new rest. business - what is my current equity? (catering)

[New Q joint guy]

I need to figure out what my existing catering business is worth, this will factor into my equity into a new restaurant venture. (This is all my equity, the rest of the financing will be cash from partners).

Existing catering business: Does about $30,000 in business, net profit about 18,000. We would do more business if we had the time, but it’s currently a part time business.
The existing equipment (smokers, truck, trailer, misc) has a cash value of about $32,000. We have no debt.
There is the ‘x’ factor I need to calculate. The business is certainly worth more than the equipment or these investors would not be interested in me. Here’s a quick summary:

- Very well known brand and business name in existing market (city 200,000 people) – certainly among clients, people interested in BBQ, and to a lesser extent, the general public.
- Very successful run on the BBQ competition circuit (>5 GCs in past 16 months, including a very high profile comp and a Jack invitation), which has led to:
- Media coverage this year (of catering and competition team) has consisted of a full page newspaper article, a 10-minute documentary available to 40% of the cable subscribers in my state, numerous news appearances (video) and radio interviews, etc.

This value, though hard to calculate, will give us instant credibility in our market. There is a huge demand for our food, I can’t give out more information without revealing who we are. I have come up with a figure of $15,000 though this isn’t based on any measurable criteria. I don’t want to short change myself.
Any suggestions?
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Part time BBQ Caterer considering opening a joint of my own...
Here's my story...
http://www.thesmokering.com/forum/viewtopic.php?t=43055

[Jeff Hughes]

I'd shoot for two times net earnings, plus the cash value of the equipment.
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Klose 72" Mobile
Big Green Egg
Hasty Bake Legacy
Weber 22" Kettle

[Poppa's PTL Club]

Here's the technical answer from an accountant/auditor:

whatever you can get paid for it

Not to be a smarty pants, but that's the real answer. Jeff has a decent formula. If I were you, what I would definitely want to do is to make sure you retain at least 50%+ of the name, otherwise, you might lose something very valuable down the road.
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I likes to eat 'da pig!
Acts 11:5-9

[BBQMAN]

I'd agree with both of the comments above.

My catering business has a proven track record and repeat clients, along with capital equipment, website and etc.

It's hard to put a $$$ figure on your experience (although you admit to no prior raunt as well as your partners in your intro thread).

I do know for a fact that our friend Bill turned his comp credentials into two viable raunts in the north Georgia area. But that's a big geographical difference so it's hard to compare there as well.

The issue of partners is a whole nother can of worms, one that we have discussed here at length a time or two.

If the partners are bringing the majority of the funding, it's really hard to quantify what your percentage should be (back to Poppas comment).

If youre serious about this venture, that's where a lawyer comes in.

I don't own a raunt, but perhaps would like to some day myself- so there are some similarities with us.

I'd be hard pressed to want a partner (other than my wife) either way.

I can't speak for the other small raunt owners here, but I'd look real hard to see if there is actually enough of a profit margin to support "partners"- however many there may be................................
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BBQMAN
"I Turned A Hobby Into A Business".
Providing "IMHO" Since 2005.

[Poppa's PTL Club]

I keep coming back to the whole issue of who would own your name. It can cost a great deal to get set up in a restaurant, if I were a money man and wanted to be a partner with you, I would insist in owning the name, which is something you shouldn't want to give up. Think about it from your partner's point of view:

What keeps this guy from taking his investment (your name and expertise) and walking away at any moment? What do we get out of our investment then?

Now, from your perspective, what are you getting out of the deal? A restaurant that you only own a portion of? A place where you might be buying into serious financial obligations (just because you're only bringing your name in up front, that doesn't mean you're only limited to losing that if it all goes kablooey).

Now, I am assuming that you have already considered this, but the competition BBQ circuit is about as far away from the restaurant work as you can get as far as operations are concerned. Do you cater currently? That's closer, but it's still a good ways away from the stresses and reality of being a restaurant worker (my guess is that's the way your partners would view you). Have you worked in a restaurant kitchen to see if you even like it? It's hot, dirty work (I'v been playing with it and really like it, but that might change if I had to work a 70 hour week to make sure my employees got paid while I went home after 11pm to a grilled cheese sandwich and a wife that was no longer speaking to me because I'd dragged her into this godforsaken thing to do for a living)

It's a lot to think about.
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I likes to eat 'da pig!
Acts 11:5-9

[Harry Nutczak]

The cold hard truth of the matter when it comes to banks and loan officers is that your business is worth about 80% of you current liquid assets (Cash On Hand) and not a penny more.

I do not know how far along you are in the process, but be ready for complete idiocy from the potential lenders.

Things you should get ready to hear are "We'll lend you 50% of the durable equipment value"
And then they may even want to see an outside source of income totally unrelated to catering or the restaurant.

