Buying An Existing Restaurant? Here Are 5 Questions To Ask.

12.8.20 | Buying
Buying An Existing Restaurant

When you’re ready to start a restaurant, there are some important decisions to be made. One of the biggest is whether to begin from scratch or purchase an existing business. Chances are, you’ll be buying at least some of a current eatery’s assets. If you go this route, you’ll want to learn as much as possible about any business you seriously consider.

If you’re looking at buying a specific restaurant, here are five questions you should ask first…

1) What’s really for sale?

You should be aware of what you’re looking for—and communicate that clearly to your business broker. While some flexibility will serve you well, you want to ensure that you purchase all the core components you’re expecting.

For a given deal, will you be getting all the equipment? What about the name, decor, and menu? Your business broker can help you determine what will be included in your deal, what won’t, and what will likely be negotiable.

2) Why are the owners selling?

Knowing why a restaurant is on the market is crucial. It could be because the owners are moving, or maybe they’re simply ready to start their next chapter. Unfortunately, it’s also possible that the business is failing—and the sellers are just looking to unload.

Luckily, doing your due diligence can help you avoid nasty surprises. That means putting together an experienced team (including a lawyer who knows the industry) to ensure that you have all the facts.

3) Are there any red flags?

Of course, a restauranteur’s true motivations for selling aren’t always clear from the outset. But when a business isn’t doing as well as it appears, there will be signs.

Existing liabilities and past nonpayment of taxes are major potential issues, as is a non-negotiable lease and liquor license with undesirable terms.

The good news, you can protect yourself (and not just by learning about a business before making a purchase). It may also be possible to structure a deal so that you’re only buying a business’s assets—and not its liabilities.

4) How transparent are the owners?

Speaking of red flags, if the owners of a restaurant are withholding crucial information, it’s a big one. You can’t make a truly informed decision until your lawyer carefully reviews all necessary documentation.

Yes, a profit and loss statement can be helpful. That said, it’s not the only thing you should consider. A qualified business broker will advise you to obtain vital financial records and tax returns before moving forward.

5) What is its reputation like?

What most excites you about opening an eatery? Is it building your own menu and client base, or sustaining a successful business long-term? If it’s the latter, you may want to look at the reputation of the existing restaurant you’re thinking of buying.

If you purchase an eatery’s good name (and maintain the quality of its signature dishes), there’s a good chance that your path to success will be smoother (and quicker) than it otherwise would be. That’s a “win” in a notoriously tough industry—one that you can leverage into future success!

READY TO FIND YOUR IDEAL RESTAURANT SPACE—AND START CARVING OUT YOUR NICHE IN THE TORONTO FOOD SCENE? REACH OUT TO LEARN HOW I CAN HELP YOU MAKE THE SMARTEST PURCHASE POSSIBLE!