Best Tips for Buying a Restaurant

Posted by Robin Gagnon on Apr 17, 2019 6:31:16 AM


Believe you are ready to buy a restaurant?  Here are our best tips and tales of recent restaurant buyers that demonstrate how to get your game on and be truly ready to buy a restaurant.   

Tip One – Prepare in Advance and Make sure your Financial Picture is Ready to Roll

When buying a restaurant, multiple parties will be pulling a credit check.  That’s why you must prepare up front by doing the same thing.  There are two sites you can use for this service that don’t require a credit card:  Credit Karma and Credit Sesame. These are two of the most popular free credit monitoring services. Who will be looking at your credit when buying a restaurant?  Here’s a short list.

If you are buying a restaurant that qualifies for lending, the bank will pull credit to confirm you are qualified to purchase.  For most lenders, this means you have a credit score of 650 or more and no bankruptcy in the past five years.  Even if you don’t meet that criteria, you may still qualify for lending but your Restaurant Broker at We Sell Restaurants needs to know.  If we identify the situation up front, we can develop a strategy to overcome the deficiency.  Knowledge is power.  Pull that credit check first so you know what it says.

When you are buying a franchise restaurant, expect the brand to do both a background check and credit check.  They want to know that you meet your commitments and pay your bills.  After all, they are allowing you access to their name, processes, intellectual property and trademark.  They need and want trustworthy individuals and a credit check is one way to establish those credentials.  

The landlord also wants a look at your credit.  If you are buying a restaurant, the landlord wants to be sure you have met monthly obligations in the past as an indication you will do the same with your rent.  If you have a late payment history but it’s tied to medical issues or identity theft or some other credible reason, be prepared to provide backup for that situation for the landlord to approve you as a tenant.  They may otherwise, deny you the opportunity to lease, or require the seller to stay on the lease as a guarantor.  This is never a good scenario and sellers often push back on requests to guaranty someone else’s payment.

Lastly, any time there is owner financing, the seller may and should require a credit check.  They are acting as the lender in this instance and deserve to know if you pay your bills on time.

This Tip in Action

One of our recent buyers relocated from overseas and had no United States based credit.  Since he began working with We Sell Restaurants months in advance, we advised him to establish a U.S. address as early as possible. From that address, he was able to get secured credit cards which he used and paid, building a credit history.  He also transferred his funds from overseas into U.S. banks, so they were shown available in dollars versus the native currency.  His preparation paid off.  He got through landlord and franchise approval with flying colors.

Tip Two – Dust off that Resume

You’re buying a restaurant, not applying for a job, but you will need to provide either a resume or your background and experience for all the parties listed above.  The lender, franchise, landlord and the seller all want to understand who they are dealing with. What’s your relevant experience for buying a restaurant? It may seem as though you don’t have any but that’s not the case. 

If you have a great resume that shows you are primarily an IT guy who has managed a lot of projects, take the time to rewrite this to focus on your ability to lead teams, hit deadlines and perform projects with long and short term goals.

If you worked in accounting for someone else, that’s a skill that translates to business ownership.  Buying a restaurant and operating it is not the same thing as working for someone else so make sure your resume doesn’t read that way.

Tip Three – Get a Mini Business Plan Ready to Go

We aren’t asking you to write a 50 page volume but a mini business plan consisting of eight to ten pages is a great start with most landlords and lenders.  You will need your resume (see Tip Two) for this so make sure yours is ready. 

A simple business plan for buying a restaurant should consist of the following:

General Description -- Easily picked up from the current operator’s website or a franchise website.

Area Specific Information – Add in the demographics of the surrounding area.  Often the landlord’s own website will give you this information so you’re feeding it back to him and confirming you’ve done your homework.

Background and Experience -Since you followed tip two, above, you are ready to go with this one.

Marketing Plan - No business plan is complete without a marketing plan and it will need to be specific to the restaurant you are buying.  If you are buying a sandwich shop, the business can be improved with more catering orders, so write up your plan to make that happen.   

If you’re buying full service operating dinner only, you can add lunch hours or delivery to increase the sales. If you’re buying any restaurant, you can develop and improve upon their local digital marketing campaigns.  Look at how they are advertising and where it’s being done. What’s their footprint on social media and what will yours be when you improve upon it?

Menu - This one’s easy.  It already exists.  If you’re adding to it, leave it out for now on an existing business unless it’s an entire change of concept.  Lenders and landlords like consistency so introducing a lot of change may hurt, rather than help your chances of approval.  When buying a franchise restaurant, this doesn’t apply as you are restricted from making a change of concept.

That’s it.  Follow those steps along with a cover page, a table of contents and you have a business plan for buying a restaurant.

Fourth Tip – Figure Out Your Partnership Ahead of Time

When buyers come to We Sell Restaurants that aren’t capitalized but want to buy a restaurant, they often mention “partners” or “investors.”  If your investors aren’t ready and funded, don’t begin your search.  You won’t be able to provide all the information requested above because you’ll still be doing work to figure out who owns what and at what percentage.  Work out your partnership and funding before buying a restaurant.

Final Tip – Buy a Restaurant Like you Mean it

We Sell Restaurants routinely works with franchise brands that take a very long time to transfer.  Between the process for approval and training, it can be six months before a deal hits the closing table.  We always warn buyers up front about this timeline.  We recently worked with a buyer who found that plan unacceptable and told us he would commit 100% and force an earlier transfer.  Then he did it.

This buyer was the epitome of the term, “Buy a Restaurant like you Mean it.”  Within 24 hours of signing the contract, he wanted and got a meeting on the calendar with the Area Developer. The next corporate Discovery Day was only three days away and he said, “I can book my flight and be there.” Within 48 hours of lending introduction, he had his approval letter. Less than one week after signing the deal, he was fully approved by the brand and in training.  When someone said, “I need …” his response was, “Here it is” in hours, not days.  He met with the landlord in the first two weeks.  His deal will go on record with this brand for the fastest closing on a transfer because this buyer simply stepped up to the plate and said, “I can get this done.”

When buying a restaurant, there are multiple requests coming from you each day.  If you prepare using our best tips for buying a restaurant and then, “buy a restaurant like you mean it,” you will experience great success in your quest.

Read also, What to Know Before Buying a Restaurant that isn't Making any Money.

Download the Free Guide to Buying a Restaurant

Robin slug photoRobin 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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