How to Effectively Enter a Restaurant Partnership

Beata Grace Beatty

Beata Grace Beatty

Beata is a Florida-based freelance writer. When she’s not researching and pitching story ideas, she’s reading, walking on the beach, fiddling with home projects, and keeping up with her two daughters.

The legal definition of a partnership is the “business operation between two or more individuals who share management and profits.” Various partnerships include co-ownership, general or managing partnerships, limited partnership, and silent partnerships and investors. Defining roles and responsibilities in a small business from the start can make or break your business.

Critical points to understand and discuss with potential associates include:

  • Defining roles (financial and day-to-day)
  • Open communication (and potential confrontation)
  • Expectations and exit strategies

A man and woman discussing the roles and responsibilities of their partnership with a 3rd party

Contracts are crucial

One of the most important conversations and legal actions when forming your partnership is an ownership agreement. Although you may not be able to foresee every scenario, an upfront agreement will create the roadmap you need to maneuver growing your business. 

There are endless issues that exist from the get-go. Do you share a lease? Do you have a business loan? What are your roles and titles? What are your ownership stakes? If the business fails, what’s your exit plan? Talking through these issues with a lawyer upfront and establishing a legal and binding document can save you from headaches and failure in the future.

There can only be one captain

Although possible, it’s not usually wise to have a 50/50 partnership. Disagreements are bound to arise, and with this type of agreement, one person can’t take action without the cooperation of another. Thre are ways around this, for example, having a minority shareholder or creating a resolution process in your contract. However, in general, a partnership split where one person has majority control provides clear accountability and prevents deadlock.

Have unique but complementary perspectives

As you are starting up your restaurant or food truck, think about your strengths and weaknesses. You make magic in the kitchen, but how are you with the finances, negotiating with vendors, or anticipating employee needs? A potential partner should have skills that complement your own. Psychologically, this provides each partner with feelings of true ownership and worthiness that keep everyone motivated.

Talk it out – honestly

Everyone in this venture has something at stake, and keeping lines of communication open is critical. Effective communication strategies include honesty, following through on what you say you’ll do, sharing resources and contacts, staying in regular touch, and when in doubt, overcommunicating.

The essential exit strategy

Any partnership should be mutually beneficial. Although this is an obvious point, it’s important to remember because often, the relationship doesn’t last. A productive partnership includes options for partners to buy each other out or allows for partners to walk away from the venture. When appropriately structured, exit strategies can be simple and allow for the remaining partner or partners to continue operations.

Ultimately, it’s essential to have a well-defined partnership agreement in any business to avoid becoming bogged in legal disputes when the relationship ends. Upsides to partnerships include financial support, a team spirit, accountability, and division of labor. Downsides may include risking a valued relationship, dividing profits, or compromise beyond your comfort level.

It’s important to remember the best-structured partnerships create clear expectations. They also provide a road map to any issue you’ll face in the process of launching and managing your new restaurant.

 

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