Consider investing in F&B

As a nonF&B professional i'm sure you've dreamed of owning a bar or restaurant and after a succesful career, or for some lucky few, during a successful caraeer - there comes an opportunity to invest in an F&B business

After all, you have the skills to smell a good investment, solid management, a great businessplan and innovative culinary or bar skills and if you get the investment right then it is where you can make some real money. And because of your sparkling career (and having dined out and frequented a few bars you have potential manaement skills) you also reckon that you know a fair amount about business generally and in many cases you rather like the idea of investing in F&B its more romantic than your current businesses.

Control or influence?
First after a long career elsewhere you appreciate that management is key in any business, but you need to consider whether you want invest to become a majority or minority investor. In the former case you can hire and fire management, while in the second you can influence but cannot control.

In most cases, owning a controlling interest is not possible and you should take the view that you are an investor and don’t want to effectively go back into full-time management. You agree to join the board and your first board meeting probably  doesn't go as well as you want as you'd lobve to dive into the numbers, pull them apart and get the business on a more sound footing.

Here's a tip, the reason this business is worthwhile investing in is the managment and the concept, they have survived and prospered without the rigorous management you have suffered through. And bringing international accounting standards to a small business may not be useful. Avoid asking endless questions about the fine details of the business because you are just an investor.

You could be asked to use you contacts to assist the business or be tasked with some administration, my guidance as an investor is never promise to help in any way except for strategic advice, unless you really want to get fully involved.

Hands off
Rule two. Remember that you are no longer an executive but a non-executive and investor. This means that you generally have to use different techniques to find out how your investment is going or risk alienating management by becoming a burden rather than a help.

The trick i know others use is the smell test- imagine you are just entering the business and something smells odd, but you don't know what. Just follow your nose until you find the cause of the smell, and then gently assist by carrying the offending cause to the rubbish bin at the back.

In other words, it only takes one thing that you think is a little odd or doesn’t seem quite right to alert you to bigger problems. In these cases, follow your instinct and keep on sniffing until you are completely satisfied that you have got to the bottom of your area of concern.

Another way to approach being a non-exec investor is to ask for three or four key indicators that will tell you how well the business is doing- e.g. overall sales revenue $, average revenue per guest or table, gross margin as a %age of sales revenue, F&B costs as a %age of sales revenue and maybe fixed costs as a %age of sales revenue. This enables you to benchmark against other F&B businesses as well as track improvements.

The critical questions are the same for any SME including cash position, (or lack of it), weekly sales vs last week and last year, customer satisfaction, progress on development of new marketing/menu strategies, (or lack of them), health and food safety record, staff morale/ staff turnover %age and total headcount numbers, and the competitive situation around the location – you get the idea.

Keep in touch
Another useful technique for keeping updated is not to be afraid to ring the MD or finance director regularly. The call might only take a few minutes, but cumulatively this gives you a much better up-to-date feel on your investment, and if the management is good, they generally welcome the communication. A call is so much better than an e-mail. Maybe arrange to join them for a coffee onsite too.

Don’t be afraid to be really tough if you think management is not doing the right things – the only way is to be very stubborn but polite. Likewise, if management is doing a good job, offer congratulation and encouragement. This also includes making sure you look after them properly through an appropriate mix of salary, bonus and, where relevant, share options.

Lastly, you are an investor and so look after your fellow investors- investing in F&B does not mean free drinks and free meals for your friends and yourself. It does not mean never having to book and always getting the best table. This is a business and not your home; treat it as a business, encourage it, nuture it, support it; and don't become a burden. Enjoy being part of a dynamic industry with passionate and skilled people. Take pride in your investment and be a great ambassador.

It only remains for me to wish you good luck: investing in other people’s companies is great fun and really can make you money.