Collaborations and Contracts: Protect Your Business From Financial Chaos: Ep. 5

In this eye-opening episode, I share a crucial case study about business collaborations gone wrong. Through a real-world case study involving a Portland vegan restaurant and distillery partnership, I break down the essential components of successful business relationships and the devastating consequences of operating without proper legal protections.

You'll learn key takeaways about the importance of written contracts, financial transparency, and proper business structure. Whether you're a food truck owner, pop-up chef, or restaurant entrepreneur, you'll get valuable insights on protecting your creative vision and business interests. You'll learn why handshake deals can be dangerous, how to structure your collaborations properly, and what steps you need to take before entering any business partnership.

Topics you'll hear about: 

• The power of successful collaborations
• Essential elements of business contracts
• Red flags in business partnerships
• Financial transparency requirements
• Protecting your business interests
• Working with lawyers and accountants
• Due diligence in partnerships

Reach out if you'd like to discuss your vegan food business, whether it is currently a dream or you're in the messy middle...drop me a note on Instagram: @savvyfrugalvegan 

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Transcript

Heather: 0:00

I'm Heather Zeitzwolfe Savvy Frugal Vegan, I'm here to help chef-preneurs, just like you, start, build and maintain a vegan food business.. If you want to have financial success in the vegan mobile food industry... whether it's a cart food truck, or pop up, I'm here to help you with business hacks, tips, tricks, and the pitfalls to avoid. Are you ready to map out your business journey, then put the key and the ignition a nd let's go for a ride. in this episode, we're going to break down why contracts should be non-negotiable. We're going to talk about the importance of owning your creative work. And your business structure. Now, when I say creative work, if you are a chef, this could mean. Your menus. Your brand in the community. I'm going to share this wild case study. About this vegan restaurant and distillery that started with big dreams. And ended in, let's just say chaos. All right. Let's dive in. Yesterday. I saw a post on Instagram from a local vegan restaurant. in a dire situation. Through their posts. I discovered there's a lot of strange, questionable things. Around the setup they have with the company that owns the distillery where the restaurant is located. it really had me thinking about. The importance of having a written. Contract. That a lawyer. And an accountant. May weigh in on. Before you start going into business with somebody and. Allowing them to take over and call the shots. I see partnerships go awry and these are. legally formed partnerships Even with those, oftentimes partnerships will dissolve. But if they've been set up legally, then there's a way to make sure everyone is. Compensated correctly. It can get very sketchy if you don't have a written contract, even with somebody that you're friends with. You still want to have a written contract? You don't want to ruin a friendship over misunderstandings around who was expected to do what. what the goal or expected outcome might be. So I thought this was an interesting case study to discuss. I want to go through some of general ideas around collaboration. then specifically this vegan restaurant in Portland. I have not looked at any of their contracts. I only know been posted on the internet, which is limited. information from one perspective, which is the vegan restaurant and not the distillery. I don't wander throw them under the bus, not knowing exactly. their understanding of the situation But. It does seem there was. I don't want to say shady. there was definitely. Some misunderstanding. I don't know if it was fraud. I think it was more like the distillery got in a bad financial situation and they just were not upfront about what was going on. But again, that's all speculation because I really don't know from their perspective. I'm not going to name them, but I have corresponded with the vegan restaurant via Instagram. I feel okay. Discussing their point of view. let me ask you, have you ever thought. Oh, I'll just partner with someone. Handshake deal, nothing fancy. It'll just work out. spoiler alert. It might not. collaboration. Is super powerful. I encourage people to collaborate all the time. But when you start handing over the reins of your business to someone else, this is where it gets squirly. if the terms aren't clear and in writing. Things can go sideways fast. let's start off with the good, why is collaboration amazing? when it's done, it Can be a game changer, especially for small vegan food businesses. here's why. One. Shared costs. Renting a space, buying a bulk or sharing resources. Collaboration can save you tons of money. Now, if you were to do this. keep your businesses completely separate. I decide who's going to be. Paying the rent. Can you both pay them rent to the landlord when you buy in bulk? Can you divide up the payments? when you share resources, are you making sure they're. equally shared. how are you going to compensate each other have things really thought through. And write them down. besides shared cost, there's also new opportunities. Collaboration is great for new opportunities. Teaming up with another business, gets you in front of their audience. So maybe your vegan cupcakes brings customers to their coffee shop or their drinks drive traffic to your pop-up. think of ways that you can collaborate with somebody and get in front