I opened my place with the cash I had on hand and nothing more, We have $850K in collateral and that meant nothing!
I wish you luck.
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Just remember that the toes you may step on during your climb to the top will also be attached to the a$$es you'll be forced to kiss on your way back down!

[BBQMAN]

Some very good advice here Harry!

The only thing I don't agree with is the below.

[Jerk Pit Master]

[daddywoofdawg]

I would copyright your business name,recipes,and any other think that makes your business unquie.If things get hairy with your partners what will hold them from claiming all you have business name,recipes,etc.even though you did most of the work and people came to taste what you sell.Just cover yourself well and keep ownership of everything.there are a few storys on here of good business that have gone bad and the partners screwed the owner.Just protect yourself.and talk to an accountant and lawyer for value.I have heard three times gross before.
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[New Q joint guy]

[New Q joint guy]

Lots of great responses on here, thanks everyone!
Some further commentary...

1) We don't anticipate requiring a loan to open - partners have deep pockets. I will consider making this a requirement if necessary to cover some start-up costs so my equity is not too diluted. I do have a proven track record as a 'quasi-successful' caterer and "bbq guy" and since we will be putting up cash in the neighborhood of 80% of the total capitalization, I don't imagine a loan will be too difficult. (for more reasons than I need to share here)
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Part time BBQ Caterer considering opening a joint of my own...
Here's my story...
http://www.thesmokering.com/forum/viewtopic.php?t=43055

[New Q joint guy]

Poppa... lots of good questions.

[New Q joint guy]

One more thing, if it's relevant... partner is a group of 5 well capitalized guys who have formed a shell company for making investments. I've known all 5 for 10+ years and I have 100% faith in their integrity, business acumen, and intentions. These are regular guys who have done well building their own company. They initially planned on using their capital for more conservative investments but want to spend a portion if it on something interesting. It's not their retirement money. One of their primary goals is to invest in people who are passionate and who want to build something. That's where I come in Major operating decisions will be mine, in fact I expect I will need to pull them in since they will have more wood in the fire than I will and I won't be comfortable making all the decisions myself.
While I still plan on legal assistance to get things 'cooking', the partners are not one of my worries.
_________________
Part time BBQ Caterer considering opening a joint of my own...
Here's my story...
http://www.thesmokering.com/forum/viewtopic.php?t=43055

[Jerk Pit Master]

New Q, that how start-ups are valued.

In you case you can look at it another way. How much time and money did it take you to build the brand equity you have today? Now put a value on your tim e. I bet the total is way more than $15K.

That said, I'd want to structure the deal as a 50:50 JV. You bring your brand, and equipment, they bring everything else to make the venture work. You get nothing until the business starts making money.
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Jerk Pit Master
"Eat Jerk. Be Happy, Mon!"TM
www.GourmetIslandBBQ.com

[New Q joint guy]

Well I've got my initial proposal done, 6 copies printed, will meet with them tonight, along with my wife who will be working by my side in this venture. You guys helped me justify raising my equity valuation and I thank you. And one Smoke Ring member has called me out already, but he's a friend and one of the few people who even knows we have this opportunity.
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Part time BBQ Caterer considering opening a joint of my own...
Here's my story...
http://www.thesmokering.com/forum/viewtopic.php?t=43055

[Pit Boss]

Wow, opening a new business with 5 other people. Trusting them is a big step & it sounds like that isn't an issue.

Have you thought about the accountability you'll have with this investment group? Personally, I want my business to be "my" business. I do not want to be held accountable by anyone else. I do not want to explain my actions or performance to anyone else. Have you thought about having those bi-weekly or monthly meetings with your partners...dissecting a P/L, explaining why your food cost was 1.5% higher this month than last, being asked why transactions are down, having questions asked about your labor percentage, being asked what you are doing about slumping sales (and high labor & out of control food cost). Have you realized that you're about to own your own business...yet still be working for someone else?

Partnerships work for many people...and not so much for many times more.

I do not recommend this. You are about to step into something that won't be easy to get out of.

Your independence isn't near as independent as you think.
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Somewhere in Kenya...a village is missing their idiot.

[BBQMAN]

I'm in total agreement with Pit Boss here.

However, it's not to say it couldn't work.

A handful of guys started Hooters pretty much literally on a wing and a prayer (pun intended) right here in my area, and we all know how that story went!

Good luck with it, I'm looking forward to following your progress.

Speaking of which, do you have a target date for opening?

Location in mind?
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BBQMAN
"I Turned A Hobby Into A Business".
Providing "IMHO" Since 2005.

[az mike]

Just how many slices can you get out of one pie?

[New Q joint guy]

[New Q joint guy]