PDA

View Full Version : Need Some Advice On A Possible Business Partnership...


Q-Dat
10-01-2013, 02:50 PM
OK just a few miles from home is a gas station who's previous owner used to sell BBQ and do OK with it. Well he sold the gas station and in the year or so since the big nice Southern Pride Smoker has just sat there. I spoke to the owner today about possibly doing business with him and putting his cooker to work to make us both some money. I think he doesn't use it because he doesn't have anyone that knows how to produce a good product.

My question is this. Do you think it would be better to offer him a partnership type of deal where one of us would receice a percentage of the profits depending on whether he buys the meat and I cook it, or if I do the meat purchasing and the cooking.

Or would it be better to offer my services straight up to be put on the payroll?

Never been in a situation like this one so I greatly appreciate any advice that you folks can give.

deguerre
10-01-2013, 02:51 PM
I'd do payroll with an option to buy in if it works out...

Marrs
10-01-2013, 03:25 PM
If you really want to do this, my advice would be to work out a few different options that would make this thing worth your time, and his. Also, don't rush. Take your time, especially if you don't know this person very well. You need to get a feel for each other and decide if you can be in business together.

If you do make a deal, be as clear as possible on goals and roles. Put it all in writing. Partnerships are like marriages with a better chance of divorce. You need a good pre-nup.

Good luck!

cpw
10-01-2013, 03:47 PM
Don't do anything without talking to a lawyer first. I know it's a waste of money, but you'll be thanking your self when/if anything goes bad. Tell the lawyer what you're thinking, and let them tell you what they think the best approach would be.

bizznessman
10-01-2013, 05:20 PM
Personally I would not utilize a Partnership as a business format. These are the points of a Partnership that cause me to not consider them.

1) Partners in a general partnership are jointly and individually liable for the business activities of the other. If your partner skips town, you'll be liable for all the debts, not just half of them.

2) You do not have total control over the business. Decisions are shared, and differences of opinion can lead to disagreements, a "falling out," or even one partner buying out the other.

3) There is a chance that one business partner may not work as hard as the other, but will want the same rewards as the more valuable partner. If you have a low tolerance level for this type of inequity, partnership may not be for you.

I agree with deguerre. I would propose a "payroll" arrangement to start with. This will give you some sales data with which to evaluate the viability of the business. If the business is profitable you could then propose a purchase of the cooker and a lease for the space in the station. The lease could be a flat fee, a percentage of sales or a combination of both.

First thing to do is to work up a business plan. See if you can obtain information of past sales from the BBQ business which will help you to decide if your business plan is viable.

It sounds like an interesting venture. Good luck if you go forward with it and keep us informed.

Fooskey
10-01-2013, 10:36 PM
Of course, if you go on payroll, there is no incentive to take you off and allow you to buy in if the business is profitable. If you want to share in the profits, you have to take on some risk.

Why not rent the space, buy the meat, and take 100% of the profits? Build your brand and then you have some leverage. Having the other guy pay you like an employee with the option to buy in is great for you, but not something I would consider if I was in his shoes.

landarc
10-01-2013, 11:04 PM
Bizznessman gave you the best advice. There are a lot of issues with partnerships and the one that looms large is that you assume his half of all liabilities in your partnership. Will this be a separate business from his gas station? Will you have other responsibilities other than cooking? Do you trust him?

One of the rules I use, is would I marry this person? If the answer is no, then skip the partnership and work out a different deal. Even leasing the space and cooker, running the business as your own, and splitting profits, if there are any, is preferable.

Q-Dat
10-02-2013, 12:59 AM
Ok so after reading what has been said as well as seeking advice elsewhere, I have decided that any kind of partnership is out.

He is going to check with his insurance to find out what kinds of allowances there are, but I'm leaning towards a rental offer on his equipment and carrying my own insurance. The biggest possible hangup is that he does sell food. He just doesnt use the Smoker so I would have to know what kind of profit he makes from his kitchen to know what kind of offer to make.

That being said I can also see the benefit of a payroll deal because the risk is minimal, but therefore so is the reward.

