Like opening a new restaurant, there are several key factors to consider when looking at buying an existing restaurant. Location, sales history, and potential for growth should all be examined. Beyond that you should ask yourself the most important questions, “Why is it for sale?” The answer may tell you if you should buy or pass.
Why is the Restaurant for Sale?
There are two main reasons to sell a restaurant:
1. The restaurant owners may want to retire or are tired of being their own boss, deciding the reality of owning a restaurant is a little too…real. Health problems, family problems or other personal problems may make owning a restaurant too difficult for some people.
2. Or they may not be making enough money to cover their overhead (warning bells) and want to unload the restaurant before they lose their entire investment (louder warning bells).
How do you know an existing restaurant will be a success?
Well, you don’t. There are no certainties in the restaurant business (except for taxes). But if you do your homework you can find out if the restaurant is really profitable or if is a financial nightmare. Things to look at include:
The Big Financial Picture. You will need a detailed outline of the finances for your restaurant business plan, if you are planning to apply for a small business loan. Things you should look at include food and beverage sales, both monthly and yearly, labor costs, food costs, and check averages. Also look at the cost of utilities, rent, insurance and taxes. If the current owners don’t owe a mortgage on the business, you will need to figure that cost into your restaurant business plan as well. If an owner is reluctant to show you their books, don’t proceed any further. If they are serious about selling, they should be ready to give a clear picture of the financial health of their restaurant. Keep in mind you may need to sign a non-disclosure agreement, saying that you will not share their information with any other parties.
The Location. Unless you are very familiar with the restaurant that is for sale (you either worked there or frequented it regularly) you should find out how the location is working for the business. Is it located in a good spot? It visible enough to bring in foot traffic? Is there enough parking to encourage business? If the space is rented, then you will need to speak with the landlord about the rent, to find out if it is going up in the near future and how long a lease will be required once you take over ownership.
Copyright. Decide if you want to buy the restaurant, along with the name, logo and menu or just the space and the equipment. If you are buying a busy restaurant and don’t plan to make any big changes, at least in the beginning, then your best bet is to keep the current restaurant name . After all, if it ain’t broke, don’t fix it. Restaurants are a risky venture. Even established restaurants with a good track record are never a sure thing. However, if you feel really passionate that you can make it a success and you do your homework to get the full picture of how the business operates, you may be on your way to restaurant success.