Buying an existing Restaurant Business

If you browse through the classified sections of newspapers, you will invariably find a restuarant or two for sale every week. If any of these seem to be a very attractive deal, what do you do?

For a newbie, my recommendation would be to avoid resale units, unless the complete set-up can be reused as is, without making any changes, whatsover.

Here are the big reasons:

1) Irrespective of what the seller tells you, I can bet that 9 out of 10 times, the reason the restaurant is up for sale, is that it is not making money (not even enough to cover operational running costs).

2) If you are going to make changes to the restaurant - kitchen set-up, interiors, seating etc., the effort will typically not be worth it and may also be frustrating. You will eventually spend more money than you expected to and would feel that you might have been better off starting from scratch.

3) Now here is the big trouble - If you are going to do exactly the same thing as the previous owner, what makes you think that you would make money while the previous guy wasn't able to? Chances are, your business will see a similar fate.

4) If you going to offer something different and can reuse the exact same set-up, then your chances of success go up a little. But then, you will have to evaluate diligently why the previous business wasn't working.

5) Most new restaurants shut shop within a year if it does not make money. So if a business comes up for sale after running in that location for 3+ years, it may be worthwhile looking into.

6) In most situations, the owner of the property will increase the rental to current market rates when the ownership of the restaurant transfers. So factor this into the negotiations.