First, Ask Why is the Restaurant For Sale?
There are a couple of reasons that most restaurants are for sale. One, the restaurant is not doing well financially and the owners want out of this sinking ship. Or two, the restaurant is doing okay, but the owners are exhausted and just want out. The first scenario is the one you need to worry about. Demand to see the bank records of the restaurant. Not a profit and lost statement. Anyone can draw up a phony P&L to make it look like a restaurant is doing a booming business, when in reality it is stuck in the red. If the current owners refuse to show you’re their bank records or tax returns, big red flags should appear. Now, even if a restaurant is doing poorly, that doesn’t mean that it isn’t worth buying. New management may be all it needs to turn things around.
Location, Location, Location
Here’s the scenario: A restaurant in you neighborhood is for sale. The first thing to consider is it’s location. Is it in a busy area, with ample parking and/or foot traffic? Many people underestimate the importance of location for their small business. Even if you have great food and service, if your restaurant is out of the way, or located in a bad part of town, the majority of people will opt for something more convenient. Read more about choosing a restaurant location.
Is the Restaurant Worth the Price?
This is a tricky question. It all depends on what you are buying. The first restaurant I bought was a sinking ship with a bad rap in town. My business partners and I decided that it was still worth the price because it had an excellent location, included a good bar business (the dining room was the big problem, the food and service was terrible) and a newly remodeled banquet facility. We kept the name the same, which saved on having to create new menu letterheads, staff uniforms and signage. Often times though, you can purchase an existing restaurants equipment and space for less than if you bought the name with it. Read more about buying an existing restaurant.