of their audience. they're highlighted your highlighted. It's a win-win. Third one is community vibes. Collaborating can build connections. strengthen relationships and you can grow as part of a larger ecosystem. if your business is built on the local community, This really helps it strengthens the relationship you've got each other's back. When it works, it can work really well. But, When you skip the details. things can fall apart. Trust me even the best intentions can lead to huge problems without a solid plan in place. This is where you really need to have a lawyer. And if you can't afford to lawyer up. There are free resources that help you get legal guidance. You could even use chat GPT to help you with a legal document. Make sure that you both read through it. sign it but whenever you can talk to a lawyer, We want to make sure that it is a win-win for both people that are collaborating. We don't want to allow for someone to take advantage of you. here's the thing. contract doesn't mean you don't trust the other person. It's the opposite. It's about protecting both of you. When everyone knows what's expected. There's no confusion. no awkward conversations and hopefully no drama. The last thing you want. It's two people arguing inside of a food truck. Over. Expenses. Or money you. Deposited into your personal account Let's avoid the drama have a contract. Here's what a good contract should include. who does what. Spell out the roles and responsibilities. If you're the chef. Are you also responsible for. Getting the rent paid. If you're handling marketing. What does that actually look like? If you think it looks like you hanging out on a beach with a updating Instagram. Once a week that may not be what your partner is thinking. Number two. How will revenue and expenses be split? Who's paying for the ingredients and equipment or the utilities. What if you don't have enough money in the business? who out of pocket is going to pay for this. How will they be reimbursed? Number Three. What if it doesn't work out. If someone wants out of the business, what happens? Do they sell their share of the business? Do they walk away? Does it just dissolve? Can they sell their. Part of the partnership to somebody else. Now you're in business with somebody that you don't even know. thinking ahead of different scenarios will help you figure out what needs to go into this contract. Number for conflict resolution. what happens when you don't agree on something? Trust me, it's going to happen at some point. have a plan in place of how you're going to come to a resolution. Are you going to take a vote? the votes be. Hidden. What if there's only two of you how are you going to agree on this? Does there need to be consensus between all the partners. Will your employees be able to weigh in on this? as your business changes over time, say you start out with no employees. when you start adding employees, think about how that might change some of the wording in the contract. go back and update it. you can bring a lawyer in to help you adjust and update this. Without clarity, you're leaving everything up to interpretation. And this is where people get hurt businesses. Fail. friendships. can end and get ugly. And nobody wants that. So here's today's case study. this is about when collaboration goes. Sideways. the vegan business posting on Instagram There was a possible, nondisclosure agreement. I don't want to overstep anything or have to take this down because I'm naming names We'll just say vegan restaurant and distillery. if you know who I'm talking about, that's fine. Okay. So this vegan restaurant they partnered and I'm using air quotes. partnered with a distillery. In Portland. A partnership. Is legally bound. There are legal requirements when you have a partnership. In the USA. Partnerships have to file their own tax returns. when I'm saying they partnered, I don't think they actually are. Partnering. I think they collaborated let's call it that. So the restaurant operated inside of the distillery. when they agreed to do this, it seemed like a win-win opportunity. I think the thought was the restaurant would bring in people to eat food then the distillery would provide drinks and together they would attract customers. it was supposed to be a win-win. But here's the problem. There was no contract. no ownership agreement, no written rules about money. Roles or who handled what. It was all just verbal. And here's how it all went wrong. The restaurant didn't own its operations. All of their finances, bank accounts, payroll, everything. Was controlled by the distillery. the head of operations for the restaurant. Was not allowed to see the bank statements. Turns out. Vendors weren't paid. Employees were left footing the bills for certain supplies and inventory. And it looks as if reimbursements were taxes, payroll. Which is super illegal. Again, I'm getting this from. Instagram. The next piece of chaos was The people in the restaurant were employees of the distillery. Even though it was considered a separate restaurant. Essentially. The restaurant was funding the distillery Then there were labor violations. Employees, weren't getting paid for some of their shifts, PTO and sick time were denied. And tip pooling was. So messy that staff didn't even know if they were getting the tips they earned. Then there seems to be some cool Worshan without ownership. So when the restaurant staff tried to fix things, they were told to form their own LLC. Take over all the financial responsibility and sign a lease with just three days. Notice. And they had to sign a nondisclosure agreement so they could not talk about it or get legal advice. This is why this deal is so fundamentally flawed. The