What to Look for When Buying A Restaurant Revealed

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Buying A Restaurant

The restaurant business is one of the most popular options for many people getting into entrepreneurship. According to data, there are about 749,404 restaurants in the U.S.

If you’re interested in getting into the industry, you don’t have to develop a unique recipe, scout for an unchartered location, and start the restaurant from scratch. With cutthroat competition, most entrepreneurs prefer to buy a business, including its staff, menus, recipe, and other infrastructure.

This is a much easier entry to the restaurant market with fewer risks since you’ll ideally buy into an established brand with a robust clientele. However, there are crucial things that you must consider before signing the contract and acquiring your desired restaurant.

Here’s what you need to know.

Establish Why the Restaurant is Going for Sale

This is the biggest and the first question you should ask before proceeding with the acquisition. If the restaurant is successful, there must be valid reasons why the owners want to sell it.

Owners often put their restaurants up for sale for two reasons.

They Want to Retire

Restaurant owners can become tired of running their businesses and being their own bosses, therefore seeking to sell the business and retire. Running a restaurant can be very demanding, often requiring long hours on duty.

Family issues, health complications, and other personal problems can also make the owners consider early retirement.

They Have Overhead Bills They Want to Cover

While this may often not be the case, some owners may want to sell their restaurant business because of overhead bills and loans threatening their investments. If the restaurant is struggling to repay a loan, they can consider selling the business to protect their investments.

Some of these distressed sales can benefit you if you have the finances to repay the loan and the restaurant has a large client base since they’ll often sell for cheaper.

Basic Facts of the Restaurant You Should Consider

After establishing the owners’ reasons for wanting to sell their restaurant, there are other basic facts you should inquire about the restaurant before making your offer. Here are the most essential ones:

  • Ownership structure: Restaurants can have various ownership structures, including corporate and partnership. You must establish who owns or used to own the business before the current owners acquired it.
  • Lease arrangements and options: Ideally, you want to buy a restaurant with a continuing lease with favorable options to avoid negotiating for a new place or better arrangements once the acquisition is complete.
  • Title to fixtures and documentation: When taking stock of what the restaurant owns, you should ask for titles to important fixtures and documentation, such as warranties that prove the restaurant owns all the assets the owners report.

Questions About Sales and Finances That You Should Ask

How much you’ll have to pay for the restaurant will depend on its books. Therefore, you must ask crucial questions to ensure the owners have their finances in order. Some of the questions that should be at the top of your list include:

  • Validity of the books: The restaurant’s finances must have a CPA sign-off.
  • Gross and net analysis: The owners should provide a gross and net analysis of the business’s financials with proper expense analysis.
  • Three years tax returns: The restaurant owners must prove that they have been filing their tax returns for at least the past three years.
  • Vendor payment history: You should establish the vendor relationship the restaurant has, with a good credit report on the vendors.
  • Liquor license: Since most restaurants also sell liquor, you should get information about the restaurant’s liquor license, such as renewal and expiry, plus the liquor sales.

Look into Any Tax Problems or Legal Issues

Penalties from the government for failure to oblige to pay sales and payroll taxes obligations can quickly compound and force a restaurant business to shut down. Therefore, you should do the due diligence, with the help of a lawyer, to establish the restaurant has no tax or legal issues.

These include customer lawsuits, unpaid wages, health department citations, and back rent.

Have an Expert Guide You

Buying a restaurant business can be lucrative if you perform proper due diligence and ensure the owners give you a good investment. With different types of restaurants to consider, such as Greek restaurants for sale, enlist the help of an expert who’ll tell you the specifics of each business.

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