How to acquire an investor?

breadnatty08 · February 16th, 2012, 09:56 AM

Hey all, I've been getting really interested in opening a bakery in DC. I have a few years experience in two of the best bakeries in the US, a culinary education and now currently a chef at a well known DC pizza spot.
I'm a little bit tired of the everyday work that I do and would like to do something on my own. DC currently has no decent bakery. I've been to all of them and really, the best is in the suburbs; nothing like the spots in CA.
My concept would be very simple. Open a small shop in one of the cheaper rent areas of DC, very traditional French style bread with the option of doing some wholesale to local restaurants.
My situation is the owners of the pizza joint are willing to consider the idea of the bakery, but it'll likely be a few years away before fruition. My wife and I have little to no savings and no property so that's out of the question. So, how does one acquire a partner with money? My thoughts so far is to ask some local pastry shops if they're willing to help me out. Anyone else have some other starts for a small start up?

~~Dark Jedi~~ · February 16th, 2012, 10:02 AM

Most people goes to the bank and gets a buisness loan. As far as investors unless its a friend or family member. Not many people with money is going to just give money to someone they know nothing of. Plus you would have to put up some of your own money. As if the investor pits up all the money then its basically his or hers and your the employee.

Beings you have little to no savings I would not even try to start a buisness right now. I would try to save money so then you have something to offer also and not have others footing the whole bill.

breadnatty08 · February 16th, 2012, 10:12 AM

Thanks DJ. Since I'm really tight with the owners of the pizza restaurant, I know the costs of most of everything they needed to open up shop. Rent for the first place was really high (with a fantastic location), so I'm thinking somewhere a lot more economical.
This is the place I'm trying to model after: Fervere Home Page
Equipment wise, it's very limited so no need to have a full featured kitchen. A counter for coffee and some small breads but mostly take-out. It would be a stepping stone to a more ambitious place. I'll keep in mind what a bank can offer (our restaurant was actually noted by Obama for getting a small business loan).

lunatic59 · February 16th, 2012, 10:15 AM

Most startup business will fail in the first year primarily because they cannot pay expenses. You will need a good bit of money in reserve to cover utilities, rent, taxes, licensing, taxes, payroll, taxes, materials and supplies ... and did I mention taxes?

You should expect (and be prepared) to run at a loss for at least a year, probably two. And, even when a company is profitable, it's generally between 6% to 12% of gross early on.

breadnatty08 · February 16th, 2012, 10:27 AM

Certainly understand that. The model I'm looking at is a payroll of 4-6 people total. There's just a huge gap in the bread market in DC. Also, seeing as how we were stopped in our tracks building out the second restaurant due to permitting, I know that's a bitch. I have a buddy from the bakery I used to work at in KS who has a considerably large inheritance and a huge interest in opening a bakery. Just need him to get out to DC to see the possibilities.

ouch1976 · February 16th, 2012, 10:35 AM

Unfortunately, the bank will probably want to see a full business proposal and they will require at least some form of start up capital. The up front cash can come from your friends and family with the assurance that you will make good on any money loaned. But, if the business doesn't make it, you have to live with the fact that you lost money for people close to you.

While I agree that you rent is going to a big expense, you should really focus on location. If you are in a low-rent area, presumably the neighborhood couldn't support the premium prices of fresh baked bread...just something to think about.

Otherwise, I like the idea. It sounds like you know your market. It's just a matter of getting it down on paper and selling it to the bank.

It's making me hungry thinking about it...

breadnatty08 · February 16th, 2012, 10:40 AM

Thanks Ouch. Yeah, cost of flour has skyrocketed in the past few years making bread not as cheaply to make as it was (nevermind labor costs).
Let me theoretize a loan of $200k. What are banks running on interest and up front down payments? I know it's a super brood question and depends largely on markets and banks.

A.Nonymous · February 16th, 2012, 10:53 AM

I would not advise taking out a huge loan to start up a business. If it fails for whatever reason, and you're left w/$200k or more in debt and you're unemployed it's a bankruptcy waiting to happen. It's a bad, bad deal.

I would start something like this in your house. Bake some bread and take it around to local coffee shops, restaurants, etc... and see if they are willing to buy it / sell it in their restaurant where they get a cut and you get a cut. You could do this part time and ease into it full time as you start making cash. Then start stockpiling cash with the idea of buying/renting a storefront. Another way would be to start with a catering type deal that you could run out of your kitchen and work up a customer base that you can then leverage into a storefront, but that would be more in line with doing a restaurant than a bakery.

breadnatty08 · February 16th, 2012, 10:58 AM

Thanks, A.non. My wife works with a catering company as a sales asst. It's possible I could use their kitchen (or ours at work) to bake some bread and send samples to restaurants or other bakeries. I think getting outside investors and setting up an LLC is much smarter than going alone with several hundred K hanging over my head.

Unforgiven · February 16th, 2012, 11:12 AM

I would definitely try to get the use of a commercial kitchen. My mother works for our local Board of Health and they really frown on commercial vendors cooking in their home kitchen. It's probably OK for demo purposes but could set you back if you had a restaurant as a customer and got a C&D from the BOH. Would probably also be a hit to your reputation with your customers.

lunatic59 · February 16th, 2012, 11:23 AM

You'd also need to be sure that zoning was appropriate to a home-based bakery and all necessary permits and licenses were acquired prior to to starting.

