Someone sent me this question: I want to get a loan and partner with a chef to open a restaurant. I will provide the money. How do we divide the shares?
My answer: This is an excellent question and I would like to commend you right away for thinking through this question beforehand. Sometimes, people get excited about having a business partner, and starting a business without being clear about the partnership details.
There are two things here:
You are bringing in the money.
Your partner will do the cooking.
That seems good but as complete as that looks, I have some hard questions for you:
Your partner is a chef, so yes they know how to cook but do they know how to run a business? Knowing how to cook and running a business that cooks are two different things.
You are bringing in money which basically makes you an investor. Do you know what it means and what is required of an investor? What are you thinking about the possibility of losing your money and how do you plan to prevent or minimise that?
About your partner: People assume every chef can run a restaurant but that is simply not true. Cooking is about preparing great food. Running a restaurant goes beyond that. It involves finance, sales and marketing, dealing with human resource etc…it is much more involving.
This is the premise of the book called the E-myth revisited: why so many small businesses don’t work and what you can do about it by Micheal Gerber. It’s about the myth that when someone knows how to do something then they can run a business that does that service.
I highly recommend this book to you.
About who should have what shares or authority:
You are putting in money, your partner will put in sweat equity.
Honestly speaking sweat equity is not easy to evaluate and quantify.
But let me give you a scenario: you have started running your business and there is a very important business decision to be made. You both have different views on what should be done.
Who will be the person to have the final say? Please don’t say vague things like we will work it out. People find themselves in court with business partners because of failure to clearly define authority and responsibilities from the beginning.
If you get my book START WHERE YOU ARE, I have a whole chapter on starting a business with a partner. I even give my personal experiences on this matter.
I hope these points help you to think through your plan.
All this said, a good business partnership is like a good marriage which will contribute greatly to your personal success and business progress.
I wish you the very best.
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