How to Buy an Existing Restaurant With These 5 Key Tips

By Brett Doyle July 4, 2022 Categories: , , ,

Owning a restaurant is easier when you buy an existing restaurant instead of starting from scratch. Read on to know how to get started.

5 Tips for Buying an Existing Restaurant

Despite the lockdowns and unfortunate closures, new restaurants are opening near pre-pandemic levels, with 18,207 new restaurants listed during the last 3 months of 2020 in the US alone. And by 2022, the restaurant industry is expected to reach $898 billion in sales.

So, if you’re interested in starting your own restaurant business—now is as good a time as any. But creating one from scratch is far from easy. So, buying an existing restaurant can be a great way to fulfill your dream of becoming a restaurant owner.

You get to hit the ground running and you’ll already have a name for yourself. However, by purchasing an existing restaurant, you also inherit all of the good, the bad, and the ugly.

Before you buy an existing restaurant, it’s crucial that you thoroughly examine what you are buying. You still have to consider a lot of things like when you’re opening a new restaurant.

Here are 5 tips for you to get started:

1. Understand Why The Restaurant is For Sale

The first question you should ask the owner is why they're selling their restaurant. After all, if it's a successful and profitable business, why do they want to get rid of it? Now, there are many reasons why restaurant owners want to sell their stores.

Here are some of the common causes:

  • The owners have been in the restaurant industry for a long time and are now looking to retire
  • They want to venture into new opportunities that don't include restaurants
  • Or they are trying to get out of a bad situationーfrom management, building-related, or market-related

Whatever their reasons, it's important that you know what it is. Having a clear understanding of why they're putting the restaurant up for sale gives you an advantage from negotiating contracts to how to position when reopening the store once you have the keys. For example, if the reason is that they're finding it difficult to make ends meet, it signals that the restaurant needs a revamp or that you need to look elsewhere.

The best way to know why they're selling their restaurant is to ask the current owner. Be prepared with all the questions you want to ask as a buyer before meeting them.

 

2. Diligently Check Restaurant Equipment

Chef cooking in a kitchen

Image from Unsplash

One of the biggest restaurant expenses is buying and maintaining restaurant equipment. Purchasing a restaurant means that you're also buying all of its furnishing, fixtures, and equipment. We recommend hiring experts to inspect the physical building, plumbing, heating, air conditioning, and kitchen equipment.

Here are 3 questions you have to ask when checking out the restaurant:

  • Is the equipment new or being properly maintained?
  • Does the equipment meet current safety standards?
  • Is there anything that needs to be repaired or replaced?

If you find any equipment faulty or no longer functional, make sure that you require the seller to fix it before proceeding with the purchase. Failure to do so means you may end up shelling out more money than you expect for the repairs.

 

3. Know the Restaurant’s Reputation in the Community

Another essential thing that you have to consider is the restaurant's reputation in the community. Look up reviews on food review sites or ask locals to get a good grasp of their reputation. If you see that the reviews are mostly negative, especially online—then it's time to rebrand once you acquire the restaurant.

Here are some of the review sites you can check:

  • Google
  • Yelp
  • Facebook
  • TripAdvisor

You also have to monitor the area of the restaurant. Doing so allows you to see if there's enough foot traffic to your future restaurant and see if it is a popular neighborhood. Are you relying more on locals or tourists or both, for example?

Apart from that, it's also essential to know the crime rate in the area to assure yourself that there are low risks for your restaurant regarding safety.

 

4. Verify Taxes and Note Any Violations

Taxes are inevitable in businesses. That's why, when you're buying a restaurant, guarantee that they don't have any pending tax liabilities, or else their taxes will become your problem. Verifying that they're cleared with taxes assures you that you won't be held liable for any taxes owed or debts held by the previous owners.

Apart from taxes, you also have to clarify any restaurant violations like health code, building code, and pest violations. If they're repeat offenders of any of these, that may impact your capability to run a successful restaurant at that location. If you want to verify whether the current owner is telling the truth, you can also find information about it via local government websites and health departments.

Here are some of the questions you can ask and verify:

  • Are all taxes up to date and paid? (These taxes include but are not limited to sales tax, payroll tax, property tax, and corporate tax.)
  • Have they had any tax audits in the past 3-5 years?
  • Do they have any history of health or fire code violations?
  • What have been their health code ratings for the past 3-5 years?

 

5. Pay Close Attention to the Contract or Agreement

When negotiating contracts, pay close attention to the wording in the agreement. Check if you're buying the restaurant from the owner or the landlord. If you're buying from the landlord, ensure the current owner has paid all of its lease payments so that it won't become your burden.

Also, see if you will own all the fixtures and decor upon purchase or if it's still the owner or landlord's property. If it's not going to be yours, you may need to keep asking for approval from the landlord when you want to make improvements to the restaurant.

You may also want to consider a non-compete agreement with the previous restaurant owner that prevents them from opening a similar restaurant within a certain proximity of your restaurant. Especially when you're taking over their brand and recipes, buyer protection must be part of your investment.

If you don't want to trouble yourself with all the legal processes, you need to hire an experienced restaurant attorney to help and guide you throughout the process. You want to get advice from someone who knows the business and the food services law, and can properly explain and negotiate contracts for you with the least inconvenience possible.

 

Buy An Existing Restaurant Wisely

Make your dream of becoming a restaurant owner come true, minus the difficulties of starting from scratch. Buying an existing restaurant is an easier and more cost-effective way to get into the restaurant industry.

But of course, it’s still a risky endeavor.

Always remember to find out and have information about the restaurant's ins and outs before sealing a deal. When you're well-informed about why the restaurant is up for sale and the status of all the furnishing, fixtures, and equipment, you'll be assured that you're making the right purchase.

Start your restaurant journey with Mosaic Solutions’ all-in-one restaurant solutions tool. Contact us today!