Advice for Buying a Restaurant and Selling a Restaurant

5 Signs You're Not Ready to Buy a Restaurant

Posted by Robin Gagnon on Jul 13, 2016 9:00:00 AM

5_signs.jpgThe Restaurant Brokers deal with hundreds of buyers each month so we've begun to pick up on a pattern of those who really aren't ready to buy a business.  We're not saying there's anything wrong with that but if you think you're ready to start your search but show one of these five signs, it may be time to reevaluation your motivation and real intention to move forward. Here are the five signs that you are not ready to buy a restaurant. 

#1 You’ve looked at more than 20 restaurants or been searching for more than one year.  

If you believe that the quantity of restaurants you review makes you a better buyer and you've literally looked at more than a dozen, then you are probably fooling yourself if you think you're ready to buy.  It may be time to invest in restaurant stock, get a job in the industry or join the field in some other way.  A typical restaurant buyer will be able to see through the pros and cons of an opportunity, review the financials and get to a decision after viewing less than a dozen restaurants for sale.  If you're not sure whether you're better suited to a bar for sale or a catering opportunity and feel like you have to view everything, that just underscores the point that you're probably just not ready to pull the trigger and you may have already passed on the ideal opportunity. 

#2 You need 10 Years of Books and Records or Some Other Unreasonable Form of Due Diligence

Buying a restaurant typically means examining what a bank would review - the most current P&L and two years of tax returns or books and records.  Someone requesting a ten year history or a five year look back is trying to find security in a trend that just isn't even relevant to the transaction.  If you feel like you need to look back a decade to make a decision, just consider where you were ten years ago and what you were wearing, driving, drinking....Is it relevant to today?  A look back this old is a way that you are stalling on making a decision.  You may be better suited to something where you feel more secure (as in taking a job) versus the inherent risk and opportunity associated with buying a restaurant. 

#3 You need or want an Attorney to Review a Confidentiality Agreement Required to View the Restaurant

While there are literally people who employ attorneys on retainer that require they never sign anything before it is reviewed, those are usually rare special snowflakes with trust funds and not the traditional buyer for a restaurant.  If you feel as though a one or two page confidentiality agreement which spells out the terms by which you can discuss the business with someone else as too risky to sign before you buy a restaurant, then you are probably not up for the reams of paper required by everyone from the lender to the landlord before you close on a business.  For that reason, you're probably simply too risk adverse to buy a restaurant and you should consider doing something else.

#4 You Aren't Comfortable Providing Proof of Funds

For many restaurant purchases, a franchise or seller will require that you provide proof of funds before you can even view a package on the listing or obtain the name.  That's not necessarily even the Restaurant Broker's requirement, but is feeding from the Seller.  If you fit the profile of someone who does not want to reveal financial information to qualify, you may not be in a real position to buy a restaurant.  Before a deal is concluded everyone from the landlord to the franchise is going to do a full financial review of you as a buyer.  If you can't hold up to that scrutiny, buying a restaurant is probably not for you.

#5 You want to conduct all your Due Diligence before Writing an Offer to Buy

Conducting your due diligence before you write an offer is another sign that you are working (maybe even subconsciously) to find reasons not to buy the restaurant.  Most sellers are willing to provide a fair amount of information up front including a profit and loss statement and even tax returns but when buyers start seeking items like copies of all 941 filings and check registers before they even write a contract, most sellers call a halt to the process.  Due diligence typically occurs once a deal is in contract and most contracts give you the option to walk away for any reason during due diligence.  If you want to examine everything minutely before writing an offer, it may be that while your heart is ready to go, your brain just isn't going to let it happen.  You might be happier suspending the search until both are aligned and ready to move forward. 

Are you exhibiting any of our signs that you're not ready to buy a restaurant?  If so, don't worry. It may be that now is not the time to buy but sometime in the future may put you on the right path to own your own business.  

If you think you are ready and don't have any of the signs in our article, then check out our restaurant for sale listings online at this link.

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Topics: buying a restaurant