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Due Diligence Mistakes When Purchasing a Restaurant

Due Diligence Mistakes When Purchasing a Restaurant

The most common mistakes seen when people get ready to purchase a restaurant is that they don’t fully understand the due diligence process. You may wonder what this is, and why it is important. If that’s the case, you are in the right place.

Due diligence is done to help confirm that the items learned during the discovery phase of the purchase are true. If you are buying a restaurant, there are three main things to keep in mind. Keep reading to learn more.

Too Soon

When buying a restaurant, some take the approach that they want to see everything before an offer is made. Unfortunately, with this approach, your ability to buy may be hindered.

By nature, sellers are curious. They want to avoid revealing too much about their business until they have a buyer who is more “certain” about the purchase. Even if there’s a confidentiality agreement is in place, they usually think about the people working in the store, the customers they have, and their current livelihood. All these things will be at risk if someone involved fails to honor the terms outlined in the agreed-on confidentiality agreement.

It is too soon if you begin to push for things like 941 filings and tax returns before the deal is made. To avoid this issue, go into an agreement to buy with the due diligence period and fully refundable escrow if you aren’t satisfied.

Too Much

There are checklists available online to use when buying any business that are over 10 pages with more than 100-line items. This list asks for many things that have nothing to do with actually purchasing a restaurant. It may ask for things about trademarks, patents, and intellectual property, which the franchise brand actually owns.

It’s important to look for the right things when buying a restaurant, rather than factors that make no difference. Working with a business broker is one way you can feel confident that you are looking at the right factors when buying a restaurant.

The Wrong Focus

Some of the things listed above aren’t relevant to the transaction (as mentioned above). Don’t try to spend too much time or money on things that you can’t change. An example of this is the franchise agreement review. In most cases, franchisors aren’t going to change the terms in the franchise agreement. Don’t waste time trying to make this happens – even if you get an attorney involved, the likelihood this will occur is virtually non-existent. When it comes to buying a restaurant, there are more than a few things to consider. One of the best things you can do as the buyer is to work with a restaurant broker who can help ensure you get a good deal and that you do the proper due diligence to ensure you make the right decision. This will ensure you are confident in the decision you make and that you make a smart deal for the restaurant that you are interested in buying.

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