Have you ever had this thought: As a qualified restaurant owner, you have considered the possibility of expansion, but the thought of risking your current successful venture on a shaky opportunity is frightening? There may be an option that will work not only for you, but also, for an owner who needs new life injected into a tired, wobbly project. The restaurant management contract is a possibility worth exploring that many business people use to test new ground. The concept is simple: A new team, acting as owners, runs the daily business. This injects new life into projects and relieves the old owner´s of incurring further debt. Under most management contract terms the new managers benefit from the profits but also accept the losses.
Just last week, The Oakville Grocery Company entered into a management agreement with a few Napa Valley entrepreneurs, who according to rumor have a substantial interest in the Dean and DeLuca gourmet chain.
This is a very interesting situation as it gives the owner´s of Oakville some financial breathing room that they desperately needed. With the closing of their San Francisco Cannery store after only 18 months of business, the high six figure-plus investment loss the company endured was crippling, as it was their second store closing in almost as many years. The concept has been in need of fresh executive vision for almost a year.
The management contract (MC) is a standard operating procedure in many culinary ventures. Moreover, this is the perfect time of year to begin searching for a failing property. The winter months have their toll on many restaurant owners who may have squandered capital, made poor management decisions, or are simply tired, frustrated and less enthused as they once were with their business.
The MC is the perfect way to enter into an agreement with very little capital, a lot of potential and an exit position if the property or project doesn´t work out. Plus, it isn´t too difficult or time consuming to enter into an agreement.
Make sure a lawyer reviews the terms of the MC. However, the terms are usually very simple and take into consideration length of time, option to purchase, past debt, future debt, profit, and monthly fee paid to the owner.
In many cases, owners are willing to walk away from a failing project as long as the future debt, lease payments, and utilities are paid. In making your decision to enter into an MC, make sure that the project has profitable feasibility, that the problems that caused the decline can be solved and reversed and that in the long term, it´s what you really want to do.
Nothing is more catastrophic than entering into a management contract and finding it was merely a game of Hot Potato.