Business Sublease Contract...?

Business By Bri122005 Updated 9 Nov 2011 , 3:10pm by cakegirl1973

Bri122005 Posted 1 Nov 2011 , 10:26pm
post #1 of 20

There is a new restaurant in town that plans on opening in a couple of months. They've asked me to partner with them. They want to use my company as an additional draw to bring in customers. So, what they are proposing is that I sub-lease from them. They will give me full access to the kitchen anytime I want and purchase all of their breads, desserts, etc from me. They want me to have a display in one section of the restaurant where I could show cakes, sell individually wrapped items, etc. They will also put my company name on their signs and advertisements....they will say "such and such restaurant featuring _____." Can you guys tell me if this arrangement sounds good, and where I sould start in getting my paperwork and contract in order? Thanks!

19 replies
sugarandstuff Posted 1 Nov 2011 , 10:53pm
post #2 of 20

I would start with contacting a lawyer.

jason_kraft Posted 1 Nov 2011 , 11:04pm
post #3 of 20

You may not necessarily need a lawyer, but you should talk to someone who has business experience who can help you put together a business plan and make sure the numbers in your contract make sense from a profitability and production standpoint.

You'll also want to iron out details like whether you will be using your own ingredients and supplies or the restaurant's, what happens to your products if they don't sell, exclusivity clauses, and so on.

Also, depending on where you are located, you may need to be inspected by the health dept separately if you are operating as your own business, and you will definitely want to have your own liability insurance coverage.

MimiFix Posted 1 Nov 2011 , 11:13pm
post #4 of 20

Are you currently in business? If so, where is your production? My biggest concern: What happens if that business fails? You need to have contingency plans written into your contract. The concept has possibilities but you need to protect yourself before you get "married."

jason_kraft Posted 1 Nov 2011 , 11:16pm
post #5 of 20

And if you don't already have your own business you may want to consider becoming an employee of the restaurant, so they can take care of everything on the business side (unless you have the time and inclination to handle all the necessary backoffice tasks yourself or hire a business manager).

Bri122005 Posted 2 Nov 2011 , 1:43am
post #6 of 20

Thank you for all the replies. I've been working on getting my home-based business up and running for a while. I've been struggling with that because of some issues with my well that I can't afford to get fixed right now. So, having the commercial kitchen to work out of would really be beneficial for me.

Also, the restaurant couple already has the bakery part of the restaurant designed and approved by the health department. They knew from the beginning that they wanted to bring someone in to do baked goods and breads from scratch. When they discovered my business, things just started coming together.

As for ingredients, I would bring all of my own materials in - ingredients, pans, mixers, racks, etc. They have the ovens and other basics, but I need to get everything else. The biggest issue with that is the bakery all of you know, it's not cheap to get those items. If things don't work out, I can't just bring a huge display case back to my house. So, I have to think about that some more.

The restaurant will be using my breads, desserts, as part of their menu. Their sandwiches will be made on my bread. The desserts they have on their menu will be mine. So, they will buy these things from me and sell them on their menu. The display cases for my company would probably have some individually wrapped items for sale, but not a huge selection. I would mainly use the displays at first to show cake dummies. (jason_kraft, does that answer your question about product sales and exclusivity clauses?) But, I'm hoping that in @ 6 months, I could start opening the restaurant early as a bakery and sale breakfast breads, pastries, etc. I want to make sure things are going to run smoothly before I start that, though.

Lastly, a lawyer is probably a very good idea. I'll mention that to the other couple and see about setting up an appointment with someone.

MimiFix Posted 2 Nov 2011 , 2:21am
post #7 of 20

Bri122005, this sounds exciting. But complicated and a lot of work. Do you feel comfortable producing the variety and quantity of baked goods you've detailed here? Also, do you have food service experience and business experience?

You'll need locked storage for ingredients and finished products. Would you sell everything wholesale to the restaurant? You'll need to keep track of your items. This can be a very tricky situation.