BigBellyBBQ
10-02-2013, 01:13 AM
if someone else or two diiferent people selling food under the same roof will not work. If you don't own the property you do not have the final say in product being sold..try to work a lease to buy...like a retirement for him..

bizznessman
10-02-2013, 02:48 AM
I tend to lean toward BigBellyBBQ's last post. Sharing a kitchen may not be a good idea. However, if you decide it is something that you want to try then work up a business plan first. (it is very important and prudent to be detailed in your business plan as it is your best "crystal ball" regarding the success of your proposed business)

I would start my research, for a Business plan, with these points.

1) What type of access will you have to the kitchen, full or partial (time/equipment,etc)? (important for evaluating your cooking/serving process)

2) How will your supplies be purchased, stored, managed, inventoried? (important to be able to track yours separate from his)

3) What type of food does he currently sell? Will it compete for your BBQ receipts? If so what percent of total sales do you estimate will be yours? (important to calculate your projected Gross Sales)

4) How will sales be documented, your food and his? Is there an electronic POS system, etc? Will/can it be shared for both your sales and his? (necessary for ascertaining your actual Gross Sales from your product)

5) You mention that he is checking to see if his liability insurance would cover you. This will probably depend on the business arrangement. If you are an employe -Yes. If you are a separate business entity using his facility - could easily be No and you would need to obtain your own.

6) Will you offer any sales other than on premises? i.e. catering, etc This could affect the liability insurance aspect. It can also affect the need for access to the kitchen. You will also need space (at the Station or other location) to store your catering equipment such Cambro hot hold units, tables, etc.

These are just a few but imho are some of the more important points to be addressed.

Following this thread I am inclined to think that you may want to propose a separate business entity (LLC is my preference since a Sole Proprietorship puts all of your personal assets at risk) that would have a lease type agreement that allows you the access required to cook and sell your product out of his establishment using his smoker (a DETAILED lease agreement drawn up by an attorney). Both of you would need to have a "meeting of the minds" on the terms of the lease and it's details. This would allow for business liability protection for you and the LLC would also be a vehicle that can be used if things change in the future should the possibility of "going it on your own" arises.

Of course this is all just my opinion and not intended to be legal advice. :mrgreen:

cynfulsmokersbbq
10-02-2013, 10:40 AM
Are you only interested in the smoker portion of the food business? If not, offer to purchase all the food services from him. Possibly rent the space from him, but then you control the food. Or offer to purchase a fair interest in the food portion of the business.

I honestly don't see how he would want to partner with you if you only wanted to be involved in the BBQ portion of the business. I know some very good partnerships that own and operate a restaurants, but all the food that is produced is part of that partnership. One isn't saying, the BBQ is mine, and the chicken fried steak is yours. They are both in it to maximize profits.

Q-Dat
10-02-2013, 09:37 PM
Thanks for the advice everyone. I'm abandoning the partnership idea completely. When I talk to him again I will inquire about leasing his equipment and taking over all hot food sales with my own insurance as well as a payroll deal with some type of commission.

One thing I have going for me is that the unit is mounted through the back wall of the building. I think the only reason that he hasn't sold it may be because he would need to get more than its worth to cover the cost of filling in the huge hole that would be left.

cynfulsmokersbbq
10-04-2013, 01:12 PM
Thanks for the advice everyone. I'm abandoning the partnership idea completely. When I talk to him again I will inquire about leasing his equipment and taking over all hot food sales with my own insurance as well as a payroll deal with some type of commission.

One thing I have going for me is that the unit is mounted through the back wall of the building. I think the only reason that he hasn't sold it may be because he would need to get more than its worth to cover the cost of filling in the huge hole that would be left.


Sounds like you have a plan! Good Luck and let us know how it goes!

Q-Dat
10-04-2013, 04:23 PM
Ok. I spoke to him again today. He has suggested a deal in which I am responsible for all expenses in regards to BBQ (meat, rubs, sauce, sides, wood, supplies etc). He would continue to sell his regular items, but I would have full use of the kitchen and all food would go through the same cash register.

He has proposed a commision for himself of 15% of my gross in exchange.

Opinions???

bizznessman
10-04-2013, 06:59 PM
Do you feel comfortable with this arrangement? Have you estimated your gross/net sales under this arrangement? Have you estimated your profit margin?

Without some real data on gross/net sales it is very difficult to levy an opinion. I will go back to my original suggestion of working up a detailed business plan, base on his proposal, and decide if it is something worth doing.

If you are looking at this as a chance to gain some bbq business experience without all the upfront capital expense then it may work out. The way it is being proposed it sounds like he is looking to "hire" a cook.

