Helpful Guidelines For Buying A Truly Successful Restaurant
For the would-be entrepreneur, a food and beverage industry option can be very attractive. When we consider fundamentals, something that each one of us must purchase to survive, food and drink of course comes in at the top of the list. While this may be the case, there are many complex and interrelated issues to consider before you buy a business involving an existing restaurant and it’s important to bear in mind that less than one in 10 purchases will actually succeed. It is very important to value the business correctly upfront and if you go about your due diligence correctly you will have a good chance of surviving against these awful odds.
When you begin trying to buy restaurant business assets, you’ll quickly learn that one of the key skills you’ll require is the ability to decipher information and to communicate effectively. You will need numerous meetings with the seller and don’t be surprised if the early ones don’t reveal some fundamental facts and figures. It is natural for the seller to be a little protective and to want to gauge your enthusiasm and see whether you are really serious and qualified before divulging delicate data.
There are some basic facts and figures to absorb before you are able to project your own figures for the future. What style of food does the business favor and how many tables are there in the restaurant? You need to know how many meals are served per day, per week and by month and if the menu is somewhat specialized, are the supplier contracts strong enough and is the supply chain sufficient?
In any business, labor costs are significant. How do the costs breakdown in this particular business and be careful if the strength of the organization is entirely based on certain personalities, key figures, or even the master chef. You may not expect to get a lot of the finer details during the early process, as a seller often wants to keep any news of a potential sale away from the employees until the appropriate moment.
When you start to compose a check-list of questions for the owner - and you might find you have hundreds, don’t be afraid to be as specific as you need to be and insist on appropriate answers. Before you even go there, however, understand that this kind of business involves very long hours and is typically a seven days per week concern. You will be required to deal with many “fires,” be great at managing people and your time and may not expect to see a specific net profit for quite a while.
As a new owner, you will need to set up and develop new relationships with all your suppliers. Some suppliers see a change of ownership as an opportunity to significantly “amend” their contracts, and prices. You must be able to deal with distraught people, who may be upset because their table is not available, even though they booked it but arrived late. You must be able to motivate your employees and be able to handle all situations immediately, resulting in praise or termination accordingly.
When you’re sure that you are cut out to buy business interests in the restaurant industry, have tabled the right questions and received the comprehensive answers, are happy with your interpretation of the financials and contracts, then you are ready to discuss the value. Always work with knowledgeable experts in the field who have experience in the restaurant industry and use their findings to backup your own thoughts. Find out what the bottom line is, how much the owner makes in terms of salary, net profits and benefits and then adjust this figure downward based on any capital expenditure you feel you may have to make.
With any restaurant for sale, the three major costs involved – labor, rent and food, should be no more than two thirds of total expenditure and always remember that you will have to have a superb marketing plan so that you can tell everyone about your new creation.
Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation - The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.