Major changes are usually both thrilling and nerve-racking, and buying/selling a restaurant (or any business) is a big change.
Whether you’re the buyer or the seller, you’re probably excited about this new phase of life, but before you rush into anything, make sure to do your research. A little bit of caution now can save you a lot of pain later on. This is an important decision, and it pays to be careful.
Here are some ways to avoid mistakes when buying and selling restaurants.
Buyer: Consider the Financial Cost
Restaurants cost a lot of money. Our listings range anywhere from $75,000 to $5 million. Before you rush into anything, think carefully about whether you can afford this restaurant. Not just the purchase price, but also the cost to run it until it becomes profitable which may be a long time, if ever.
One restaurant owner said, “If you do not know how to work hard for free, then I would suggest you do not get involved in this business.” The restaurant industry has very thin profit margins.
Read our article, “Do I Have Enough Money to Buy a Restaurant?”
Buyer: Consider the Time Cost
Owning a restaurant is a massive time investment. An article from Thrillist quoted a restaurant owner who said, “If you are not prepared to never see your family, never have a holiday, never play golf, then you are not prepared to be in the restaurant business.”
Consider how much time you’re willing to invest.
Buyer: Consider the Emotional Cost
This ties into the previous point. If you have a family, the long hours can be costly for them. One of the most important parts of owning a restaurant is balancing family time. Ask yourself what you’re willing to sacrifice.
Even if you don’t have a family, it can be emotionally draining to have to interact with people and make them happy all day.
Buyer: Check the Lease
According to VR Business Brokers, “It’s important that you know what lease you’re taking over and how this will impact your business. Every lease is different, and you will need to take your time to understand what is involved in this particular lease before you buy the restaurant.
“Identify whether you will need to be re-approved when you take over the business and what the renewal terms are. You don’t want to be denied the lease after buying a new business.”
VR also recommends that you write a business plan and check the restaurant’s liabilities. They explain, “While doing your due diligence, be sure to check that there aren’t any outstanding liabilities. When you take over the restaurant, these will become your responsibility. You do not want to be hit with any health code violations or unpaid taxes. Buying a restaurant will also mean taking on any and all of its financial obligations.”
Also, you should negotiate the price because prices aren’t fixed in stone. National Restaurant Properties can represent you when buying and selling restaurants. We have years of experience in the industry.
Buyer: Ask Why They’re Selling
There are lots of reasons people sell their restaurants. Maybe they need money for their next venture. Maybe they’re burnt out. Maybe the business is strong, and they want to cash out.
On the other hand, sometimes owners sell because the restaurant is failing and about to go under. Be careful not to buy a restaurant with major problems when there are other, better options available.
Also, make sure to check the condition of the cooking equipment. Have a professional inspect the whole building.
Buyer: Ask Enough Questions
Don’t get so swept up in the romance of buying a restaurant that you neglect to ask about critical matters. On the other hand, you don’t have to know literally every detail from the restaurant’s entire history.
See our buyers checklist for more information.
Buyer: Investigate the Restaurant’s Reputation
Look at reviews online, and ask the locals. If people have had poor experiences at the restaurant in the past, they probably won’t forgive easily, even if you make improvements. You’ll know the restaurant is under new ownership, but potential customers probably won’t, and why should they risk returning to a restaurant that failed them in the past.
Seller: Choose a Quality Broker
A good broker is critical for selling your restaurant. Check out our post, “10 Questions to Ask Potential Restaurant Brokers.” You also need a broker when buying.
Seller: Cooperate With the Buyer
You may be uncomfortable giving your financial and legal information to buyers, but you’re not going to sell your business if you don’t. Make sure you have up-to-date information ready for them. And don’t lie. Make sure all the information is correct.
Click here for a more extensive list of all the “grooming” you should do for your restaurant, and all the information you should have ready for buyers.
Seller: Get Your Restaurant Ready
Put your best foot forward when selling your restaurant. Make sure everything is clean when potential buyers visit. Your grass should be mowed, your windows should be washed, and your signs should sparkle. You may even want to put a fresh coat of paint on the parking lot.
Be professional. You’re asking for a lot of money from the buyer, and little fixes like cleaning can make a huge difference.
Seller: Don’t Refuse Seller Financing
According to surveys, sellers that want all cash usually get about 70% of the listed price as opposed to 86% for sellers who accept terms. Agreeing to seller financing can be a wise decision, although there are risks.
Seller: Don’t Set Your Price Too Low or Too High
This is another category where you have to be just right. Your broker can help you determine how you should price your restaurant. We have years of experience. Let us help.
Seller: Keep Everything Confidential
Entrepreneur magazine gives this advice: “Confidentiality is important. If the word gets out that your business is on the market, it could adversely affect sales and your relationship with your staff.”
You can (and should) both market your restaurant and be confidential, though that can be difficult.
Buyers and Sellers: Seek Professional Help
Whether you’re buying or selling the restaurant, you could use professional help, especially if you’ve never done this before.