How to Buy a Restaurant Without Much Money

Posted by Robin Gagnon on Jul 16, 2012 6:56:00 PM

If you have limited resources and want to buy a restaurant, it’s not impossible.  It can, however, prove to be a bit more difficult.  You may have to be more creative than someone with a bulging bank account but the opportunities are there.   Here’s the restaurant brokers take on how to buyrestaurant for sale a restaurant without much money. 

First and foremost, be up front with your restaurant broker.  Make sure he or she knows your limitations so they can find the right opportunities.  That’s important because the restaurant brokers are dialed into the industry.  They know which owners (among their listings and with other agent’s listings) are willing to make a deal and which ones are stuck on their asking price.  They also know which landlords are flexible and which ones will not budge an inch on their requirements.  Lastly, the broker will appreciate your candor so he doesn’t waste time presenting opportunities that are above your price point.

Be realistic with yourself and the seller.  A common deal structure is one where the buyer offers half down and the balance is paid over two to three years.   Don’t expect seller financing to mirror residential real estate where 10% down gets you a long term mortgage.  That doesn’t mean you shouldn’t aggressively request owner financing of the restaurants you want to buy without much money.  Lenders are tight in this economy and sellers are learning that they have to fund deals on their own.  Offer the seller a personal guarantee as well as a security interest in the equipment if he will finance part of the deal.  You don’t know what will be accepted if you don’t ask.

Work with your restaurant broker to prepare a package on both you and your future business.  A landlord or owner will be more willing to work with someone that’s done their homework and has a solid gold business plan especially if their bank account is light.  A standard restaurant business plan is critical to buying a restaurant without much money.  Make sure you demonstrate your knowledge of the area, the demographics, target audience and the need for your type of restaurant.  Include your menu and make sure you demonstrate why this menu is an alternative to other offerings in the marketplace.  Be realistic in your financial projections.  If your restaurant business plan says you are going to increase sales dramatically, be prepared to answer questions about how you will do it. 

Another rule of thumb in learning how to buy a restaurant without much money is to be clear about what you’re going to do to the restaurant you’re buying.  Lower price deals often have plenty of problems as well as opportunity.  What are you specifically going to do to improve sales?  Will you change the menu?  Alter the marketing?  Improve the efficiency? 

Make sure you are clear on your background and experience.  If you don’t have a lot of money saved but that’s because you’ve been working in the industry for ten years and serving as a sous chef in a top restaurant, make sure it’s covered in your business plan.  Good experience and character can overcome a shortfall in cash.  Include your personal financial statement so you put all the cards on the table.  If you have good credit but low cash, pull your own credit report and include it in the package.  Any bit of good news you can provide, helps overcome a deficiency in funds.

Pre-arrange someone with more assets to serve as a guarantor on the lease or the note to the seller.  Make sure that person has rock solid credit and a good background in the industry.

These proven strategies will help you realize your dream of owning a restaurant even if you don’t have a lot of cash to put into the deal.

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Topics: Buying a Restaurant

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