Restaurant Profit Made Easy

Top Ten Tips For Contract Negotiation

Top Ten Tips For Contract Negotiation

 

  1. Leased Property
  • Leasing a property can be a very daunting experience. If you’re going to go it alone there a few things to keep to keep in mind…
    • First and foremost, do your homework on the property in question having an attorney is always helpful. Brokers are double agents and are working for both sides.
  • Find out what the area comps for alike property are such as rent per Sq foot, cam and what Tenant Improvement allowances are being offered.
  • Read the lease carefully and remember this lease is geared in favor of the leasor not the leasee.
  • Always ask for more in order to land where you want. Never give away anything without getting something in return.
  • Be on the lookout for things like plumbing and HVAC, make sure both of these are checked out by reputable companies. HVAC units can be very old and on their way out at the time of contract and in most leases the landlord is held harmless of liability.
  • If opening a restaurant be sure to check with the county to find out if certain liquor taxes etc stay with the location. Liens also can come to haunt you.
  • When considering length terms think of both short and long term.
    • Long Term…The longer the lease the better if you have a successful location. For example if you have a 5 year with 2 five year options this is very attractive to a potential buyer. Now if you have a 3 year with no options when it comes time to sell the buyer is going to question what that lease fee is going to elevate to.  This could be costly when it comes to getting the price you’re asking.
    • Now for the short term… If you have a struggling business and you signed a five year lease with a personal guaranty and considering breaking that lease you will be in serious financial trouble. Again these leases are drawn up to be iron clad.  Breaking the lease could cost you the original monthly lease charge plus an additional half a month’s rent for each month and legal fees for the duration of the lease term.  That being said DO NOT be afraid to write in an opt out. Another good idea is to have an exit strategy such as offering them 60/90 noting with a 2 or 3 month buy out. Paying a few months rent is much better than the alternate of paying the remainder lease plus half and legal fees through lease end.
  1. Credit Card Processing
  • When negotiating a credit card company there are many things to take in account. Credit card charges are very hard to understand and if you ask most people that understand how to read a statement they will tell you they are designed for you not to understand them.
    • If starting out new shop at least three companies and takes notes. This will be a trying time for you because it gets confusing. You will be tempted to just go with your local bank to avoid the aggravation but know they are usually the most expensive.
      • Find out the payment drop times. You will find you can get your money next day from all of the credit card providers including Amex and Discover. Typically being able to get all of your money next day will come at a higher cost. That cost is outweighed by the convenience of reconciliation and have the much needed working capital. The longer most companies hold onto your money the better for them for they earn that extra days interest. Companies like Discover and Amex have a much higher percentage rate and their payouts can be up to every 4 days.
      • Ask questions about interchange rates and pass through charges. They are sometimes different names for these charges just know they are there and can be negotiated.
      • Ask if the particular credit card company provides journal tape and printer ribbons as part of their offering. This alone can save you a couple hundred dollars a month in paper supply.
      • Length term is important. Most people overlook this part and get stuck with a company for years. If you break the contract in can be costly. Not only costly but in most cases when you sign on that dotted line you give them access to you funds so they can come in and take their fees. Shutting your bank account down and reopening can be painful. Shorter terms gives you the option to shop every year or so. Keep in mind if you get that great rate you will want to lock it in. There are companies that will buy you out of any penalty to get your business so that is an option.
  1. Natural Gas
    • There are no longer monopolies on these companies so shop.
      • Call all the local gas companies and ask there commercial thermal rates. Ask if they have lock in rate programs and veritable and determine what best fits your needs.
      • Ask about deposit fees and if they prorate those deposits back after a period of time or if they hold them until end of service.
      • Ask what programs they have for Analytics, these reports will help you understand peak usage and when to enforce fire up and down times.
      • Keep in mind that these companies will fight for your business and renegotiating at the end of each year is best.

 

