What to Watch Out for When Buying a Restaurant
Before buying a restaurant, there are a few things you should be aware of. It isn’t quite as easy as it sounds. Well, let me rephrase that. Sure, just about anyone can buy a restaurant, but not one with sustainability and profitability. That’s the hard part because of the high failure rate of restaurants.
Being well prepared will protect you from unforeseen bumps down the road. As we’ve mentioned in other articles, perform due diligence ahead of time and arm yourself with the right questions to ask and warning signs to watch out for. Here are a few items to add to your checklist:
Lease
You’ll need to make sure the business’ current lease transfers over. Some commercial leases require the approval of a landlord before assigning to a new owner. If that is the case, contact the property owner to find out what they need to get approval. There is a chance you’ll need to secure a new lease altogether.
Liquor license
As any restaurateur will tell you, the real moneymaker is in alcohol sales. Just look at your bill the next time you go out to eat. Before making any purchase, make sure verify the liquor license transfers. If it does, the waiting period for a license to transfer is minimum 30 days, while the average is about 55-65 days.
Liabilities
The standard process of due diligence will bring forth any existing liabilities attached to the business, but it’s your job to take it a step further. Are there any health code or violations? Unpaid overtime? If there are any, steer clear — or make a purchase of the restaurant’s assets only and form a new LLC.
Equipment
No matter what, you want to avoid having to make equipment repairs or replacements, as that can be extremely expensive. Have a thorough inspection done to check out the quality of the equipment. If it’s owned by the business and it’s good to go, great. Go ahead and proceed. If not, make sure you get an estimate and factor that into your offer if you still plan on going ahead with the purchase.