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How should you be compensated for acting as a consultant?

financial planning consultant

Question:

I was asked to be a consultant to help a friend open a new restaurant. They want me to develop the menu, hook them up with vendors, train staff, etc. Since the restaurant isn’t open yet, they don’t want to pay now and asked me to propose a deal like profit sharing, % ownership, etc. What do you recommend?

– Chef, New York City

Answer:

Congratulations on the opportunity to consult. This is a question I see a lot because the nature of restaurants is that there are significant upfront costs and things take a long time to open, and then revenue comes in later to (hopefully) reimburse these startup costs with plenty leftover to go around. Of course, in reality, some restaurants never open, others fail and still others are hugely successful.

I don’t know enough about your career or day job commitment to advise you in great detail, but I do know that if this is an attractive option for the restaurant owners, make sure it is for you as well. My overall recommendation is that cash is king. The reality is that you are not the owner of the restaurant, so you shouldn’t have the uncertainty of one. They are asking for a lot of work, and if other suppliers like those who sell equipment, technology or food would not be content to work on spec, neither should you.

That said, you may have other motivations that I don’t know about—is this an opportunity to get in on the ground with a restaurant group you really believe in? Would having this client on your roster open up more consulting opportunities? Are you content enough financially to put the time in with the prospect of a bigger return? Does the offer of equity also come with liability?

My advice is to treat this opportunity as how you framed it—a consulting job. Consultants are paid, so you should be too. If you asked a question saying, “I am partnering to open a new restaurant …” my answer would be different. Menu development, sourcing and training are significant startup costs, to be sure. But if the restaurant cannot budget for those costs, there may be bigger problems.

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