  1. Point Of Sale Systems
    • There are too many POS companies to list. Use the pick 3 rule and let the best one shine through.
      • Call local restaurants or business that have the particular systems and get their feedback.
      • Find out what support the company offers and the times the support is available. You will find most of these companies make their money on the support. And trust me you will need it. These are computer there will be problems no matter what system you chose. Make sure that you chose the company with the best reputation for fixing the problem the fastest.
      • Don’t be scared to haggle with these companies they too are very competitive. Do not take the first price. Aim high; ask for paper supplies and free support for as long as you can get it.
      • Ask about marketing or gift card services. Most of these companies either offer it or have a 3rd party deal that will be much cheaper if you were to try to get it in the private sector.
      • Ask about their credit card rates and make sure your not locked in to using only theirs. Systems like Clover and Squared are credit card companies that made these sytems to lock in the credit cards.
      • POS companies that have local representation are always best. Cheaper companies that offer too good to be true systems usually have overseas support. No Good!
  1. Marketing
  • Marketing is usually the first thing to be cut out when times are tough so be carefull.
    • When you enter into a marketing agreement know that these contracts are made to stick. These companies know going into it that they will most likely be the first not to be paid when time get tough.
    • Know what you’re getting into and make sure it’s outlined in black and white.
    • Review all aspects of the contract and red line anything you feel may not pertain to your liking. Be on the lookout for thing such as automatic renew and breach fees.
    • Try to do marketing contracts in short periods of time like 6 months. It will take at least 3 to get people listening but by month 6 if you’re not seeing the results you’re in a great position to try something new.
  1. Maintenance
  • Maintenance contracts are great to have and can save you a great deal by being pro active.
    • Get multiple bids from local companies
    • Make sure all companies are bonded and insured before they step foot in your business. If you allow one of these companies to come in uninsured they could injure themselves and you will be held liable.
    • Carefully read the contract and be sure what services will be performed and at what frequency. Typically twice a year but be careful; If your lease reads you are required to have items such as HVAC served each quarter you could be liable for any and all damages to the equipment.
    • Be sure that items such as Freon and filters are included and if not what the limitations are before you are billed additional fees. Beware of the bid that comes in the lowest because this one will most likely be the one with the hidden add ons.
  1. Vehicle Commercial or Private
  • Negotiating an automobile can be one of the most stressful negotiations out there.
    • Do your homework before stepping foot on the lot
    • If you trading a vehicle in make sure you know what fair market value is. Know that car dealers will make money on the trade the sale and the loan. The more you know the better you will make out.
    • Call the manufacturers and find out what rebates are offered. Most dealers won’t mention there and keep them for themselves.
    • Check you FICO score prior to going into the dealer. They will often use tactics pertaining to you score being off a few points preventing you from getting that low low rate you expected. They do this because banks give them percentage points on the loan. If they are trying to sell you Gap to get the percentage rate lower there is a reason. It’s because you’re about to drive a car of the lot that is worth way less than your paying and the banks need that security.
    • If you’re considering the vehicle for a business be sure the weight of the vehicle meets the tax requirements for your state.
    • Avoid upgrades from the dealer such as bed liners etc. You can always buy these after marked and save. Financing a bed liner for $500 for 7 years at %7 interest is not an option when you can pay the guy up the street $200 for the same one. (in most cased the dealer is paying the same guy)
    • Pay special attention to the warranty. Don’t be afraid to add additional years. This is one option worth the money because after the fact these add ons can be triple the cost.
    • Most important tip here is to SLOWLY go through each page and just don’t take the closers word for it. You will want to get out of there with your new car just be patient and review every page and ask questions. It’s always best to have someone more experienced with you if you’re new to this.
  1. Negotiating with your food company
  • Partnering up with a food distributor could be the most important decision you make as a restaurant owner so chose wisely.
    • If entering into an agreement ask a few questions.
    • Can I visit your facility?
    • Is there transparency in the pricing you are offering me?
    • Is there added value resource and if so what are they?
    • What are the drop days and when is my delivery to be expected?
    • What support will I have if there is an issue?
    • What are my payment terms and what are my payment options?
    • Is your company insured and will I be covered and will I be safe if there is a food borne illness? What steps and precautions do you take to avoid this?
    • Do you offer an incentive program and rebates on particular bulk items I may purchase?
    • How long is my agreement and am I limited to only buying form your company? If not is there a particular percentage allowed to buy from other to maintain my pricing and rebates?
    • What if another company reached out saying they can offer me a rebate on a product I use?
    • Do you have user friendly interfaces that alow me to view my invoices, find my delivery and pay?
    • Do you offer inventory tools and technology to help me grow and manage my business?
  1. Dishwasher lease/ Equipment
  • Purchasing equipment outright is sometimes best but leasing has its advantages as well.
    • Like most companies there is several that lease equipment. Start with your food provider and see if they have an in house leasing program. Most due.
    • There are companies that offer a system providing you buy their chemicals. Beware these chemicals can add up and they may have you on a certain par level that supersedes what you weekly usage is. This can be costly.
    • If you’re using an outside company find out the leasing fees, lease length and buy out terms.
    • If you going to lease equipment form a 3rd party keep in mind they may not service the equipment or provide chemicals.
    • If your leasing form a dish machine company find out the per rack charges if the unit comes with a service and chemical plan or the chemical charges and service frequency.
    • Like most contracts you entering into an agreement try to negotiate an opt out. You can always put in an addendum stating if service levels are not met the contract is nil and void. Many companies you will have no issue with but there are many that know you’re in contract and could car less.
  1. Insurance
  • Insurance is a MUST HAVE but be sure you know what you’re buying! Know that if you’re going to pay a minimum fee for insurance you’re going to get the minimum for coverage. Slip and fall / General Liability.
    • Get multiple quotes
    • Make sure you calculate personal property and time lost.
    • Umbrella policies are sometimes cheaper and get you blanket coverage. You will get bulk discounts.
    • Keep in mind what rebuild costs will be in two years verses right now. You do not want to fall thousands short on rebuilding due to future rise in costs.
    • Read all parameters of the policy and beware of certain fine print such as not being liable for natural disasters etc.. If a tree flies through your window in a storm this is exactly why you got insurance in the first place.
    • Keep in mind these companies do not want to pay out for anything and they will have plenty written into the contract to support this.
    • Pay special attention to vehicles and staff covered driving said vehicles. You could quickly sign only to find out later that only you were allowed to drive that catering van your deliver driver just wrecked.
    • Deductibles are important and can be tricky. The rule of thumb is to be prepared to come out of pocket to fix anything under a couple thousand dollars and keep these claims off your insurance. This will keep your rates at their lowest. Slip and fall/ Personal Injury limits need to be much higher due to rising costs of medical so be sure your coverage is adequate. If you only have a $50,000 personal injury limit with a $1000 deductable chances are you will be responsible for the remainder.
    • Remember there is no such thing as being over insured. It’s better to have and not need than need and not have!

It’s always best to consult an attorney when entering into an agreement. Having the right questions to ask will surely be helpful in the process.