Buying An Existing Restaurant
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Are you looking to buy a restaurant If so, you're in luck! In this article, we will outline the complete process in nine steps that will help make the process easier and insure you know exactly how to buy a restaurant. While it may seem easy, many people don't realize just how much work goes into buying a restaurant. It's not as simple as picking out your favorite place and handing over the cash. There are many things to consider, such as the financials, location, and more. By following these nine steps, however, you can streamline the process and avoid any potential headaches down the road.
Identify the restaurants for sale in your market or in any area where you are willing to relocate. The workforce changes wrought by the pandemic make it easier than ever to move if the right opportunity presents itself. For that reason, don't immediately rule out certain parts of the country if your focus is on earnings. There are hidden gems everywhere, many times highly profitable, that you may be open to buying if you expand your geographic search.
Search online sites like wesellrestaurants.com or bizbuysell to find the best available inventory of restaurants for sale. These are national sites that typically include the most restaurants for sale. Check the sites daily as new listings are posted frequently. The listing should identify earnings for each store you are reviewing within the listing description and in the details for each ad.
You can further focus your search by industry type, such as quick service restaurants, fast casual restaurants or full-service restaurants, as well as by price range. Identify three to five restaurant businesses that meet your basic criteria for review.
A profitable restaurant is any business that is cash flow positive meaning the earnings on the business exceed the costs to operate. For your individual situation however, you must determine what level of profit meets the needs of yourself and your family. Are you replacing a salary at a restaurant and ready to be your own boss If so, you may be able to buy a restaurant that is earning less money on the books because you have less income to replace.
When buying a profitable restaurant, it is good to know that most, but not all, will qualify for lending. That means you need less money on hand and instead, may do a percentage down and finance the balance over a period of time. The amount down varies based on the restaurant performance, number of profitable years and the buyer's credit history and experience.
Contact a qualified Restaurant Broker for advice and information. You will want representation from experienced brokers who have handled multiple transaction. You may be learning how to buy a restaurant but for Certified Restaurant Brokers, they do this every single week of their lives. Lean on them for assistance. For most listing, you will first need to acknowledge confidentiality or sign a non-disclosure agreement. The broker may also ask you to qualify financially to be sure you will meet the seller or franchise requirements. That may entail providing proof of funds in the form of a bank statement, brokerage account statement or a letter from your bank. This is important to protect the highly confidential information being shared about the business. Once this agreement is in place, the restaurant broker will open up the books and share more detailed information about earnings with you.
The Restaurant Broker should provide a full listing package or offering memorandum on the listing. These packages vary in sophistication and information by broker, but the most professional firms provide a well-developed and consistent package that states all the financial elements of the business including information on how to buy a restaurant.
Visit as a secret shopper using tips from this article once you've found a few restaurants that seem like they could be good candidates. The best way to get an idea of how a restaurant is really doing is to secret shop it. This involves going in and acting like a normal customer, but also paying close attention to the details.
After you have visited the restaurant as a customer and reviewed the listing package, it's time to get face to face with the seller. This is when operational questions are addressed and the \"back of the house\" or kitchen is seen by the buyer. Many times the restaurant broker or seller will have the source material for any documents or additional years of data to review once there is a face to face meeting.
This is not a time to insult the seller or speak negatively about his operations or staff. Work behind the scenes with your Restaurant Broker to present a point of view and be professional and courteous. Arrive on time for the meeting and understand that many sellers are worried that their staff will learn of the sale so they will want meetings to occur before the restaurant opens or after it closes.
This is the step where the buyer has a lot of heavy lifting to do. He or she is working with his CPA, a lender, a landlord and other parties to complete the deal. Your restaurant broker will assist in getting materials to all parties including source materials like tax returns and profit and loss statements. These may go to the CPA , lender or both. The tax returns and profit and loss statements are validated. Any equipment inspections are performed and all items of interest to the buyer are confirmed.
The final step in the process is to close on the deal and officially become the new owner of the restaurant. This usually involves signing a lot of paperwork and transferring the money to the seller. Prior to closing however, there should always be a walk-through as well as an inventory of all perishable goods on hand.
With more than a decade of hospitality experience, Mary has worked in some of the most celebrated restaurants in the world. Her expertise is featured across Fit Small Business in restaurant, retail, and starting a business content.
When you are in the process of starting a restaurant, buying an existing business can save you time and money. An existing restaurant already has the necessary operating permits and licenses. Specialized equipment like kitchen hoods and grease traps are already properly installed. Building and health inspections have already been done. If you plan to keep the whole concept from furniture to menus, you will also inherit vendor relationships and employees.
Before you visit restaurant locations, it is important to know what sort of restaurant you want to purchase. You can buy the entire business, including the existing business entity, in a bulk purchase of the whole operation. Alternatively, you can form your own business entity and only purchase certain assets of the restaurant.
If you intend to keep the restaurant running as is, you want to pursue a bulk purchase. A bulk purchase includes all of the assets listed above. If you plan to rebrand the business or dramatically renovate the space, purchasing only the relevant assets is a better option.
Try to visit each restaurant you are considering anonymously as a customer first. Experiencing the space from a customer perspective allows you to recognize the strengths and weaknesses of each restaurant. When dining, pay attention to general features like the ambiance and overall cleanliness of the space.
You should also note the flow of service. Are employees able to work around customers efficiently Is there enough room at the bar, in the entryway, and the guest restrooms Several other questions can help you determine if a restaurant space is the right fit for you:
If a restaurant business seems to fit your criteria, your next step is to contact the owner. Take care to reach the owner directly via email, phone, or in person. Avoid identifying yourself as a potential buyer to restaurant employees; they may not know that the business is on the market.
When you revisit the restaurant as a potential buyer, pay special attention to the non-public areas of the space. If you are not an expert in kitchen equipment, try to bring along someone familiar with those systems who can assess the quality of the equipment.
Once you decide to purchase a restaurant, you must secure a business attorney. Buying a business, particularly a restaurant, requires much legal paperwork so find a lawyer with restaurant expertise if you can. If you are purchasing the entire business entity, you inherit relationships with state and federal tax authorities. You will need to be doubly sure that your interests are protected.
The appraisal is where you place an actual value on the business assets and the business itself. There are many different methods to determine a fair price for the sale of a restaurant business but most restaurants are evaluated by profit. A standard guideline for determining a ballpark restaurant value is to calculate three times the annual profit. For example, it would not be unusual to see a business that earns $150,000 in yearly profit listed for an asking price of $450,000.
To get favorable financing, you should have a personal credit score above 680, letters of recommendation, and a convincing business plan. Restaurant business loans can be tricky to obtain because lenders consider the restaurant industry as especially turbulent. Loans backed by the Small Business Administration (SBA) can make lenders more comfortable issuing credit to buy a restaurant.
You want to understand precisely what you are getting for your money. The seller will want to keep track of what assets he or she may still have to present to other buyers. For example, you want to purchase a restaurant that has an active liquor license that you do not intend to use. The seller can then sell that license to another buyer.
Ideally, nothing surprising pops up during your due diligence analysis. If something does, though, it is customary to adjust your proposed purchase price or add stipulations to the purchase agreement. For example, if due diligence reveals that the restaurant is late on a sales tax payment, your attorney will likely stipulate that those taxes are paid before you move forward. 59ce067264
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