On the Line / Operations / Should You Have a Business Partner? Why & Why Not

Should You Have a Business Partner? Why & Why Not

Opening a restaurant with a partner? Check out the benefits and risks of co-ownership, and how to ensure your partnership works out.

Business partner

The first restaurant I worked at had five owners: One was the executive chef, and the other four were general managers. Finding even one business partner you click with can be a challenge, let alone four of them. And while this is just one case, it was the best-run restaurant I've ever worked in. Front- and back-of-house staff of all levels stayed on for decades. This restaurant had other things going for it, but I attribute much of its lasting success to the teamwork mentality that extended all the way up to the highest ranks in the business. All four GMs had a better work-life balance than most in the industry, leaving them time to spend some weekends with their families and friends and keeping them refreshed and engaged in the business. 

These owners’ success doesn’t mean you should rush out and find a business partner (or four), but it’s worth exploring the benefits, risks, and best practices of business partnerships in the restaurant world. We've also thrown in definitions of the five most common types of restaurant partnerships.

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Restaurant Business Plan Template

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The Upsides: Why You Should Have a Restaurant Business Partner

Division of labor. Having another person to divide the workload of opening a restaurant and keeping it running can be a game-changer. There will be times when one of you is sick or burnt out and the other picks up the slack. A good partnership will have the give-and-take that makes for healthier, happier business owners.

Financial support. Having a business partner removes some of the financial burden of opening a restaurant. You may be coming to the project with different financial backgrounds, but you won’t be dealing with loans or banks alone. You’ll also be starting with two pools of money where there would otherwise only be one.

Camaraderie like you’ve never known it before. You’ll have a partner to share the ups and downs of restaurant ownership, and there will be many moments that you’ll wonder how you could possibly do any of it without them. The business can succeed or fail, but either way, you’ll be in it together.

Accountability to make it happen. As business coach Melyssa Griffin says, a business partner can push you to actually do the thing, to put in the work to make your dream of restaurant ownership a reality. It’s easy to daydream about quitting your job and opening a restaurant, but if you’ve made that plan with another person, you’re more likely to make the leap.

An ideas sounding board. A business partner can help you dig up your best ideas, or tell you when one should be worked on a little more. “We find that our two brains help with creativity,” says Tom Amsden, co-owner of The Den in Grantsburg, WI. 

Diversity of skills. A business partner worth having is one who can tackle things that aren’t your forte. More on this below.

The Downsides: Compromise, Risk, and Division of Profit

Compromise. There will be no “my restaurant” — It’s going to be “our restaurant.” This means any idea you have, be it related to menu, design, staffing, or finances, will have to be agreed upon by both of you. Compromise will be a big part of your business model; the partnership will fail without it. If you’re both headstrong and unwavering, the whole process will be difficult.

Risk of losing the relationship. There’s a reason they say never to go into business with family and friends. Opening a restaurant together can be one of the biggest tests of a relationship. You will likely butt heads at some point and then make up, but there’s always the chance that getting money (and property, and bureaucracy, and life ambitions) mixed up in your relationship will lead to the fraying of your ties. People have fallen out over less.

Division of profits. In the absolute best-case scenario, your restaurant thrives and you have customers lining up around the block. Your food cost is good, your inventory isn’t spoiling, your equipment is in good shape, and your staff feel appreciated, so they stick around. This means that maybe — just maybe — you’re actually looking at profit (in this famously narrow-margin business). If you have a business partner, that profit is being split in two (or more), no way around it.

How to Set up a Stable, Worthwhile Business Partnership

Now that you know the pros and cons of going into the restaurant business with a partner, you should consider these business partnership best practices well before looking for real estate or dreaming up a menu.

Contracts, contracts, contracts.

Draw up an ownership agreement. It’s the best way to prevent problems before they start, explains accounting firm Kahn Litwin. If you don’t know how, it’s worth getting in touch with a lawyer who can help you. It’s better to hire one now, briefly, to prevent problems, than to hire one later to try and solve them. Why draw up a contract with your brother/cousin/friend? There’s a lot of bureaucracy and red tape ahead of you. You’ve got a lease — will both your names be on it? What about insurance? Who will take which role and title? All these questions need firm answers because otherwise, things can get messy.