The entire concept is unique and has potential, but it seems like a very difficult business model to create. I owned a bakery and cafe, and I do understand the daily reality of running a labor-intensive business. It's hard for me to conceptualize being able to have two businesses so intimately mixed into a smoothly running operation. I know this seems like such a wonderful opportunity, but you have a lot to lose if it doesn't work out. A lawyer will help you sort out the business details. Good luck.

Bri122005 Posted 2 Nov 2011 , 12:13pm
post #8 of 20

Mimifix, I can do the baking. I've never been trained, but I come from a family and background where baking/cooking is in the blood, I guess. I didn't really start my "business" on purpose actually. I lost my job and took some food to the flea market to make a little extra cash, and people just started calling and asking for stuff. That's how all of this started. Breads, pies, pastries, cakes...I can do all of that from scratch already. I will have to learn to work a little faster then I am now, but I guess that will come with practice.

Two chefs trying to share a kitchen, on the other hand - that sounds like a nightmare on some levels. I keep picturing my mom and me on Thanksgiving stepping on each other trying to get everything done! I won't sell to them wholesale really, but they will have a very reduced rate - and I'm thinking maybe I can keep a tab for them posted in the office of what's been "purchased." Then at the end of the month, we can go over the invoice and excange money. For example, if my rent is $1000 and they've purchased $800 worth of baked goods, then I give them $200. Do you think that arrangement would work? Or should we do a monthly rent and then charge them daily or weekly for baked goods? Which would be less problematic?

Thank you guys again for all the advice. My husband and I have another meeting with this couple in a couple of weeks, and I want to have all my ducks in a row by that time. Thank you!

jeartist Posted 2 Nov 2011 , 1:19pm
post #9 of 20

What do you know about the people opening the restaurant, their experience, their business background, etc? You'll be tying your name to them and that could be great and it could be not so great.

MimiFix Posted 3 Nov 2011 , 11:57am
post #10 of 20

Bri122005, use of the kitchen space is the least of your problems. Baking is done when the restaurant is not open, or when they have a light schedule. If that means you work from 10 p.m. until 8 a.m. then those are your hours. Restaurant service depends upon making food for customers when they come into the restaurant; baking can be done anytime.

It's good that you have home baking experience in producing products for sale. Have you ever worked in a food service business? It's much different from baking at home. It's a totally different reality. It would be good to find a short-term job or volunteer to gain the experience before starting up.

jeartist asked what you know about the people you would be partnering with. I hope you have already investigated this.

Bri122005 Posted 3 Nov 2011 , 3:03pm
post #11 of 20

I know some about the people opening my restaurant.... The wife and her side of the family have been chefs in restaurants for years. The wife also has experince doing the paperwork and finances for businesses. The husband's mother use to have a career helping other people start-up their own restaurants. So, she would go in for the planning process, get them up and running smoothly and then move on to another project. So, I know they do have experience and knowledge. And I know that we have discussed our work ethics and business goals, and they are very similar. As for their food quality, I don't know about that. They are planning to cook fresh, seasonal food; so, that's a plus. But, that's all I know right now.

As for my own experience in a professional kitchen, no I don't have any. My mother has worked in bakeries. My grandmother ran a bakery for many years, and my grandparents actually opened the first doughnut shop in my hometown. My grandpa was a chef in several restaurants when I was growing up. So, I have some experience around commercial kitchens and lots of people who I can consult for help, but no personal hands-on time myself. I can't get into a professional kitchen to work before this restaurant opens, mainly because of time constraints and because I have two little ones that I have to watch full-time. That's another good thing about this oportunity...they know I'll have my children with me while I'm there, and they have agreed to make part of the office a play area for them. I also know that I'll be able to practice in the kitchen for @ two weeks before the opening in order to get familar with the equipment and everthing. I had already thought about how different the baking would be and asked about that.

Thank you guys for bringing up all these points. It's helping me to get a big picture about everything I need to think about. I really appreciate all of your insights, and I'm taking everything into consideration. Lots of thinking to do! Thank you!

jewelsq Posted 3 Nov 2011 , 4:26pm
post #12 of 20

Here are the real obstacles I see for you so far. Please don't think I'm being negative. That's not my intention, only realistic as I have lived through beginning a business...with a baby (who is now 16).

