10 Deal Killers When Buying a Restaurant: What Not to Do

Posted by Robin Gagnon on Aug 16, 2022 9:45:00 AM


If you are thinking of Buying a Restaurant, it's important to be aware of the common deal killers that can scuttle the sale. If you are serious about entering into negotiations, there is a right way and wrong way to approach the process. Here are the top 10 Deal Killers When Buying a Restaurant:

Deal Killer # 1 - Not doing your homework on the restaurant industry

There is a lot of glamour associated with the industry fed by a constant diet of Food Network, Top Chef, and Instagram food porn. That's not a reason to get into the business. No matter how much you like to cook, remember that this is a business and requires an understanding of the financial implications of your decisions. Before buying a restaurant, take the time to understand the industry and talk to people who are already in it. It's not a bad idea to intern or take a job at a restaurant similar to the style you want to run so you know you can handle the hours and requirements of the industry. It is imperative to first understand if buying a restaurant is right for you.

Deal Killer # 2 - Buying a Restaurant That Is Not a Good Fit

There are a lot of different types of restaurants out there, from fast food to fine dining. It's important that you buy a restaurant that is a good fit for your skills, interests, and goals. Buying a restaurant that is not a good fit is one of the most common mistakes made by first-time restaurateurs. If you don't eat meat, don't buy a steakhouse. If your religion forbids alcohol, avoid bars. Some of this seems like common sense but this Restaurant Broker has seen it all. 

Deal Killer # 3 Not Knowing Your Numbers

One of the most important things to know when buying a restaurant is your numbers. You need to have a clear understanding of the financials of the restaurant you are thinking of buying. This includes things like food cost, labor cost, and overhead. Without this information, it is very difficult to make informed decisions about whether or not to buy a particular restaurant.

Deal Killer # 4 Not Having Enough Cash on Hand

Another common mistake made by those buying a restaurant is not having enough cash on hand. Buying a restaurant is a big investment, and you need to make sure that you have the financial resources in place to make it happen. One way to do this is to get pre-approved for a loan from a bank or other lender before beginning the process of looking for a business.

Develop a concrete business plan that you can defend and then stick close to its principles when making the purchase. When you are buying a restaurant, you are often buying the results of someone else's failure to acknowledge this premise.

Deal Killer # 5 Not Doing Your Due Diligence

Buying a restaurant is a big decision, and it's important that you do your due diligence before making an offer. This includes things like visiting the restaurant, talking to the owner, and reviewing the financials. Without doing your due diligence, you could be buying a restaurant that has issues that cannot be overcome through new ownership. Take advantage of the services of a Certified Restaurant Broker who can work with you on the process and make sure you do everything from inspect the equipment to confirm the licensing requirements. Avoid general business brokers that do not have specialized knowledge of the industry.

Deal Killer # 6 Buying a Restaurant Without a Plan

One of the most important things you need when buying a restaurant is a plan. This includes things like how you will finance the purchase, what your goals for the business are, and how you will operate it. Without a plan, it's very easy to get in over your head.

Buying a restaurant is a big decision, and you need to make sure that you have a solid plan in place before moving forward.

Deal Killer # 7 Making Unreasonable Demands on the Seller

Selling a restaurant is an emotional journey for a seller. One misplaced comment that he interprets incorrectly can kill a deal beyond repair. Stick to business and keep your improvements to yourself (or share with your Restaurant Broker). Don't tell the seller what he's doing wrong, or you will lose the deal and an opportunity to buy the restaurant of your dreams. You also want to avoid unreasonable demands as he or she may simply walk away versus put up with a negative situation.

Deal Killer # 8 Buying a Restaurant Without Checking the Lease

If you are buying an existing restaurant, it is important to review the lease. This will give you an understanding of what your obligations are as the new owner. You also want to make sure that the lease terms are favorable and that you are not inheriting an escalation clause that will prevent you from being profitable or an open ended option to renew without set pricing.

Deal Killer # 9 Underestimating the time and effort required to buy and operate a restaurant successfully

Just because you are ready doesn't mean the ideal property is available. Temper your enthusiasm as the right business may take some time to locate.

Deal Killer #10 - Buying a Restaurant without a Certified Restaurant Broker

There are many details and potential problems when buying a restaurant. You need an expert on your side to help you with the process and avoid pitfalls. Buying a restaurant is a big decision, and you want to make sure that you have all the information you need to make an informed decision. A Certified Restaurant Broker can provide you with the resources and knowledge you need to make the best decision for your new restaurant.

When it comes to buying a restaurant, there are a lot of things that can go wrong. By avoiding these ten deal killers, you'll be in a much better position to find and purchase the restaurant of your dreams.

Think you're ready to buy a restaurant? Browse restaurants for sale now.

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Robin Gagnon, Certified Restaurant Broker®, MBA, CBI, CFE is the co-founder of We Sell Restaurants and industry expert in restaurant sales and valuation. Named by Nation’s Restaurant News as one of the “Most Influential Suppliers and Vendors” to the restaurant industry, her articles and expertise appear nationwide in QSR Magazine, Franchising World, Forbes, Yahoo Finance, and BizBuySell. She is the co-author of Appetite for Acquisition, an award-winning book on buying restaurants.

Topics: Buying a Restaurant

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