Buying a restaurant can be both exciting and rewarding ventures, whether you're a seasoned operator looking to grow or a first-time buyer pursuing your dream. However, it’s important to remember that buying a restaurant is far more complex than just signing a check and taking over the keys. From understanding the financials picture to navigating the operational changeover and any regulations, there are multiple moving parts, each requiring careful attention and expertise.
At We Sell Restaurants, we’ve worked with countless buyers who have successfully closed deals for buying a restaurant and succeed in running thriving businesses. However, we’ve also witnessed those who, without the right guidance, faced unnecessary hurdles that delayed the process or caused deals to fall apart. That’s why we’ve put together this guide: to ensure you are fully prepared at each step of the process for buying a restaurant. These ten essential steps cover everything from defining your restaurant vision to securing financing, conducting due diligence, and closing the deal. Following these steps won’t just make the transaction smoother—it will set you up for long-term success as a restaurant owner.
Let’s dive into what it takes to close a restaurant deal the right way.
Turning Around Trouble: What to Know Before Buying a Failing Restaurant
👉Step 1: Define Your Vision
Before you start looking at listings, it’s crucial to have a clear understanding of what kind of restaurant you want to buy. This means knowing:
Defining these criteria helps you focus your search and avoid wasting time on options that don’t align with your individual needs. After all, why spend time pursuing cash flow positive franchises that require significant liquidity and net worth if you’re starting out on a lean budget and bootstrapping your first purchase? Conversely, if you have a significant down payment and are buying a restaurant with bank lending, you don’t need to spend time on turnaround situations also known as asset sales. The more specific you can be, the easier it will be to identify restaurants that are a good match.
👉Step 2: Secure Financing Early
One of the most common roadblocks restaurant buyers face is a delay in securing financing. Before diving into negotiations, make sure you have your financial house in order. Here are some common options:
Getting pre-approved for financing will make you a more attractive buyer and allow you to move quickly when you find the right opportunity.
See all the We Sell Restaurants Lending Resources for Buying a Restaurant
👉Step 3: Work with a Certified Restaurant Broker
Buying a restaurant is not like buying a house or other businesses. It involves unique variables such as equipment, permits, and food and alcohol licenses. A Certified Restaurant Broker has the specialized knowledge to:
A broker who is certified in restaurant transactions brings invaluable expertise to the table, helping you avoid common pitfalls and streamline the process.
👉Step 4: Review Financials and Operations
Once you've identified a potential restaurant, the next step is a detailed review of its financials. Your Certified Restaurant Broker will have a detailed report called a Business Analysis Tool that includes:
Reviewing this document helps you assess the restaurant’s current profitability and its potential for future growth. Pay close attention to any inconsistencies or red flags, such as sharp drops in revenue or high employee turnover.
Additionally, look at the restaurant’s operational efficiency. Are there areas where you can streamline operations or improve profit margins? Understanding the financial health of the business is key to ensuring you’re making a sound investment.
👉Step 5: Visit the Location
Before making any form of an offer, you should visit the location in person as a secret shopper while conforming to the requirements of the non-disclosure agreement or confidentiality agreement you have in place.
This critical step allows you to see the operations from the viewpoint of the customer and assess opportunities for improvement. It will also eliminate some locations from consideration.
👉Step 6: Ask Your Restaurant Broker to Prepare the Purchase Agreement
With the financials and due diligence in order, it’s time to work with your Certified Restaurant Broker on the terms of the deal. This document will outline all the items to be determined between the buyer and seller including:
Certified Restaurants Brokers have extensive experience with the terms and conditions of these agreements. Work closely with them to review each element of the deal. They will help you make sure the contract protects your interests and leaves no ambiguities.
👉Step 7: Due Diligence and Bank Review
Due diligence is one of the most critical phases in the process. During this stage, you’ll dig deeper into the business’s operations, legal standing, and any potential liabilities. This should include:
At this stage, the bank will also be reviewing the financial documents and the underwriting team will confirm they will be able to satisfy the debt service through the earnings generated by the business. You will also be working with the landlord at this stage to review the lease, the assignment clause and prepare documents for his review. Due diligence is an important step as missing details at this stage can lead to significant problems after the sale.
👉Step 8: Deal Tracking, Prepare for Transition and Training
A smooth transition is essential to maintaining the restaurant’s success post-sale. Sellers will often agree to a period of training where they’ll introduce you to the staff, suppliers, and operational procedures. Make the most of this time by:
The transition period is your opportunity to gain insight into what’s working and where improvements can be made. It also helps ensure continuity for the staff and customers.
All Certified Restaurant Brokers work with restaurant buyers and sellers on weekly calls to confirm details of the transition. This can include everything from changing utilities over to the buyer’s name to building a business plan for the landlord’s review. They all follow a detailed checklist of items required for the closing. If you are buying a franchise restaurant, this is the step where you are also seeking franchise approval and consent to the sale. You will generally, need to complete training prior to the handover.
👉Step 9: Finalize Licensing, Permits and Lease Assignments
The final details related to the lease, licensing and permits are wrapped up in this step. Transferring ownership of a restaurant often involves:
Your Certified Restaurant Broker tracks these items to be sure you tackle the requirements early in the process to avoid delays that could impact your ability to operate the business once the deal closes.
👉Step 10: Close the Deal
Once you’ve completed all the previous steps, you’re ready to close the deal. The closing process typically involves:
At this point, the restaurant is officially yours! But don’t celebrate just yet—there’s still work to be done.
Post-Closing: What Comes Next?
The work doesn’t end when you sign on the dotted line. The period immediately after buying a restaurant is crucial to its long-term success. Focus on:
This is where your vision comes into play. By following the steps outlined here and working closely with your restaurant broker, you’re well-positioned to take your new restaurant to the next level.
Try Our Restaurant Assessment Tool to Decide Which Restaurant is Right for You
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Buying a restaurant is a rewarding venture, but it comes with its share of challenges. By following these ten essential steps and leveraging the expertise of a Certified Restaurant Broker, you can streamline the process and set yourself up for success. Whether you’re an experienced restaurateur or a first-time buyer, preparation and the right guidance will ensure a smooth transaction and a thriving business.