You don't have commerical foodservice experience, which is a beast on its own. Preparing a loaf or two of bread and maybe a cake is much different than supplying even just one restaurant with its bread AND desserts, daily.

Bringing your children to work with you. If I owned the restaurant, that would be a big red flag as children are a distraction both to you and the restaurant owners. It's hard enough to be a mom and to open a business, exclusively. It would drive me to insanity to try to serve both of those masters. Are the children out of diapers? If so, that means they are mobile and likely to get bored after the first 15 minutes on premise. And what's going to happen if your children are ill?

Some serious stuff to think about because it affects everyone, especially the kids.

Bri122005 Posted 3 Nov 2011 , 5:21pm
post #13 of 20

I don't see any of this as negative. I need and want to think about all the goods and bads before making a decision. So, thank you for your post. And I agree. Taking care of the kids and trying to meet my business demands already drives me to insanity at times. But, I'm also very use to working with them around. Neither of my children have ever been in daycare. After I had my first child, I took her to the office with me everyday when I had a full-time job. That job was very demanding, and that's one of the reasons I had to quite when I got pregnant with my second baby.

My oldest is in kindergarten - the other is three. Three is a terrible age to try and start this! But thankfully, my husband wants the business to happen. He's very good about stepping in and helping out when I need him to. I have a friend who will eventually be the first person I hire, and we've already talked about some of this. She can help me out at times - taking the 5 year old to school, babysitting if needed. Also, my parents live an hour away, but they are very supportive. I can always ask them to come up - my mom help me with the baking, and dad help with the kids.

I prepare lunches and dinners for some churches and for the teacher's appreciation events at my daughter's school (charity events). I serve meals for 50 to 100 people @ once a month, and I prepare everything by myself. Last month I did a mexacan dinner for 50 with flour and corn tortillas, 3 salsas, black beans, corn, avacado salad, braised chicken, flan, tres leche cake, churros - everything made from scratch. I've gotten pretty good at scheduling my time in order to make sure everything gets done while factoring the family issues into it. I know it's going to be completely different and 100 times more demanding in the commercial kitchen, but I hope my eyes aren't completely shut to the demands.

Bri122005 Posted 3 Nov 2011 , 5:40pm
post #14 of 20

I don't want it to seem like I think I know what I'm getting into. I know I don't have a clue as to how hard all of this is going to be if I decide to go forward. That's why I'm coming to you guys. A couple of months ago I had the opportunity to open my own shop, and I delined because of my family. I knew it would be too hard on the kids and my husband to try and do it alone. But, with this arrangement, I'm considering it because I won't be opening a business on my own. So, anyway, I didn't want it to seem like I was just brushing off the warnings and concerns that are being brought up. Just replying as to what qualifications I do have on the subject and seeing it all in black and white helps me.

Ironically enough, my family is already talking as if this is happening. My husband is 100% sure we're going to do it. My 5 year old talks about mommies building whenever we drive by it. And my 3 year old told my dad on the phone she was helping mommy build the house (that's what she calls the restaurant). So, I'm the only one still saying "hold on!" I don't want to do anything foolish.

jason_kraft Posted 3 Nov 2011 , 5:54pm
post #15 of 20

If I were in your situation with two kids to take care of I would definitely be leaning toward becoming an employee of the restaurant instead of maintaining my own business. Take your time in the kitchen and double it for a good estimate of how much extra overhead time is involved in running your own business.

Also if I was the restaurant owner I would not be OK with young kids anywhere near the kitchen, for liability reasons. If one of the kids was injured the restaurant's insurance company would question why kids were there in the first place, and they might not cover any resulting claim against the restaurant.

CWR41 Posted 3 Nov 2011 , 8:15pm
post #16 of 20
Originally Posted by Bri122005

Then at the end of the month, we can go over the invoice and excange money. For example, if my rent is $1000 and they've purchased $800 worth of baked goods, then I give them $200.

