Is a Restaurant a Good Business to Buy?

Buying a restaurant business can be fruitful if you know what you are doing. The key is to have patience and dont rush into making decissions. Belo...

  • Is a Restaurant a Good Business to Buy?
    Manish Khanna Image Manish Khanna

    Is a Restaurant a Good Business to Buy?

    • Wednesday 3rd of December 2014
    • Buying

    Buying a restaurant business can be fruitful if you know what you are doing. The key is to have patience and dont rush into making decissions. Below you will find some of the indicators as to whether a restaurant is an excellent business to buy or not.

    Why buy an existing Restaurant?

    Why Buy an Existing Restaurant?

    You could start a restaurant from scratch, using your creativity to create a great concept. So why buy one that is already existing? Because if it’s a good restaurant it will save you a lot of work. You can still add your creative edge to the restaurant if you feel the client base would be up for it and do a lot of changes as far as customer service and operations are concerned, if those changes are for the better.

    Here are some reasons why it’s easier to buy an existing restaurant:

    • Brand awareness and customer base. If it’s a good restaurant people are already aware of it. Even if you need to attract a few more customers, if you already have an existing, happy client base, you have a very good foundation.
    • Immediate cash flow. There will be no time spent on branding, designing the interiors and buying equipment, or finding staff - that’s all there, ready to go.
    • Established suppliers. If your menu is fairly set, you already have the suppliers ready. Likewise, the suppliers for drinks, china, cutlery, linen, etc. are all there. You will want to look them over to ensure you are using the best suppliers and getting the best deals, but if it’s a good restaurant, chances are you don’t have to do a complete overhaul.
    • Little staff training. Sure, staff training is continuous, but you aren’t hiring an entirely new set of staff who need to be trained from scratch.
    • The systems and operations are already in place. Again, this is something you will have to look over and ensure is as best as it can be, but it’s not the same as implementing a whole new set of systems.
    • Licenses ready to go. If the licenses are up to date you don’t have to go through the hassle of renewing each single one.

    Why Not to Buy an Existing Restaurant

    There are several reasons you would not want to buy an existing restaurant. One would be the need for complete creative freedom, as there will be some things already in place at an existing restaurant and if you change too much you might loose the existing client base and staff. If you are sure you want to buy an existing restaurant there are things to look out for - warning flags as you may call them. Unless the person you are buying the restaurant from is retiring, looking to move abroad, or genuinely want to do something else, there is often a reason for selling the restaurant that isn’t too great. Make sure you do your due diligence properly and consult someone before buying the business. Send a few “mystery shoppers” to evaluate the service and quality of food as well.

    A Bad Reputation

    A Bad Reputation of your business

    You walk into a restaurant in Maine in the midst of summer seeing quite a lot of tourists having lunch there. You immediately think that you just need a few more patrons to turn the place into a raging success, but you are wrong. Normally for lunch there are only two thirds of the amounts of visitors and if you visited at 7pm in November, you wouldn’t find a soul. Why? Because the locals know that the restaurant next door serves better fish and offers a better service - or worse, there have been some bad food poisoning happening in the past and the locals have become wary.

    Ask around before you buy a restaurant to get to know its history.

    Customer Dissatisfaction - Service and Quality of Food

    Maybe a restaurant is doing decent, but lately there has been a lot of complaints as the staff seems to have been messing up a lot. The owner may not tell you this, but in the past two months there have been less customers because of this. The problem is that by the time you step in, clients might have decided to give up on the place. You will also have to replace or retrain the staff, which takes up time and money.

    Ensure you know the full picture, because the least thing you want is to pay premium for staff that can’t keep it together. As previously mentioned - send a few friends to have dinner and lunch there over the course of a few days and see how they like it.

    Staff Problems

    Staff problems are not always immediately noticeable to patrons frequenting a place and warrant no complaints from their side, but that’s not to say they won’t eventually cause a lot of problems. For example, you have to ensure staff aren’t misusing any substances, showing up late constantly, or having internal arguments. Sometimes a place is running because two people are doing the job of ten and the other eight are watching them.

    Likewise, the management team might be causing problems. Maybe they are constantly messing up stock orders, or not providing enough staff training, nor thinking of how to make the business more efficient. Or worse: they might be stealing.

    Liabilities

    If there are bills or taxes unpaid from the previous owner you need to know about it and deduct it from the price you are buying the restaurant for. You also need to ensure your suppliers are still happy to work with you.

    Poor Maintenance

    How is the furniture looking? The equipment? The actual restaurant? Are there any leaks? Was the oven just repaired for the fifth time? Is the equipment OK, but in need of being exchanged within the next year or two? These things cost. Beware of them.

    Out of Date Licenses or Health Code Violations

    The restaurant might have passed the health and safety check a year ago, but is it still valid and are the procedures still the same? If the manager has changed, so might the procedures have done. If you need to renew licenses, pay fines for violations, or change around systems to make the place good for inspection again, it will cost in both time and money.

    Needless to say, if mice, cockroaches or other creatures have moved in lately, there will be problems.

    The Location

    You might have found a restaurant that looks like it’s in a good area, with a lot of pedestrians walking by. That’s not to say that it’s a good location though. Is there parking for customers arriving by car? Are the pedestrians there when evening comes as well and they are looking to have dinner? Is there a bar nearby that fill the entire street with music and drunk people come 9pm?

    Creative Accounting

    Some people are crooks and they do their best to get away with it. Hire a professional to go over financial statements, as well as bank statements for the past couple of years. Check what the real expenses are, as compared to the real income.

    How Much Needs Changing

    The main thing to consider when buying a restaurant is the current profits it’s making and how much needs changing. Make a list to see how much work is needed before you decide whether it’s a good buy.

    • Does the restaurant have a functional website?
    • Is the branding as it should be?
    • Can you order take aways and make reservations online?
    • Does the menu need a complete overhaul (if it changes daily, then it’s a different cup of tea)?
    • Is the service as good as it could be?
    • How many repairs are needed?
    • Do you need to change the menu/the quality of produce used for the current menu?
    • What equipment needs changing?
    • How many suppliers need changing?
    • Is there an operational manual, or will you have to create one (a business should be able to run whether or not the owner or the manager is there that day)?
    • Is the staff in need of training?
  • Author Info Manish Khanna

    Manish Khanna is a serial entrepreneur, philanthropist and genuine Australian success story. In a decade he has built an online empire unlike any other. He is currently the Managing Director of more than 10 individual companies. These include the flagship Business2Sell which operates internationally in 6 countries. The others include CommercialProperty2Sell, Million Dollar Mansions, Netvision, BCIC Pty Ltd and Better Franchise Group, to name a few.

    With more than 21 years’ experience developing web applications plus very successfully creating, managing and growing start-ups, he is forging ahead to turn more of his innovative ideas into future success stories.