Buying an Established Restaurant
When you purchase an established restaurant there can be some areas you might want to make changes in order to get a profitable and successful business. The best thing about purchasing an established business is that it is low risk and a high reward. You already have the clientele, which means you have less work in marketing to do, and you know you will be making a profit. Still, there are a few things you should watch out for regarding an established restaurant.
1.You will need to do your research regarding the location. How long has the restaurant been open? Is there enough parking? Is it a property purchase or a lease? The lease should be no more than 10 percent of the gross sales, and preferably below 5 percent. Is there a permit requirement and if so are these met? Often the most difficult part is not getting full disclosure regarding the building or landlord.
2.Always check the sales the owner is claiming. You want to make sure that the business is earning what the owner says to get an accurate look at the success of the place. Tax returns are the best place to find this information.
3.The current operations will help you understand the payroll costs. If the owner has family working for free your costs will be higher or if there are employees being paid under the table you need to figure that out. You will want to create your own payroll costs not based on the current owner.
4.Understand where your clientele comes from. If the current clientele are friends of the owner it can be a bit more difficult to keep them, than if the customers are just there for the food.
5.Owners who want a cash buyout may not be offering the best price. A hurried sale often means the owner is hiding something.
6.The owner should sign a non- compete agreement. In other words they cannot just open a new place down the street if they sign the agreement.
7.Seasonal information is imperative with a restaurant. You want to know what will influence the sales. Is the owner losing out nine months during the year, which will also mean you are too?
8.Talk with the vendors and suppliers. You will want to get on friendly terms with them and try to keep their business. However, if they are unwilling to offer a good price you might have to seek out other suppliers. Just don’t step on toes or get taken advantage of.
9.All equipment you are buying should be checked out. You will need to know when the equipment was bought and its typical life span.
10.Anything you discuss with the owner needs to be put in writing. Use a lawyer to help write up the documents and have them signed by you and the owner. In this way you will have documentation if something the owner said is false.
