One of Marcus Lemonis's biggest pet peeves is an entrepreneur who risks other people's money without having any "skin in the game."
On Tuesday's episode of CNBC's The Profit, Lemonis meets founder J. Wolf, who started Chicago-based seafood restaurant Da Lobsta in 2013 by borrowing nearly $500,000 from his family. Though Da Lobsta's brick-and-mortar location and food truck generated $1.4 million in revenue in 2014, Wolf had more than $430,000 in unpaid sales tax and loans--not including the investment from his family.
After learning that Wolf hadn't put a single penny of his own money into the company, Lemonis discovers that Wolf also has a penchant for bending the rules. For example, the restaurant advertises its soup as "homemade" even though it's purchased from a vendor, and Wolf runs personal expenses through the business, including $25,000 in meals and entertainment in 2014.
"You need some discipline," Lemonis says after looking over the company's balance sheet, which listed several dinners at expensive Chicago restaurants like Morton's and numerous charges at AMC movie theaters. "My confidence level in your ability to not put your hand in the cookie jar is low."
Wolf's reckless spending isn't just bad for the company, it also cost him his relationship with his father, who invested $300,000 and is no longer on speaking terms with Wolf. The relationship is so bad that Wolf's father didn't attend his son's wedding. Calls to reach Wolf at his restaurant were unsuccessful.
In an attempt to clean up Da Lobsta's balance sheet and help Wolf repair his relationship with his father, Lemonis offers $210,000 for 51 percent of the business. The offer comes with some important terms and conditions:
- Wolf must sell his brick-and-mortar location and use the proceeds to pay unpaid sales tax.
- Wolf will get on a payment plan to pay back his father and service the other debt.
- Wolf has to take a straight annual salary of $60,000 and will not have the authority to spend the company's money without Lemonis's approval.
Wolf rejects the deal. Why? He's unwilling to give up control of his company to Lemonis.
"That's where pride turns to ego," Lemonis says. "There are plenty of people who do not deserve the help. Like J. Wolf."