Thoughts on my plan...

[Big Nasty]

I have a significant background in law and to a lesser extent management and business. I have been studying, planning, investigating, etc, opening a club for several years. I have roughly $100,000 in cash, excellent credit, a source for a liqour license and a location. The city is a small city (pop @ 75,000, with other similarly sized cities within 15 minutes) in southern Cal. From all my estimates money should not be more of a problem then is typical. Despite it being in Cali, prices in the area are very small town. Looking at a site that is roughly 3500 sqf.

I have a partner who has ran a similar nightclub for years before moving. Basically, the plan is that I will bring the money and she will bring the experience. I can't pour a drink and she can't interpret the tax code. We plan to unite our skills. However, I have another career and can not devote all time to the business full time. I plan on putting close to 40 hours a week in handling management issues, hiring, accountants, lawyers, inventory, advertising, etc.

My question, is what are your thoughts on this set up? Many people I discuss it with say you can't run a small business unless you are the principal operator and devote every waking moment to it. Is this a mistake? Is it doable? Any thoughts or suggests would be appreciated.

P.S. you guys run an excellent board and I have been using it as research for quite some time. Excellent, really.

[The Event Guy]

Go for it. It sounds like you've got the know-how and as long as you can track what she does, then let her do what she knows how to do. If the numbers don't match up, then she'll need to answer.

This type of operation is done all the time - cover your bases and don't assume that you can trust her 100% even if you think you can because this is your investment.

Rock on!

[bigbeat]

I've been in similar partnerships. In both cases, it didn't work out. Being an equal partner may not be a good idea. I would suggest a 60/40 partnership. Since you are providingthe finances and administrative side of the business, you should be 60% owner. If you feel that is not fair, maybe a 51/49 split. In either case, it is best to have a chief owner and then a second owner with less vested shares.

This way, you can maintain the overall control if things get out of hand. Otherwise, it can get nasty if you both have exact equal say.

Just my 2cents.

[Securitygeek]

If she has the background and can effeciently run the business let her do it. Just make sure to have some checks in there in case things start to get out of hand.

[MainSqueeze]

I strongly agree with the beat of big. I began my biz (an incorporated entity) with a 50/50 partner, and we soon had issues with operations... who we hired, what should be required of them, etc. etc. Most everything else we pretty much agreed on... but what we did disagree on, made a big diff to the way the business was operated. And we couldn't ever come to terms on our differences, since neither of us had the ultimate command.

Fortunately, I was able to buy out his half ownership. I would never operate a business with any kind of equal "partnership", ever again. I know the pitfalls first-hand. 49/51 allows virtually "equal" ownership from the standpoint of maximum profitability, which should be the ultimate concern of the both of you, rather than "who wears the pants" in the biz. It's just that, the ultimate decision should rest upon one who can make the ultimate decision, and make it stick. (This could of course be in the form of a "board" if you wanted to take a corporate organization to that level.) There are probably many ways of having an ultimate decision maker or decision making process, but in my opinion, an equal partnership or ownership doesn't provide it.

Hope this helps. And thanks for the compliments about this forum; I feel the same way about it! :)

[David]

Thank you for doing the research before asking your question. This makes it a lot easier for all of us.

I think that the most important item in your business relationship with your partner is trust. The second is understanding your current obligations. You can run a bar and not be on site at all times. My suggestion is that you develop a structured plan on who handles what. Don't leave any opened ended items to assumption.

My only concern is that your partner doesn't have any money invested in the business. Why, because if he/she doesn't like the way that you want it operated, he/she can just walk away.

Starting small as you are, is a great way to learn the business. Your partner can be a valuable asset to the business. Get to know the other bar/club managers in your area and listen to what they have to say about your idea. Maybe they know your future partner better than you and can lend you a few suggestions. If you know what I mean!

[ca. club owner]

It can be done.... An yea there are going to be ups an downs. The #1 thing you need to make sure about is that you 2 are on the same page as to how you want it ran. That's the most important, depending on the part of CA ur in your going to want 2 get a early jump on the liq. Lic. It takes a lil while to get. They do the whole FED. Check make sure ur not a bad guy.. Haha plus! Your going 2 have 2 sale food. I hope you had that in mind. CA won't sale #48 Liq. Lic anymore. If you can find a #48 your on the right track. But if ur going 2 ABC be ready to sale food an drinks... As for not being around much... I would do this if I was u an I put up the money... Find some1 you know an trust pretty well. An give them a job! That way you have some1 in there that can give you the run down. Make him or her a bartender. If they don't know how pay for them to take a class as well as you should take one also. You might be in there one day an someone is late. You don't want to not know how to make money in your own place of biz.... Could be here all day with this. But I think u get the idea... Good luck im in CA let me know when u open an where ur located. Will drop in a spend a lil.. =)

Money Talks In All Languages.......

[Somerset15]

I’m in a similar situation. I work in finance, and have some cash I’m willing to invest in a bar. I know a friend who really wants to run a bar, and is good with people, and knows
a lot of DJ’s and small bands that could draw crowds. He could come up with a small amount of the start up costs, and I would be contributing the majority of the capital. The idea is to buy a place that is around 1500 square feet, have a pool table, and have DJ’s or bands on some nights.

I don’t want to give up my day job, but I’m wondering how feasible it is to be a relatively absentee owner and get a good return on the investment. How much of the return for an owner of a small bar comes from being there a lot to cut payroll costs and being in a position to monitor everything?

One concern is things can spin out of control with a lot of his friends showing up and getting free drinks. What should the policy be on how many complimentary drinks can be given on each shift? I think I can monitor inventory using Infoco or Bevinco to uncover any problems in this area.

How should the deal be structured? He’s willing to work 80-90 hour weeks if necessary. He’d be a part owner since he’s contributing capital. What salary would be fair for someone doing the scheduling, hiring, and entertainment booking, as well as working as one of the bartenders? As majority owner, I’d want the right to sell the place if it wasn’t doing well, and the right to fire him if he was stealing.

Any thoughts, suggestions, or anecdotes are appreciated.

[JackMaverik]

I'd hire him as your general manager and maybe, if you're generous give him a profit sharing option. I'd keep the salary reasonable (36k a year) b/w bonuses. Figure out the overall cost of the business (say $200,000) Figure that for every $20,000 is 5 -10% of the business. So figure out what he's investing, give him that percentage for sure. Then figure the amount of time he'd be working past 36k a year, and give him a further percentage based on that. (So say he's doing 80 hour weeks, and he should be making 76k a year for the amount of work he's putting in) what you do is you give him and extra 10 - 20% of the company.

Sweat Equity if you will.

Then have a buy out clause written into the agreement that, if at any point in time, you hate what he's doing and he's a total theif, you can give him his original cash investment plus that sweat equity back and he's a goner. He's no longer part of the company.

That way he has incentive to do well, he has a reason to bust his ass (he's profiting) but you have control over where the deal is going.

So.. here.

He comes to the table with $20,000 - he gets 10% of the company.
He then works a general management position at 36k a year ($750 a week)
However he's also doing scheduling, hiring, booking, bartending etc. So he SHOULD be making somewhere around 76k a year.
That's a $40,000 sacrifice that he'd be making elsewhere conceivably.
So he gets another 20% of the company.
---------------------------------------------------

So he'd be making 36k a year, plus tips.
And 30% of profits.

That's pretty fair.