The 15% of Gross sounds a bit high to me unless you are able to keep your costs low and maintain a high profit margin.

oifmarine2003
10-04-2013, 07:15 PM
Ok. I spoke to him again today. He has suggested a deal in which I am responsible for all expenses in regards to BBQ (meat, rubs, sauce, sides, wood, supplies etc). He would continue to sell his regular items, but I would have full use of the kitchen and all food would go through the same cash register.

He has proposed a commision for himself of 15% of my gross in exchange.

Opinions???

A lot depends on what you are considered. If you are an outside contractor (which I am assuming since everything is supposed to be running through the same register) then he will have to 1099 you and you are responsible for sending in tax payments to the IRS.

I don't think running your food through his register is a good idea. This will make tax payments really weird. If someone buys a pulled pork from you and a cheeseburger from him, it will be rung up at the same time. He would have to be responsible for sales tax payments. The whole shared register is a bad idea IMHO.

Also, if you were to lease a space, you could write off the lease payments whereas with this proposed setup, you are limiting the tax advantages you will be able to take advantage of.

I'm not an accountant but I did stay at a Holiday Inn Express last night....

Q-Dat
10-04-2013, 10:40 PM
The 15% of Gross sounds a bit high to me unless you are able to keep your costs low and maintain a high profit margin.

It does seem a bit high, but he will be taking care of utilities and possibly insurance as well.

erandolph
10-07-2013, 08:39 AM
Other than the new rub I tried last night something doesn't smell right. In a nutshell this is the offer.


Gas station - owns smoker, runs all sales through his storefront, keeps 15% of gross. Are we talking sales or profits.

You - responsible for cost of goods, food prep, cooking.

At first I thought this was a sweet deal for you and then I realized the gas station has the sweetest deal. They get an added feature to their shop with zero risk. He also gets to control all the money from the sales. While everything sounds great in theory at the end of the day when you start putting out a quality product and making serious money i can almost gaurantee there will a storm brewing. To be the evil gas station owner, I have someone coming in willing to revive our bbq service. After 4 months you do, gas station owner says thanks but this set up just isnt working out for me and I am going to do the bbq myself. Don't think so, wait until you sell $1,500 in ribs compared to his $100 in burgers. He owns the equipment, the space, the business etc. You are just a contractor.

Yes you will recieve a 1099 but that is not a big deal. Unless the place does mega amount of sales (75k+) you will not have to file quarterly tax payments. He is assuming the sales tax liablity not you since his tax id is making the sale. Does he have a POS system to track the orders and what was purchased. Not to say people are dishonest but you can see where i am headed. You need to track for everything sold so you can make sure you get credit for the sale.

First and foremost you need to have a proprietary agreement where the BBQ name, rubs, sauces, recipes all stay with you. Again if Q-dat bbq is getting a name for itself and then he tells you to hit the bricks, Q-dat is technically the stations name. Secondly, come up with a set monthly overhead amount. Again when sales start taking off the owner will come back and say hey you do know you are using my water, electric, kitchen, etc. There is a value for that. If you have a set monthly amount he is owed now, it will not be an issue in the future. Give youself a few months free rent as goodwill from the landlord to get the business started.

If you want to go into business you have to assume some risk. Just purchasing the meat and rub is not risk, that's making lunch. The gas station owner needs to know you have some skin in the game otherwise he will view all the liability as being his. You need to tie yourself to the place.

My 2 cent suggestions.
1) set up your own llc, pay the gas station rent for the space you need. Operate the bbq as a cash and carry independant from the gas station. Problem is this is costly, setting up the business, insurances, permits, and purchasing the smoker from the landlord.

2) continue with your current set up. However to tie you to the place, do a rent to own on the smoker. Come up with an agreed price with the owner, and all profits made will go towards the agreed purchase price. Yes it is going to suck to work for X number of months and take home zero dollars. Ask anyone who has worked in the food industry, this is the norm for starting a new biz. At the end of the day you are reinvesting your profits back into the company to acquire an asset. That asset is your tie to the business and most importantly the Que. Difficult for the owner to tell you to leave if you own the smoker. However this option is a tough sell to the station owner because if he has any business sense he will know he just opted the leverage to you.

Good luck. This can be done and you can do it just make sure all your bases are covered. You want to have something at the end for all of your hard work.