Where Do I Start? 5 Steps to Get Started Buying a Restaurant

Posted by David Whitcomb on Jul 8, 2022 3:20:02 PM


Thinking about buying a restaurant? There are countless reasons to get into the restaurant business. Whether it's the fast, dynamic pace, the sociability, earnings, or just being around great food and drinks, buying a restaurant can be very rewarding and lucrative if the concept is right and operations are tight.

Whether you are buying a restaurant for the first time or adding to an existing portfolio, there are several things you, as a buyer, would be wise to consider before pulling the trigger. This blog will outline the 5 Steps the Get Started Buying a Restaurant. The following details are some of the first steps to a successful acquisition that keeps the buyer happy, successful, and sane.

Step 1 - Decide Where you are Buying a Restaurant

First, and maybe most importantly is location. Not just the location of the business (that is very important too but not crucial) but the geographic area. If a Buyer is moving outside of where they currently live and is considering relocating to acquire a business, a Buyer must make sure they will like the new area they’re in! If a Buyer purchases a business without first visiting the city or town where the business is located, and they later realize the area is not for them, they could be stuck for a while in a place they don’t like. Figure out first where you are buying a restaurant. Are you a city dweller? Do you enjoy the suburbs? Country? Figure this out first.

Step 2 - Figure out How you are Buying a Restaurant

Next, get your finances in order and understand exactly where you stand. Determine what the budget is. Nobody, especially busy restaurant owners, are willing to spend valuable energy or time with potentially unqualified buyers. How do you plan to finance the restaurant? Are you a cash buyer or will you need financing options? A bank lender will require a minimum of 20% liquidity of the asking price as an equity injection for the purchase. We Sell Restaurants has strong referral partners who provided other avenues for Buyers, attempting to acquire restaurants that may not qualify for lending. A Buyer should know their credit score as there are unsecured commercial lines of credit based on a borrower’s credit score, history and usage that can be used for restaurant acquisitions when a business may not qualify for traditional lending. Also, the landlord will qualify the Buyer in their determination of a new lease or lease assignment.

Step 3 - Pick a Concept before Buying a Restaurant

Are you interested in buying a restaurant franchise or buying an independent restaurant? A franchise may be a good choice for a buyer with limited restaurant experience. The fees paid to a franchisor can be well worth the support, systems and guidance that will be provided to ensure the success of the franchisee. A more experienced and confident individual can eliminate the royalties and costs associated with a franchise and acquire an independent restaurant. Be aware, however, that this support and security means a franchise restaurant will be more valuable and come with a higher listing price.

If the franchise restaurant is not for you, are you interested in buying a restaurant that is an asset sale or a profitable business?  They are typically turnaround situations and will not show any financials or earnings. Instead, it gives the Buyer a built out second-generation restaurant where you would be buying the furniture, fixtures, equipment, lease, and location of a restaurant. As the New Owner, it would be your project to turn it around using your skills, qualifications, new concept, and menu for the space. This can usually be done in much less time than it will take for a complete build out of a new restaurant. Asset sales tend to have more modest price tags, although it is important to understand what it means to buy a restaurant that isn't making money. On the other hand, an already profitable restaurant can translate to immediate earnings for a Buyer and may need only small incremental change or no changes at all.

Do you plan on being an owner-operator? Absentee owner? Semi-Absentee? Determine the size, staff, and scale of operations that you want in your concept when you are buying a restaurant. A large space with dozens of employees that can crank out millions in revenue or a small place they can run themselves with a handful of staff. How much time a Buyer would like to spend at the business will have a large bearing on what type of business to go after. Is the Buyer a morning person? Maybe a breakfast and lunch spot or café is a good fit. Night owl? A restaurant with a bar and entertainment might work.

Step 4 - Browse Listings before Buying a Restaurant

A Buyer should next get a feel for the market. Browse for restaurants for sale and inquire on listings that catch your eye. If you are buying a restaurant from We Sell Restaurants, we have made it simple to register and submit a Confidentiality Agreement on any listing that you become interested in. Once that’s done, in most cases, the Buyer will be given the name and address of the restaurant. We Sell Restaurants provides a downloadable listing package for inquiring buyers which includes financial statements (if available), the name, the address, and more. It is important to note that higher value listings will require the restaurant broker to prequalify a buyer before divulging any further information. These restaurants may ask that the Buyer provide proof of funds of approximately 20% of the asking price to ensure the Buyer is qualified to do a deal. This is especially true if you are thinking of buying a restaurant franchise.

Step 5 - Visit as a Customer before Buying a Restaurant

Plan a visit with some business partners, spouse or close advisors. You should go and experience the restaurant they areas a customer would. Prospects should remember not to discuss the sale while visiting the restaurant. In most cases the employees do not know the restaurant is for sale. There is a good reason for that. Selling a restaurant is very from selling a home. When selling a home the Seller wants everyone and their mother to know that the house is for sale. There's no reason for it to be confidential. However, the situation is very different for a business owner trying to sell their restaurant. If restaurant employees catch drift that the restaurant is for sale, uncertainty can set in and cause employees to exit, leaving the restaurant owner to understaffed and in a tight spot.

Get Serious About Buying a Restaurant

After completing the 5 steps, if you are still interested in buying a restaurant, then it's time to move the deal forward.

Take a deep dive into the financials. Are the main expenses such as food cost, labor and rent in line with industry standards? A Certified Restaurant Broker® will have recast the restaurants financials. These recasts will give you a true idea of the Owner’s Benefit, which is what the new owner can expect to put in his or her pocket after all expenses are paid. To legally minimize potential tax liability, a business owner may run some personal expenses such as cell phone and automobile, personal travel and meals and health benefits through the business. This is considered owner benefit or sellers discretionary earnings. The asking price will be a multiplier of Sellers discretionary earnings.

Who can Help Me with Buying a Restaurant?

There will always be some risk in any business acquisition. Taking the time to complete the 5 steps to get started buying a restaurant can mitigate some of the risk and make for a pleasant new chapter for you as a restaurant owner. A Certified Restaurant Broker® will hold weekly calls with both the buyer and seller to ensure a smooth transaction and successfully close the deal.

Now that you understand the 5 steps to get started buying a restaurant, it's time to begin your search. Browse hundreds of restaurants for sale listed by the experts at We Sell Restaurants. Or, contact a Certified Restaurant Broker® near you.

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

Download the Free Guide to Buying a Restaurant

Dave WDave Whitcomb, Certified Restaurant Broker® is the franchise partner for Lee and Collier counties. A veteran of the restaurant industry for more than three decades, Dave has served in numerous roles including: Culinary Director, Executive Chef, and General Manager. He operated his own successful full-service restaurant in Santa Clara, California before relocating to Florida to pursue a career in restaurant brokerage. Dave is licensed by the Florida Real Estate Commission as a Real Estate Broker and has also completed training leading to his designation as Certified Restaurant Broker®, one of a handful granted nationwide.

Topics: Buying a Restaurant

New call-to-action