helps you and partners to understand where and how to control costs in many areas without the need for laborious discussions. In any discussion of money spent, neither side will be 100% correct all the time. You have a better chance to mitigate any bad decisions by the other partners if you are an actual partner. The partner can mitigate your bad decision by showing you the books, not just expecting you to believe them. 

A severance package is a great idea in any event. I agree with Flipflopgirl that an attorney well versed in these matters is vital.  

post #5 of 6
Thread Starter 

@flipflopgirl We had definitely planned on having an attorney involved. The owner and I are similar enough in philosophy and goals to be a good partnership, but also not necessarily friends enough for that sort of relationship to get in the way. Thank you for the advice. Do you know of some good resources to find an attorney with relevant experience? I'll contact some other chefs and see if they know of anyone.  

 

@Justa Chef This is a great idea, and i'm definitely going to suggest us doing this. Having an out for myself is something I hadn't really thought about for some reason. That's really silly of me. As far as lining out my job description, and really lining everything out, I think my goal at least is to cover every base we can for the foreseeable future. To have as much clarified so we have as little conflict as possible with these things as possible. Thank you for your response.

 

@chefwriter You seem knowledgeable and experienced with this so I have some questions and clarification if possible? I was advised against equity ownership by my old mentor chef just for liability reasons like you're saying. In the event that the restaurant doesn't do as well as we hope, or the ownership decides to inject capital, I won't be held to putting in money that I don't have. That's as far as it was explained to me. If you can help me with clarity, or if you have different advice that would be awesome. What did you mean by liability being mitigated by the corporate structure? 

 

I do understand that there is a risk if I put in work.without being an owner, but I'm not knowledgeable or experienced enough to compare the risks. In my current position and restaurant, I have access to all of the financial information, and I would be surprised if this would change. I do agree completely that it's vital for me to know these things, not only for compensation purposes, but in order to do my job effectively and successfully. A severance package and an attorney are definitely happening. Thank you so much for your help and perspective.

post #6 of 6

      Ok. Think of equity ownership as a big dark area in your mind that you need to shed some serious light on. Don't rely on others to tell you what is hiding in the dark. Yes, ownership has risks. But you will be working hard to make sure of success. When the success comes, you will want an equal share in it. And if the whole thing goes belly up, you suffer as much as the other partners. But…..

     Check with the attorney or an accountant to have them explain the various versions and levels of creating a corporation. I don't remember the details well enough to quote them here. Essentially if you are a single owner and anything happens, you can be sued. If the company is listed and filed as a corporation, with a corporate structure, the corporation gets sued but you are not personally liable. 

     If you are an equal partner with others and they decide to inject capital, that does not require you to inject capital. It means you have an equal say in how the capital gets spent.  How those things are arranged is what you have the attorneys for. You can set things up any way you want.  Of course, if others are injecting money as the initial investment and you are not, your contribution might take a different form, such as labor or time depending on your arrangements. But if the money is invested after the corporation is set up and ownership is established, the question is, whose money is being injected? Is the partner putting in their own money or taking out a business loan?  The corporate structures limit how this is done and what the results of each action are. No partner can inject or remove money from the corporation without limitations and consequences. 

      So it might be that in order to be a partner, you have to put up some money and how much you put up will decide how much equity you get. 

Or your partner or partners will put up a certain amount of money and your contribution will be in the form of agreeing to work a specific number of hours or perform certain duties. 

The bottom line is that as a partner, you have input in how things are done and your input matters.  

     So here are some possible scenarios.

      You go ahead with things as they are. Five years from now, the partners decide to close shop. You have "invested" five years of effort in building a great business and from your perspective things could not be going better. Because you decided not to have an equity stake, the partners split up the business in whatever way and you are out on the street with whatever severance package you agreed to.

     Or you have an equity stake and are an equal partner. The other partners want out. You have the option of buying their shares in the corporation, you choose to do so, and the successful business you invested five years in is now yours alone. You have some debt from buying them out but all future prospects are yours alone. 

     The partner(s) die unexpectedly. The son/daughter/sister/brother is a complete nut job and has no idea how to run a business but inherits the company. 

     The business does well. The partner(s) make an unexpected decision to leverage the existing business into a Ponzi scheme/used car lot/buy a bridge. You can only sit by and watch the money and the business go down the drain. By the time it's over, there is no money left for your severance package. 

     The property next door/unexpected opportunity comes up for sale at a ridiculously low price. The purchase would solve numerous problems your business currently has and allow expansion in more ways than one. The partners decide they are happy with things as they are and pass up this once in a lifetime opportunity. 

    I'll stop there.  I will guarantee that any way you choose to proceed, you will disagree with the partner at some point. Your level of ownership decides in large part how that will play out. 

    On behalf of your partner(s) I will point out that you might come up with numerous bad ideas/behaviors of your own. As equity owners, they can put a stop to your madness. 

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