Things To Consider Before Opening A Second Location

QUESTION FROM: Michelle K from U.S.

“My husband and I own and run a successful restaurant. We have been in business for 12 years. We have been asked to submit an RFP to our sole investor to help him open and run a new restaurant that he will own. 

We have not been asked to contribute any capital but rather propose a compensation structure to take on this project. The new restaurant is in the same town. He would like our expertise, talent and ideas along with our continued involvement. There will be a GM. Can you offer us any insight on how to structure our compensation?

Thank you kindly,”

HH ANSWER:

I’d love to be able to just throw out a number but there are quite a few questions that need to be answered / addressed first. Scenarios like this (IMHO) require fleshing out the terms before knowing what to charge - let alone knowing whether or not you even want the job.

I’d be remiss in not first stressing the importance of forming a separate legal business entity before doing ANYTHING...as this investor hiring you as an independent contractor under a new / distinctly separate LLC would not only limit your (and your spouse’s) legal/financial exposure but also limit the exposure of  your established business as well.

A few questions to consider:

-How large is the town? / population of young (18-25yo) labor pool?

-How “hands-on” are you at your current place? 

-Do you have someone that can hold it down (and hold it down well) in your absence? 

-Do you have replication systems / manuals and training guides already in place for your existing concept?

-What has he (or you) specifically defined as “your continued involvement”? An ongoing management contract? Employment? Profit sharing arrangement? Equity partnership?

-What’s the Owner’s stated end goal here? Are you developing a restaurant for him to flip? Are you developing a restaurant for him to take over once launched? Or to serve as an amenity to a larger project (i.e., office, residential or retail)?

-When you say “help him open and run...” what exactly does he see as his role in the opening and running - and how much experience does he have in f&b management or ownership?

I’m guessing you either have a lot more information that he’s provided (via a first draft agreement that you haven’t shared) or that he’s looking for you to learn how to plan this venture. If it’s the latter, ‘business planning‘ is an entirely distinct job as far as I’m concerned (just as contract negotiation and/or executive level recruitment is) with entirely separate fee structures.

(see my general rates at the bottom of this page: https://www.hospitalityhelpline.com/services )

On the surface, this sounds a lot like the proposal could be a pretty straightforward management contract, for which I’d normally propose a comprehensive agreement, and a flat monthly rate (of $5k - $15k) depending upon: i.)the length of the engagement, ii.)the total # of hours per week necessary based on projected timeline, iii.)the overall scope of work, iv.)Owner’s budget, v.)Owner’s circumstances / leverage, vi.)collateral already in place and vii.)operational support provided.

Having so few details, you should either expect to receive or supply (and have initial discussions re: ) some very important particulars in order to ensure you’re both on the same page with regard to your mutual expectations being in alignment as well as ensuring you (and your respective teams) have the ability to meet those expectations on time and on budget.

e.g., how much of the build-out is your responsibility to coordinate, sub-out, design, negotiate, etc...?, is the property owned or leased? AND - is there a facility already built out? or is someone building it out? 

Other big questions needing to be addressed (for me) would be knowing how much autonomy you’d have with regard to: demising the squarefootage, utility specs, FF&E selection, approval / budget, concept development, design, overall layout, payroll budget, time and resources to develop training materials, marketing methods and budget, comp checks, specified roles and responsibilities, time and resources to hire and train staff, time and resources for POS / terminals, etc... in other words - is he looking for you to produce a punch-list and a budget in exchange for the possibility of a consulting gig? 

In short: What exactly does the Owner / Developer mean by “open”?

The fee I charge as a consultant varies depending upon my level of involvement and the number of additional parties engaged by the Owner (or me) to work on the project as well (i.e., from GC and AIA down the line). 

As I’m sure you know, a lot depends on who’s doing what, who’s coordinating what and who answers to who. There are a lot of moving pieces to any opening and I’d never want my (or anyone else’s) performance, reputation or fee to be reliant on aspects of the project that are out of their control. 

That being said, I’d also want to know if anyone else was going to be working in the same capacity as me or in overlapping capacities. (That might sound a bit absurd but you might be surprised at how many jobs I’ve turned down because I was going to be one of two or three consultants charged with the same task(s) and given equal seniority.

If the scope of work and terms are to your liking, you may also want to consider accepting payment in addition to (or in lieu of) a flat monthly fee, payment via some small piece of equity / a percentage of Gross Sales (avg of 2- 6%) if the Owner / Developer’s budget simply doesn’t support your fee. There’s never an upside to anyone charging a fee that the business simply can’t comfortably afford- which is just another reason why establishing a budget early on is so important.

Options like these depend not only on the flat rate negotiated (i.e., the lower the flat rate, the higher the gross sales %) but also on a slew of other factors like: concept viability, number of partners involved, level of your autonomy / role, delivery state of real estate involved, occupancy costs, existing or planned vendor agreements, contracts in place, exclusivity to limit cannibalization, market demos, Owner’s previous experience, accounting / bookkeeping method(s), who’s drawing up agreements, willingness to negotiate terms and available capital committed for: labor / payroll, facilities / M&R, FF&E, etc...

Also wondering what the deal is with the GM. When you say that “there will be one”..Do you mean that there will be one already in place? Or that you will be expected to recruit one? Or that the Owner(s) will recruit one? And if so - will this be someone that you can replace if they aren’t working out or will it be their son, wife or niece ??? See where Im going with this?....

Hope these questions help you get closer to putting a number on your time, experience and most importantly - your opportunity cost (value/profit you’ll potentially lose by taking on another time consuming project).

I’m sorry I can’t offer you a simpler answer. Please don’t hesitate to reach out directly if you have any additional / more specific questions. 

See articles on Leasing, Franchising, Expanding, Partnerships, Concept Development, Opening Management, Successful Grand Openings and How To Navigate A Concept or Name Change to a Local Landmark in the Hospitality Helpline Library.

Regards,

Josh