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Jamal Afzaly of Lounge Eighteen in Calgary, Alberta, Canada, has a theory that one of the main reasons bars fail is due to bad partnerships.
In this article we’ll look at partnerships in greater detail. This information will assist operators in learning how to work properly in a partnership arrangement and teach them how to identify someone who may not be good to partner with. Afzaly is an expert on this subject as he has operated bars utilizing a combination of private and bank money, and successfully kept the peace between the investors and operators.
Most operators will form a partnership in some form when they start their businesses. While bank money is available for the hospitality business to those with the credit and connections to get a business loan, much of the initial financing of bars and nightclubs is generally the result of friends, family and business associates pooling their private money. That capital goes into the initial construction and, in an ideal situation, the operating partner runs the business while the financing partners share in the profits but don’t play an operational role.
This all seems simple, but in the real world things often go wrong in these arrangements. When this simple agreement between parties goes sideways, the total collapse of the bar is not far behind. The partnership is the backbone of the entire business and building a partnership that will last is vital.
Here are the four main things to look for in business partners.
1. Business Experience
New operators are often tempted to partner with anyone who has money and is willing to invest in the dream. However, it’s not smart to accept money from people who don’t have business experience. People without first-hand experience in business ownership won’t understand the ups and downs a business must go through to ultimately become a valuable asset.
A bar, for example, only becomes a valuable investment after three to five years, after the debts from initial construction are paid off and the business has consistent sales. The first few years, the business is not only paying off debt but is also in customer acquisition mode, so there are a lot of re-investments back into the business to establish regular clientele and upgrade infrastructure.
If a silent partner doesn’t understand all of the above, they’ll hassle the operator about money and cause conflict amongst the owners. Selecting partners who have first-hand experience in business is one of the most important characteristics to look for.
2. A Track Record of Good Behavior
It’s important to only partner with people who have integrity in their professional and personal lives. The industry is full of tales of bars failing quickly because owners caused problems in their own businesses.
When an owner consistently engages in substance abuse, sexual harassment, and/or interpersonal relationships in the workplace, this will eventually cause the business to fail. For these reasons, the character of the person you are partnering with is a key consideration.
Do they seem like the type of person who would engage in unprofessional or criminal behavior? If the answer is yes, refuse to partner with them. Even if they have the money to finance your entire operation, they’ll eventually jeopardize the business with unruly or illegal behavior.
Read this: Run Your Bar Right: 11 Tips for Success
The best people to partner with are those who are completely trustworthy, settled down in their personal relationships, and free of addictive tendencies, particularly alcohol, sex, drugs and gambling. Well-behaved partners are a must.
3. Acceptance of Roles
Partners need to know their roles. Whenever partners overstep agreed-upon boundaries, conflicts arise and spill over to the staff, causing confusion and an overall lower morale.
As an example, even if a non-operating partner spots a staff member showing up late, they should go through the proper channels and communicate that message to the manager responsible for enforcing that policy. If that non-operating partner goes directly to the employee and disciplines them, they cause all other employees to wonder who is really in charge. It also undermines the manager who is supposed to be responsible for that area.
Read this: Proper Foundations: 4 Pitfalls to Avoid When Opening a Bar
Strong partnerships are built on deciding on and accepting what roles each person is responsible for. Every task needs to be written down, binding and enforced.
4. Transparency
Trust is built and maintained by communicating regularly with partners and consistently reviewing transparent financial statements. Operating partners must be able to demonstrate fiscal responsibility and a willingness to discuss problems with their partners.
Partnerships go bad quickly when operators play games with money and financial backers are left in the dark. Hiding the truth from investors is what gets many operators into trouble. Investors with business experience would rather be informed as to what issues the business is facing than be left in the dark.
Read this: 5 Ways to Take Your Business and Profits from Ordinary to Extraordinary
In fact, even losing an investor’s money isn’t the end of the world. If uncontrollable circumstances lead to a business failing, an investor may still back up the operator in a future deal provided the relationship is strong. If integrity in all dealings, regular communication, and financial transparency are there, the relationship can endure anything.
Kevin is an operations consultant with over a decade of experience working directly with bar, restaurant and nightclub owners on all points of the spectrum: from family-owned single bar operations to large companies with locations on an international scale. Kevin works with them all and understands the unique challenges each kind of company faces.
He is the author of a book entitled Night Club Marketing Systems – How to Get Customers for Your Bar. He is also a regular writer for Nightclub & Bar, providing information high-level operators seek to get the extra edge in their marketing, sales and operations.
He continues to write today, providing specialized information directly to nightclub, bar and restaurant owners from his workshops, newsletters and magazine articles. He is also active in the field, operating an inventory auditing practice with Sculpture Hospitality.