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Trent Lee FCBB Agent

When considering buying a restaurant it is important to consider several things. Below is a list of items to include when evaluating the purchase. A professional business broker can help lead you in the right direction.

1. Location, Location, Location – Is the restaurant situated in a good location? You will want to check the other businesses surrounding the restaurant and see if they are doing well or is there a lot of empty storefronts. What is the visibility of the restaurant? You want a business that is easy to see from the street as traffic drives by or there is a lot of foot traffic passing by. Is it easy to get to and from the restaurant? Nothing is worse than having to make 3 right turns and a U-turn to get to the restaurant or is the traffic so congested people stay away from the area. Does the theme of the restaurant suit the area? You don’t want to open a 5-star restaurant with $200 food items next to a University where students only have $5.00 to spend on meals.

2. What is the existing Lease and Rent of the Restaurant? Make sure you receive a copy of the existing lease and meet with the property manager, so you have a clear and every detail spelled out. You will want to find out if the lease is transferrable or will you have to apply for a new lease. What are the renewal options, the security required and are there any exclusions that will directly hurt your business? Also, it is important the rent is not higher than the amount of profit your restaurant will generate. A restaurant will not be able to survive if the rent is higher than the monthly profit. You may think the high rent is worth the location of the restaurant, but if the items you are selling don’t have a high enough profit you will always be behind and not making enough money to justify the high rent. 

3. The Kitchen Equipment, Fixtures, and Inventory – If these items are included in the sales price, which they usually are, you will want to make sure they are in good working order and really is an asset to the business. Are they regularly serviced, are there any warranties on the equipment, or what is the life expectancy of the fixtures? Make sure to thoroughly inspect the kitchen and appliances to ensure they are in good working order. If not, don’t let that deter you from purchasing the business but might be a good tool for brokering a better price.

4. Licenses and Permits– You will want to find out if there are any special licenses needed to run the restaurant. For example, will you need to obtain a liquor license or a gambling license? Are there any special permits that you will need to pay for and obtain? What are the zoning requirements surrounding the business? If you want to open the business at night or on the weekends is that allowed in the neighborhood. These additional items could cost you extra funds and time for completing applications which will lead to delays in when you can open your restaurant and eat into your profit.                                                                                                                                                                                                                                                                  
5. Iconic Logo, Special Food Items and Other Intangibles – Other items that add value but are not considered a tangible asset are a famous icon or logo. Is this a familiar object that is popular in the area and differentiates you from other restaurants? Does the restaurant have a special burger or other food items that only they can provide that draws patrons and tourists to the location? Is this the only restaurant open after a certain time of night that draws a crowd and increases sales? These are all intangible items that will help you succeed once you have purchased the business and something you can add to help promote the business and increase profits.

6. Financial Documents and Future Growth of the Restaurant – You will want to perform your due diligence and go over the financial documents of the restaurant. You will want to see the last 3 years of the profit and loss statements. Not only do you want to see if the restaurant has been doing well but where are the areas of the restaurant you can improve on or reduce costs to help the overhead. Do you need to revise the menu and remove items that are not selling well but have a large cost? Would it be more beneficial to only serve breakfast on the weekends? 

As you can tell from the above there is a lot to review and consider when purchasing an existing restaurant. Enlisting the help of a professional business broker can help alleviate some of these items and give you confidence when submitting your proposal. They will be less emotional about the deal and will have your best interest in mind. Creating a checklist to go over the above items will help you feel secure that you are making the right investment.