Make sure they bring skills to the table you don’t have.

Are you an inventory and accounting whiz? Are they an experienced chef with awesome people skills? Great.

A business partnership will be most useful and harmonious if all people bring different, complementary skills to the table, explains Entrepreneur.com. This way, you’ll have a good shot at feeling like you’re both pulling your weight. If both of you want to be executive chef/owner, it might not be an ideal partnership. Think about the skills that are essential to a restaurant owner, and make sure that between the two of you, you cover all the bases. 

A good partner is “someone that will be by your side, and that will help you with things you aren’t strong in, and vice versa,” said Brian Alvarez, co-owner of the family-run Mon Alyssa Restaurant in Point Pleasant, NJ.

Brainstorm your visions and sync them up.

Make sure you’re on the same page about almost everything, if not literally everything. The Founder Institute says that when starting a business, it’s easy to get excited and just run with your idea, but it’s crucial for all stakeholders to sit down and ask questions like:

  • What do you want the business to look like five years from now?
  • What kind of bosses do you want to be?
  • What kind of employees will you be looking for? How will you keep them happy?
  • What’ll be on the menu?
  • What kind of restaurant atmosphere will you create? Where should you open?
  • How will you spend your money? What kind of point of sale system will you invest in?
  • What kind of impact do you want to have on your community?

Map out the worst-case scenarios and distribute responsibility.

From problems tiny to monumental, you’ll likely run into all of them in the course of your ownership of a restaurant. Mapping out the worst-case scenarios will prepare you for (almost) anything.

If there’s a late-night or early-morning equipment repair, a flood, or a break-in, who’s going to be the person to come in?

If you have to fire an employee, who will have that conversation?

If the restaurant fails, what will you do?

If one of you wants to move on, what’s the plan?

Be honest about personalities and personal histories.

You'll likely spend more time with your partner than you will your spouse, so this person needs to make you feel supported and encouraged most of the time. Don’t go into business with someone you’ve fought with many times or someone you wouldn’t trust with the keys to your house.

Be frank about money.

It seems obvious, but especially if you’re partnering with someone you know well, you’ve likely never had a frank conversation about money, numbers, and decimal points. Discuss how much money you can bring to the table and how much they can bring, because chances are you’re going to need a lot more, and it’s going to have to come from somewhere. Talk about loans, credit scores, and histories with debt.

Another element to consider is whether or not you can afford to have a partner, says Entrepreneur.com. Will your business be able to make enough money, and fast enough, to support yourself and your partner, as well as all of your dependents?

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So, what kind of business partnership are you embarking on?

According to Investopedia, here’s a breakdown of the most common types of business partnerships.

Co-Owner: Your co-owner simply shares a percentage of your restaurant. What percentage, what roles, and what rights they’ll have within the business (including how profit, liability, and taxes will be handled) can vary depending on what kind of agreement you draw up.

General/Managing Partner: Similar to co-owner, a general partner is an owner of your restaurant, but they generally have equal authority to act on behalf of the entire business, so they have unlimited liability. If something goes wrong, they could be liable to pay or liquidate their assets.

Limited Partner: A limited partner is someone who owns part of the business but doesn’t take part in the day-to-day managing of the restaurant, so they'll have limited liability and won't have to risk their personal assets. Only one person must be a general partner, taking on the risk themselves.

Silent Partner: A silent partner is someone who has only given money to support the business. They’re not involved in restaurant operations or management. They also tend to be limited partners, with liability usually limited to the amount they invested.

Investor: Someone who gives you money to start/run your business with the expectation that they'll receive money back eventually. They don’t have a day-to-day role at the restaurant.

Now that you know the benefits and risks of business partnership and how to ensure it’s a mutually beneficial and successful partnership, there’s only one thing left to do: Seek out your business partner and get planning.

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