This statement worries me. You don't want to be in business, if it's not profitable. Sounds like you should take the time to do a business plan first.

Bri122005 Posted 3 Nov 2011 , 11:25pm
post #17 of 20
Originally Posted by CWR41

Originally Posted by Bri122005

Then at the end of the month, we can go over the invoice and excange money. For example, if my rent is $1000 and they've purchased $800 worth of baked goods, then I give them $200.

This statement worries me. You don't want to be in business, if it's not profitable. Sounds like you should take the time to do a business plan first.

That was just an example and just the business with them. I will still be doing my own business. The restaurant will not be my only client.

scp1127 Posted 9 Nov 2011 , 7:34am
post #18 of 20

You need a business plan, and a detailed one. And you barely have enough time to do the research. This has too many red flags. You will be obligated to supply them with these goods, and as a mother and with no experience in high production baking, and no business experience, I can't see how you will do this.

Bringing your children to work in this environment is unfair to them and your partners. You said it didn't work out at the last job. This job will be much harder because it is based on output, not hours you worked. Ideally, you do as previously stated and work in the middle of the night while your children sleep. Your husband can keep them. Plus all baked goods, especially bread, needs to be fresh in the morning.

Have you even tried to produce the amounts of bread and the variety of desserts this restaurant needs? Do you know how much the restaurant needs as a minimum and how much is capacity based on hours and seating? Do they know? What does their business plan look like?

What are you going to do if a child gets sick? Or you? You are a business owner and you have an obligation... a big one... with a contract where you could be sued for breach. As Jason said, an employee has no liability. You will have plenty.

What if your time management keeps you from ever accepting an order and you are in the hole to them at the end of the month? This is a real possibility. But you are still under contract. Do you have a trained employee waiting in the wings? This type of baking takes time to learn. An unskilled employee will cost you for several months. Do you understand employee law in your area? Adding employees is much different than a one man show.

They are very smart people for wanting their baked goods from an independent contractor, and someone with experience could make this work. But I just see many problems. In this scenario, they have no problems with employees, quality control, profit, cash flow, etc., you have all of this.

If you can do the business plan based on man hours and production with all variables considered, have it looked at by an accountant for viability. This would be where I would start. Because those man hours, based on your posts, is one person, you. Is this really what you want and is it even possible?

I'm not trying to rain on your parade, but you will be obligated by that contract and you can potentially lose a great deal. Just be cautious with your eyes wide open.

MimiFix Posted 9 Nov 2011 , 11:52am
post #19 of 20
Originally Posted by Bri122005

... But, with this arrangement, I'm considering it because I won't be opening a business on my own...

Ironically enough, my family is already talking as if this is happening. My husband is 100% sure we're going to do it. My 5 year old talks about mommies building whenever we drive by it. And my 3 year old told my dad on the phone she was helping mommy build the house (that's what she calls the restaurant). So, I'm the only one still saying "hold on!" I don't want to do anything foolish.

You're right to say hold on. Your husband is not thinking this through because he doesn't understand the details. And you certainly shouldn't get business advice from young children.

As I wrote earlier, I owned a bakery and cafe and I DO understand what's involved in running a business. I would never attempt the scenario you have posted here. There are too many red flags, each of which has the potential for failure. Please rethink everything. We're on your side!

cakegirl1973 Posted 9 Nov 2011 , 3:10pm
post #20 of 20

You've been given some very good advice from the prior posters. You are very wise to not want to jump into this, even though your DH is full-steam ahead. IMO, you should explore with the owners first becoming an employee. This will give you a trial period to determine if it may be viable in the future to consider developing a business relationship with the owners. Also, it will give you an opportunity to gain experience in a commercial kitchen, as well as to find out if you will be able to balance the work with your family life.

In the meantime, work on developing a solid business plan. If your business plan is viable, and the owners still want to proceed with an arrangement with you, then you should consult an attorney and a CPA for further guidance.

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