200K and what to do?

[Bottle Caps]

My name is Jeff and this is my first time posting. I have spent the last few days reading the threads and have gotten all sorts of wonderful info.<p>Here is my scenario, I have 4 investors each with 50K. an old friend of theirs opened a hugely successful bar outside of Pittsburgh four years ago.<p> They approached him to do another, and he turned his head on them. This is where I come in, I have a business degree and have started a few businesses of my own over the years.(but no money to invest) The guys are willing to give me 50% ownership. <p> The concept this guy did was to hire an extremely good looking wait and bar staff, tight low cut shirts, and tight jeans. He has a huge selection of bottled beer, and a below average bar food menu. His location is in the South Hills about 8 miles outside the city. His market is guys 28-50ish. His place probably sits 100 people comfortably. His place is always busy lunch, dinnertime or evening.(the food being an after thought, nobody is going there for the menu) <p>So finally my question, a new strip plaza has opened up 10 miles north of the city (about an hour from this guy) same demographic though etc...<p> Is it a silly idea to try and duplicate this, if not would 200K be in the ball park for a build out, with a 40K liquor license, and a kitchen? He (other guy) told them he did it for 180K four years ago...and lastly, I read a thread about paying investors back, but had a tough time following it...any input would be greatly appreciated.

[HollywoodNights]

Pittsburgh's hot spots are either South Side and Station Square for bars and nightclubs hands down. Bottle Caps --what part of the burgh are in you ? What type of square footage are you looking at here ?

[JackMaverik]

I have found that with investors, your best bet is to ask them what they want and what they think would make their investment worth their time.

Then see if you're willing to give up that much of your business and hard work for their time. Make sure you have the ability to buy them out of their investment.

Currently with my business the way I'm structuring my deals are as follows. Two of my investors are cool with a straight "loan type" payback. I offer them X% over X years. So say - $100,000 at 8% and I have 5 years to pay that back.

I have another investor who's not interested in "loan sharking" so to speak. He wants a piece of the action. So he wants a percentage of ownership in my business. So say he wants 10% - then he gets 10% of the business profits, but, when I pay back his investment (that doesn't include his 10% - that would be ontop of that), then he is bought out of the company and no longer has any right to future profits.

I hope this helped.

[Coach]

Jack

In the case of your "piece of the action" investor, isn't that really nothing more then an interest only loan for an unspecified length at 10%?

I am in negotiations atm is why I am asking, not trying to be a smart ass

[Bell Ringer]

The investor is looking for preferential profit sharing over the length of the loan. I have offered that myself and it turned out that the investor ended up wanting to be partners indefinitly and we agreed that he had then purchased "x"% of the business and that the money was not a loan but instead a contribution and an at risk investment. That being said be sure you word your contracts to allow for early pay offs with out penalty. Hell truth be told if you could get the money from the investors into escrow, contracts that allow for early payoff and are set and ready for business, you could theoretically re-fi the loans into one loan from a bank under better terms and pay the investors/lenders back. This would be great because then you deal with the bank, establish credit lines and worthiness and in the case of a future sell you have one debt service to address, instead of a few investors who will not agree on who has the primary lien which could get very ugly.

Just some thoughts for you.

[JackMaverik]

Jack

In the case of your "piece of the action" investor, isn't that really nothing more then an interest only loan for an unspecified length at 10%?

I am in negotiations atm is why I am asking, not trying to be a smart ass

Hey Coach,

No, the "piece of the action" investor isn't looking for a return on principle, say 10% of 100,000. He's looking for a piece of the profits. Say 10% on whatever your bar net profits that year. So, say you profit, 1 million dollars that first year, he gets 100,000, but isn't "paid off" unless you give him another 100,000 on top of that (if that's how your deal is structured).

However, say you only profited 100 dollars that year. Well then he only gets $10.

I try to always negotiate a buy out clause in all investments. At some point, I want to own my business 100% and maybe at some point reapproach investors to grow and expand.

Just remember, they're throwing you their money, so your job is to make them happy and excited about situation.