Advice for Buying a Restaurant and Selling a Restaurant

Buying a Restaurant - It's a Jungle Out There

Posted by Robin Gagnon on Oct 14, 2013 2:07:00 PM

If you're buying a restaurant, you're quickly learning just what a jungle it can be out there. Everyone in the deal exhibits some kind of animal behavior and the king of the jungle is often the one that roars the loudest!

For the restaurant broker, it's necessary to take on the characteristics of the rhinoceros.  Why a rhinoceros? Well, these are the most thick skinned of all animals with a hide that can't be penetrated without the sharpest of spears or most piercing ammunition.  The restaurant broker has to have skin that allows the interactions between buyer, seller, landlord, franchise, attorneys, accountants and more to all roll off their back like the water at this animal's favorite watering hole. 

What about the other players in the deal?  Well, to return to our Animal Kingdom analogy, some buyers are Giraffes.  They will stick their neck when buying a restaurant.  These are the buyers that call and snap up a bargain the minute it comes on the market.  They aren't calling with fifteen pages of due diligence questions and requiring documentation on par with a billion dollar merger and acquisition.  They see the deal and act on it.

Other buyers take on the characteristics of the Shark.  They want the best possible pricing and like the popular TV show, Shark Tank, they will circle their prey and pounce with offers that are much lower than the sellers expects. 

Still other buyers will take on the flock behavior of the bird family.  A new listing comes on the market and they will bring in their family members, brothers, sisters, in-laws and other to look at the restaurant for sale and "flock" around it.  This sometimes results in a sale but more often than not, group thinking doesn't lead to decisive action. 

Other buyers take on the tortoise behavior in their approach to buying a restaurant.  This is the total opposite of the giraffe since they keep their head in and move ever so slowly in their decision making. They will ask for information for weeks about a business opportunity and finally call to say they are ready to make an offer.  Unfortunately, they sometimes learn the restaurant for sale is no longer available since the "Giraffe" already made an offer and took it off the market.  

Buyers and brokers aren't the only ones taking on the behavior of the wild kingdom.  One party to the deal, the landlord often acts like the Vulture.  The landlord or Vulture circles the dead (seller who's on the way out) in the transaction, trying to find an advantage for themself or some fresh meat (from the new buyer).  That can take the form of withholding acceptance of a new tenant without onerous burdens to the seller, refusing to release a seller from a personal guarantee or even just "stalling" a deal until a buyer loses patience and walks.  They can punish a new buyer with exacting credit requirements above and beyond the seller's demands and demand large deposits or guarantees.  The restaurant brokers have written a great deal on how a landlord is not your friend and nowhere is that animal behavior more clear than when you are selling a restaurant.  While the landlord is necessary to complete the deal, he often has no incentive to transfer a lease if the tenant in place is paying well and has good credit. 

Which buyer are you?  Is there another animal that seems closer to how you address buying a restaurant?  Remember, it can be a jungle out there when buying a restaurant!  

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Topics: buying a restaurant, restaurant broker