shlok05
You are J. P. Martin, a chef with a culinary science degree and 5…
You are J. P. Martin, a chef with a culinary science degree and 5 years of work experience, which includes winning a prestigious prize in a gourmet food competition. Eighteen months ago you decided to invest in a catering venture with an entrepreneur, Chris Sands, as a partner. Chris had 5 years of experience investing in small businesses. Following some extended discussions the two of you decided to set up a business catering to parties and weddings under the name of At Your Service.
The arrangement between you was quite informal. Essentially you put up $10,000 and Sands put up $25,000 in capital to get the operation started. You were to set up the kitchen and menus, cook, hire staff, and be on site to supervise all catering jobs. Sands’ contribution was to manage the advertising, and the bookkeeping. The agreement between you was that the profits would be split 50-50 after clearing fixed expenses.
Although the first few months were difficult and At Your Service had to use some the investment reserves to cover monthly expenses, a good newspaper review produced a spurt of business in the third month when the company not only covered fixed costs, but distributed a “profit” of $500 to each of you. Throughout the first year you continued to make a little money, or lose a little every month, but the company has been steadily losing money in the second year and has had to use reserves in order to keep in business.
You think the problem is that Sands does not know how to manage a business. Sands was reluctant to advertise in upscale outlets, and does not give you enough freedom to use the high quality ingredients that appeal to upscale clients. You enjoy making recipes with the finest ingredients. Such recipes take time, but the quality result is well worth the effort.
Sands recently has taken a more active role in the management of the company. Sands told you to raise prices, but you did not because you believe your clientele, young urban professionals, is choosing At Your Service because it provides the best quality for the price. Sands then called the printer and raised the new menu prices by 10%. Sands has also put you on a strict ingredients’ budget.
Of course all of this has not pleased you. However, you do recognize that the initial $35,000 investment is rapidly disappearing. You are down to $15,000 in working capital and you have no more money to put into the business. You are quite sure that Sands has no more money either.
Last week you both talked briefly about dissolving the business. You are very interested in doing so; you find it hard to believe you had such bad judgment to form a partnership with an entrepreneur who does not share your value for fine cuisine. It is possible that with higher prices and less costly ingredients profitability will improve, although you doubt your relationship will. If profitability does not improve, you will have to use the last of the reserves to terminate the leases on the space, the van and the kitchen equipment.
The issues that have to be resolved are as follows:
How you will split the $15,000 left in the investment.
How to handle the lease on the kitchen space which has 18 months left to run.
How to handle the lease on the van which has 18 months left to run.
How to handle the lease on the kitchen equipment which has 6 months left to run.
There are a variety of options for distributing the remaining capital. You could take the remaining capital giving Sands nothing; you could take $12,000 leaving $3,000 for Sands; you could take $10,000 and Sands take $5,000; you could split the capital evenly; you could take $3,000 and Sands take $12,000, or Sands could take all the remaining capital. You feel that you are entitled to the remaining capital. This is because the entire success of At Your Service depended on your creativity in the kitchen and the hours of uncompensated work that you put into the business. Sands did some financial work occasionally, but you still had to keep track of what you spent, so even that contribution of Sands’ did not amount to much in your mind. You were supposed to run the kitchen, you did, very successfully. You need to recoup as much as your investment as possible because you are building a following and you think you can set up a successful restaurant of your own, although you have not yet done extensive planning for it.
You are going to need space for the restaurant and At Your Service’s storefront is perfect for your restaurant plans. Your options are to promise Sands that you will make the storefront lease payments, to have the lease amended to be in your name only (which would cost $500); terminate the lease and pay the $1000 penalty, have the lease amended to remove your name (same $500 cost); accept Sands’ promise to pay the lease. All in all you think it is better to leave the lease alone and just promise Sands that you will pay it rather than pay the fee for changing the names on the lease, terminating it, or paying the fee to assign it to Sands.
You could certainly use the van leased for the catering service for the restaurant. You plan to save money by picking up food and wine rather than pay for deliveries. Your options for the van are similar to those for the storefront space. You could promise Sands that you will make the van payments, have the van lease amended to be in your name only (which would cost about $500); terminate the lease and pay the $1000 penalty, have the lease amended to remove your name (same $500 cost); accept Sands’ promise to pay the van lease. You are concerned that if Sands took over the lease and then later could not make the payments you would be liable. Your preference is to promise Sands to make the payments yourself. Alternatively, you are willing to make the $500 payment to take Sands’ name off the lease. You have the same concern about the van lease as you do with the storefront lease, if you turn it over to Sands before the end of the term of the lease you will still be responsible for payments Sands doesn’t make. Your preference is to take the van’s lease over yourself.
You have a similar set of options for the kitchen equipment as you have for the storefront and van. You might use the high quality cooking equipment that you leased for At Your Service. You could just have Sands’ name taken off of the lease, for which there is no charge. However, the catering and restaurant businesses need quite a bit of different equipment. You prefer to terminate the equipment lease and start with proper equipment.
You are to meet with Sands for 30 minutes to try to negotiate to dissolve the partnership. The table on the next page summarizes your preferences on the options for each issue in terms of points. Your goal is to negotiate an agreement worth as many points as possible.
What are the issues in the upcoming negotiation?
Based on a review of all the issues, what is the bargaining mix? (Which issues do we have to cover? Which issues are connected to other issues?)
What are my interests?
What are my limits-What is my “walkway”? What is my alternative?
Defining targets and openings-Where will I Start? what is my goal?
Who are my constituents and what do they want me to do?
Who are the opposing negotiators and what do they want?
What overall strategy do I want to select?
What protocol needs to be followed in conducting this negotiation?
