Case Studies in Using a Restaurant Receiver

The concept of a single owner-operator running a restaurant on his or her own seldom meets reality. Instead, owners, partners, managers, and investors work together to help a restaurant function smoothly and serve its patrons. For this arrangement to work, the restaurant should usually take the corporate form of a Limited Liability Corporation (LLC). Not only does this formalize the roles that everyone serves, but it provides legal advantages by reducing taxation and limiting personal liability for suits against the restaurant. While the LLC can help eliminate many potential problems, it also provides ground for conflict among its members. The on-site managers may not communicate problems effectively to the managing member and other owners and investors or may try to resolve those conflicts on their own. In addition, financial issues identified off-site can conflict with on-site realities. When these internal conflicts arise and an LLC dispute ensues, a restaurant receiver can help resolve them in financially and operationally responsible ways. The receiver focuses on both running the restaurant and monitoring its performance, so it will target comprehensive, workable solutions for the ongoing problems.

1. Restaurant Manager Under-Reporting Financial Transactions

Often, the restaurant manager has control over restaurant expenditures. He or she directs purchasing decisions as the person closest to immediate, day-to-day needs. Unfortunately, the manager may not provide thorough details justifying the expenses. This can include incomplete purchase orders, neglected receipts, or even false records. As a result, even though the restaurant is profitable, the reported expenses seem bloated, cutting into the margins that other members of the LLC believe should be in place.

This may just reflect financial inexperience. A restaurant manager may not be savvy in accounting processes and techniques, and the paperwork requirements can fall through when the restaurant is busy. Still, a cash and credit card business is vulnerable to skimming, fraud, and theft. The manager is in position to redirect money into other accounts, or to misrepresent spending for his or her own benefit.

Whether LLC members suspect criminal activity or not, a court appointed receiver can help resolve disputes over expenditures. As a neutral third party, the receiver can dive into the financial records on site and make sense of why expenses are higher than expected. If there is nothing illegal taking place, all parties should welcome the receiver, because he or she can shed light on the finances to everyone’s benefit. A neutral party who weighs in with the benefit of expertise in both restaurant management and financial considerations can not only resolve the dispute, but recommend restructuring or reassignment of duties to put everyone involved in the best position to help the restaurant succeed.

2. Conflicts Among Personalities in the LLC

Sometimes the conflicts move beyond finances. Running a restaurant sometimes requires a firm hand, but at times this can push over the edge toward someone becoming domineering and adversarial. Employees start filing lawsuits against the restaurant, and the manager threatens other members of the LLC with lawsuits if they don’t leave him or her alone to run the restaurant.

Litigation of this nature can derail even the most successful restaurants. The LLC needs to find a way to push past the emotions and make decisions that protect everyone involved. Here, a receiver without an emotional stake can help by both managing the litigation and working throught he personality conflicts. Ideally, members of the LLC can move to this solution before the court has to get involved. The more the members can do to handle these matters internally, the better the chances of moving forward with a successful restaurant.

Restaurant Receivers and Business Success

In these and countless other scenarios, running a restaurant LLC comes with the potential for miscommunication and mistrust. At the time of formation and during times of success, everyone feels ready to work effectively as a team. When things go south, though, members can turn quickly on each other. A restaurant receiver brings a steady hand to connect the moving parts and bring everyone back to the same page. The process may not always work; not every restaurant can be saved. Before closing the restaurant or breaking down the membership, working with a receiver can often give the LLC its best chance to move forward effectively.