employees are taking all the risk of ownership. They're paying rent utilities, maintenance costs without receiving any of the rewards, the equity, profit sharing, or decision-making power. This just seems. Ludicrous by forcing employees to form an LLC and assume responsibility. The distillery is absolving itself of liability for its mismanagement while retaining control over licensing. And other critical elements of the business. And without access to financial records, the employees. Which includes the head of operations. Cannot assess the restaurant's profitability or determine whether the lease terms are fair or viable. The whole thing seems unfair. And. Riddled with. problems. I think if they consulted a lawyer on this, I don't think that these things would have occurred. the way it was set up should have been full of red flags. Part of the root problem was the collaboration between the restaurant and the distillery lacked a written contract. Without a contract. There were no safeguards to ensure financial transparency. The restaurant has no legal control over its own operations. And the employees had no protection against mismanagement or unfair treatment. This is like trying to. Own a business without owning the business. You're just giving the reins over to somebody else. what can we learn from this? One always have a contract, whether you're partnering on a pop-up sharing a kitchen or running a joint venture. Put everything in writing. Even if you're working with friends or family, The contract is about protecting everyone involved. Two. Prioritize transparency. Make sure both parties have access to financial records and a clear understanding of how revenue and expenses will be handled. Three understand your rights. If you're not an owner. Make sure the agreement explicitly defines your role. And ensures fair compensation for your contributions. Four. Think longterm, a good partnership. Doesn't just work in the short term. It should be sustainable over time. If the restaurant and the distillery had a clear written agreement from the start. They could have avoided a lot of stress, confusion and financial strain. the restaurant. could have avoided. Being taken advantage of. And again, I don't know the other side of this, but it sounds like they were being taken advantage of. why did this even happen? The restaurant staff didn't own the business. they were running the show, but didn't have legal control or equity in the operation. The distillery held all the cards, banking, licensing, payroll, and the restaurant was stuck trying to clean up the mess they didn't create. This is why entity structure matters. If You want to own the business? Set up an LLC and S-corp or whatever works for your type of business, contact, an accountant or a lawyer but make sure you have the rights Don't let somebody else hold the reigns of your creative vision. It's your dream. Don't let someone else ruin it. Or. run your brand into the ground. it sounds like the distillery was taking on the liability But I don't know for sure if they have the credit cards in their name. Or the restaurant, which seems very bizarre to me because if they're paying the payroll, it seems like they have to have the credit cards. And the distillery name. I don't know. It's very, weird If you're going to start a business. Do your homework. if you haven't done your homework around legal and financial planning, it's never too late. Get on it. I know that contracts and legal stuff. Aren't the fun part of running a business. But they're absolutely essential. Before you enter into a partnership. Here's what you do. One. Talk to a lawyer. Get a professional to review any agreements. Especially leases or contracts. And make sure that the terms are fair, clear, and protect your interests. And in this case protects your employees. Because. In this case. The employees of the restaurant, weren't really their employees. They were the employees of the distillery. Two. Work with an accountant. I'm an accountant. You need to have someone that can help you understand the financial side. whether it's revenue splits, taxes or ownership, equity. You want somebody on your side that can guide you They'll make sure that you're not walking into a deal that will sink your business. do your homework. research, your partner. Are they financially stable? Have they run successful businesses before? Do they have a good reputation? Have they paid their vendors. Have you looked at their financial statements. If you don't know what you're looking at. Have an accountant look at their financial statements. You may even want to have those financials audited. To verify they are. True and not tampered with. And most importantly, take your time. Don't let anyone rush you into signing something you don't understand. A bad deal can take years to recover from. If you recover at all. Talk to a professional. whenever you sign a business contract. So what's the big takeaways here? collaboration is awesome, but only when it's built on trust transparency and a solid foundation of clear written agreements. You can't just assume that people are coming from the same place that you are. if you're a vegan food entrepreneur, Or really any kind of business owner. Make sure you're protecting your work, your finances and your dreams. This is your passion, right? You don't want someone squashing your dreams. Don't give someone else the power to derail everything that you've worked for. Thanks for hanging out with me today. if you found this helpful, share it with a friend, leave a review, or reach out with your own business questions. Until next time, keep crushing it, keep creating. And you, my friends are the heroes because. Compassion starts on the plate.