A.Nonymous · February 16th, 2012, 11:24 AM

Quote:

Originally Posted by dreadnatty08

Thanks, A.non. My wife works with a catering company as a sales asst. It's possible I could use their kitchen (or ours at work) to bake some bread and send samples to restaurants or other bakeries. I think getting outside investors and setting up an LLC is much smarter than going alone with several hundred K hanging over my head.

Outside investors isn't a bad idea, but I would structure it so you don't actually owe them money. Like they lend you X dollars and you promise to give them back X + 10% of the profits for 6 months, but if they business doesn't turn a profit, you owe them nothing.

A.Nonymous · February 16th, 2012, 11:25 AM

You could rent a commercial kitchen if you needed one or couldn't get access to the one your wife has access to. It wouldn't be a huge investment to rent one for a few hours I wouldn't think.

February 16th, 2012, 11:35 AM

....."Dear mom/dad/wealthy aunt/uncle other wealthy relative...."

Unforgiven · February 16th, 2012, 11:40 AM

Quote:

Originally Posted by A.Nonymous

You could rent a commercial kitchen if you needed one or couldn't get access to the one your wife has access to. It wouldn't be a huge investment to rent one for a few hours I wouldn't think.

I know in our area you can sometimes get time in a church's kitchen so that could be an avenue to pursue.

~~Dark Jedi~~ · February 16th, 2012, 12:08 PM

Quote:

Originally Posted by A.Nonymous

Outside investors isn't a bad idea, but I would structure it so you don't actually owe them money. Like they lend you X dollars and you promise to give them back X + 10% of the profits for 6 months, but if they business doesn't turn a profit, you owe them nothing.

That's the problem outside investors won't take a deal like that with a new business. They know its hard for a new business to turn a profit. Like it was said earlier. Investors wants to see a return on their money. So for one to take that deal he would be better off burning his money.

Oh did I mention a loan from the Mafia?

Roze · February 16th, 2012, 12:22 PM

Quote:

Originally Posted by A.Nonymous

Outside investors isn't a bad idea, but I would structure it so you don't actually owe them money. Like they lend you X dollars and you promise to give them back X + 10% of the profits for 6 months, but if they business doesn't turn a profit, you owe them nothing.

The only way an investor would invest in a start up company if he/she is a partner to the company. They will be the one that will shill the money for lets say 1/2 of the company and dreadnatty08 will be the one that runs it and all profit is divided in half. I'm not sure if you thought of this and don't want to be stuck with a partner. If you go with this route, have in your legal agreement terms to buy the other partner out

Also...don't forget to incorporate your company when your business is up and going. This will ensure that you and the companies are separate entities. Any loan you get, you get it under the company. If anything were to happen to the company and the company goes bankrupt, creditors won't be able to go after your personal asset.

A.Nonymous · February 16th, 2012, 12:59 PM

Quote:

Originally Posted by Dark Jedi

That's the problem outside investors won't take a deal like that with a new business. They know its hard for a new business to turn a profit. Like it was said earlier. Investors wants to see a return on their money. So for one to take that deal he would be better off burning his money.

Oh did I mention a loan from the Mafia?

I think they might be interested in that IF you can convince them that you have the ability to make it work AND you give them a big enough return that it's worth it. People invest money all the time in things that have a 10% chance to triple their money. Let's say you anticipate $100k in net profits (and you'd have to have some market studies to back that up), would someone give you $75k in exchange for half of the net profits for three years up to $150k total? If I thought that the person running it was really capable, I'd go for that in a heartbeat. If the person hits a home run, you could get all of your money back in a year. If they flop, you get nothing so it really comes down to how much confidence you have in the person running it.

Personally, I wouldn't do a partnership. They get messy IMO. I had a man tell me once that the only ship that won't float is a partnership. I think he's close to right.

A.Nonymous · February 16th, 2012, 01:08 PM

Quote:

Originally Posted by Roze

Also...don't forget to incorporate your company when your business is up and going. This will ensure that you and the companies are separate entities. Any loan you get, you get it under the company. If anything were to happen to the company and the company goes bankrupt, creditors won't be able to go after your personal asset.

That's not entirely true unfortunately. Most banks are not going to loan money to a brand new, wet behind the ears corporation. In fact, the vast majority of them won't unless someone personally signs for the loan. Whoever that poor sap is then gets stuck if the company goes under.

Roze · February 16th, 2012, 01:17 PM

Quote:

Originally Posted by A.Nonymous

That's not entirely true unfortunately. Most banks are not going to loan money to a brand new, wet behind the ears corporation. In fact, the vast majority of them won't unless someone personally signs for the loan. Whoever that poor sap is then gets stuck if the company goes under.

I know that, that's why I suggested the partnership route. What I meant by incorporating is for later down the road when the business is up and running. Creditors are not necessarily banks. They include your landlord, your suppliers and anyone else that your business makes purchases from. This is a security blanket for down the road. The company might be doing well for the next couple of years but lets say 5 or 10 years down the line, something happens and the business goes bankrupt. Most suppliers give you up to 30 days since your purchase to make the payment. The business will be liquidated and the creditors will get their share of their money. As a owner you don't want these creditors to go after your personal asset and if you don't incorporate the business, that's what they will do if the liquidated sales don't pay off all of the creditors.