Tips on Buying a Restaurant: Making the Dream a Reality

Posted by Robin Gagnon on May 25, 2011 2:18:00 PM

If you are a first time restaurant buyer you may be searching online for the latest restaurant listings. Seasoned professionals will tell you that this process is referred to as the Restaurant Buyer Internet Dating Approach. As a new restaurant buyer you are most likely confused after searching dozens of sites and expressing interest in restaurants for sale. Before you realize it you are connected with 7 different brokers on different websites with different listings. Although it may appear that you are doing research on restaurants anonymously the chances are you will be hindering your chances of getting the best listings by searching endlessly for everything from Irish pubs to fine dining Italian restaurants. When you search online for restaurant listings you may not realize it but the same broker or firm may represent multiple restaurant listings. In most cases, when you make an inquiry it is getting sent to one source who will immediately recognize that you do not know what you are looking for and you have not pre-qualified your interests.

To the broker the Restaurant Internet Dating Approach will look something like this:

Joe the Buyer Inquiry 1: I am interested in this nightclub which is generating an income of $300,000. .

Joe the Buyer Inquiry 2: Please forward information on this sandwich shop which is on the market for $30,000.

Joe the Buyer Inquiry 3: Please send me information on this $1.6 million fine dining French restaurant.

When you look at this scenario do you see what the broker sees? The inquiries are so broad in price point and the operations are so varied, it clearly indicates that the buyer does not know what they want and the broker will not take you seriously. Instead, you should be asking yourself exactly what kind of restaurant you are looking for, what kind of restaurant will take care of your family, and what you are willing to sacrifice in terms of money, time, and lifestyle, to buy the restaurant. You must have these questions answered and then use your defined lifestyle, financial, and business requirements to focus on restaurant listings that meet your criteria. A lot of restaurant buyers think they are starting out looking for restaurants that meet their personal requirements and then they fall in love with a restaurant that is exquisite looking but not earning any income.

As a general rule, the fancier restaurants that are shiny and new are usually restaurants that exceeded the budget capital during construction and are not delivering a return on investment. What’s more is that there is zero capital left to cover the marketing and make the business grow. You can usually sniff out these restaurants by the wording in their listings such as “Stunning construction. Owner spent more than $600,000 to build. Seller will sacrifice for $300,000.” Basically this is a sure sign that the restaurant is not making any money. Instead you should look for a business that looks a little worn in appearance but may be generating a whopping 2 million dollars in sales. The equipment will look worn from continued use and the bar may smell of alcohol, cigars, and cigarettes however, the books will be showing a gross profit margin that exceeds 60 percent. The owner will be pulling in net earnings that exceed one quarter of a million dollars and everything will be clearly defined without any comments like “It may have a future.” The moral to the story is that you must define your requirements so you can search for the restaurant that meets your criteria.

Topics: Buying a Restaurant

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