I have been baking for a couple years as a side business. I have been seeking a commercial kitchen for several months.
There is a newer cafe in my area that is struggling. I spoke to the owner about renting her kitchen off hours. She countered with me using her kitchen for free, supplying my own ingredients and we will split the profits 50-50.
I will continue to take customs orders and grow my business and feel these items should not be included in any deal we make for her establishment. Only items sold in her cafe should be considered in any deal we make for "free" kitchen use
i have a wholesale price sheet worked up with the profit margin for my products between 35-40% for the cafe. Currently, they only offer prefab pie in a couple of flavors. I am offering a premium scratch product.
Since I am a newbie in this business, I would appreciate any thoughts or guidance.
i would not hitch my star to a struggling new business -- this deal would not allow you much room to prosper -- in fact this caking business leaves very little room for anyone to prosper so splitting your profits would really cramp you up -- and you have to define 'profits' --
i would not take this deal -- look for something else
I'd go with a straight rental agreement with them, and sell them any baked goods they want you to make for them at wholesale so they can mark them up however they want. When you start talking about splitting profits it will get too tricky. Like you said, would they want profits from the custom orders that don't get sold in the shop? And do you even have a profit margin yet? Profits aren't what you make, it's what you make after all your expenses are paid, including your own wages. So any "profits" they're thinking of are probably not the "profits" you're thinking of. They might be thinking that if you sell something for $10 you'll give them $5 of that, but that isn't the profit amount.
Whatever you do, get it in writing and get an attorney involved to make sure everything is right.
I'd be questioning the why are they struggling part more. How bad are they struggling and why? What happens if the go belly up where do you stand on using the kitchen? I would personally keep looking elsewhere but if you can enter into a rental agreement that allows you to use the kitchen even if the cafe fails then I might consider it of course with the involvement of a lawyer and a very thorough contract. I wouldn't split my profits with anyone. Sell to them what they want at a price you think is good for you and fair to them and let them figure out the rest. The food business (bakeries and restaurants alike) have a steep hill to success today and I wouldn't want my new business having an even tougher climb bc it's attached to a struggling business. Whatever you chose to do I hope it's successful and works out great for you!!
I second all of the above. 50/50 is nowhere you want to be especially if you're just starting out. A rental of the facilities makes things much cleaner and clear.
Ditto on the rental only. Never do a 50/50 profits split unless you have a 30 page long, VERY detailed contract by the best attorney in the USA. (In other words, never ever....)
If this place is currently selling "pre-fab pie", will the customer base be willing to pay the higher prices that will be in place after the struggling owner incorporates her mark-up to your prices?
Just because you are making a premium, scratch product does not necessarily mean that will translate to profitable sales in this cafe environment.
I agree, do not split 50/50 do only a rental agreement. I have done this in the past and it didn't work out. I worked soo hard and sometimes you dont get the margins. They do end up wanting some of your additional sales % and and and it just gets worse. You need to have a clean cut rental agreement and they buy from you Wholesale, its the best way for your business to prosper and the cafe to keep it fair. Best of luck.
Thank you all for replying to my post! I appreciate your time and experience!
I have done an updated post for this as the plot has thickened-