Partner, Employee, or What?

I’m looking for a pizzeria to buy. I have the capital, but obviously, I can’t do all the work. I’m pretty sure I’ll need at least one manager at the start, because I can’t be there every day for 12 hours. I have a friend who is interested in getting involved, but he probably does not have much capital.

I would like to give this guy a good opportunity, so he doesn’t end up with nothing but a $25,000 job after doing a big part of the work necessary to get the business going. On the other hand, it makes no sense to make someone a full partner when I’m taking all of the financial risk and paying all the bills. If the business fails, I eat the entire loss, and he goes on his merry way. And I want to retain over 50% of the business so I won’t have to beg other stockholders to let me make business decisions.

What’s a good approach to take? I have considered various options, such as letting him buy into the business over time, at a low interest rate. Or I could put him in charge of a second operation, if the business succeeds, with a share of the profits.

Benedetto:

I would like to give this guy a good opportunity, so he doesn’t end up with nothing but a $25,000 job after doing a big part of the work necessary to get the business going.

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What’s wrong with that? You hire him to do a job - and you pay him for it. It really is as simple as that. If he doesn’t want to do that, then you will find someone else that does.

I understand the “desire” to make someone a partner, part of the business, etc. But unless you need his money, I’d avoid that whole can of worms.

You’re absolutely right. It’s just that when you work with a friend, you have a natural desire to help him out.

Benedetto:

It’s just that when you work with a friend

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there’s your problem right at the start. You’re not working WITH him he’s working FOR you. This board is littered with people who go in to business with friends/relatives etc and it doesn’t work as the existing ‘relationship’ causes problems with who does what etc.

I’m not aware of any partnerships on this board (other than husband and wife) so that should tell you something. If you are employing him the fact he is a friend does not necessitate a higher reward than someone else doing the job does it. The fact he is a friend will (in nearly all the cases I’ve come across) lead to the line between employer/employee becoming fuzzy. Managing staff is not easy, managing someone we are close to is almost impossible. Steer well clear in my view.

You’re right. I have to quit being Santa Claus and think more in terms of galley slaves than partners.

Someone who comes to work and gets a check whether the place is making money or not is an employee. Period.

If they are doing a great job and you want to offer profit sharing as a bonus that is just fine and is a good idea.

After a couple/few years if you want to give them 10% to nail their feet to the floor that is up to you, but I would not do it.

Your money, your show.

I’ve hired friends and family in the past and most of the time it ended up causing a lot of problems. Sometimes the people that are closest to you are the ones that are most likely to take advantage of you. It’s sad but true. My philosophy towards hiring someone is that if I can’t fire them then I can’t hire them. That’s how I feel towards family and friends. It’s not worth risking a friendship or causing family problems.

My manager is my 27 year old daughter.
She is treated as every other staff except that see talks with me about running the shop - ie rostering, new menus, staff performance etc. She takes her direction from me and gets paid a full wage with all benefits.
Should it occur she also gets hauled over the coals just like a staff member would.
If you hire a friend yoou have to clearly spell out that you are the owner and the one responsible for the financial - which include his wage - and that while at work he is a worker and not the friend. Frienship is for outside the workplace.
Make it clear fromthe start otherwise it will be the tail wagging the dog and not the other way round.

Dave

business with friends and family can end badly. Everyone has to understand each other and move the same direction. If you have a desire to help him out that’s awesome but do it in writing. Even an agreement won’t protect you from it causing issues with your friendship espeically if the business isn’t going well. Two of the fastest ways I know to lose a friend is to live with them or go into business with them.

When people start partnerships not everyone brings cash. Some people bring other assets like equipment, property, skillsets, etc.
If you really want to pursue this you could give him a small part of the business and a lower starting salary (just one possibility). This would give him stake and incentive in the business and potentially make your cash flow a little easier in the beginning. Make sure the exchange is fair for everyone and in line with the risk they are taking. Without knowing your situation or your risk I’d proably not go more than 2 - 3% to him unless he brought a major skillset that would really contribute and move the business forward. You could then allow him to buy up his equity as you move forward and the store starts making it.
I’d probably be more inclined to do something more like options that allowed him to buy into the business and become a partner down the road as he proves himself and the business get’s on better footing.

good luck and let us know how it goes!
Bryan