Restaurant ownership is a dream for many people. Whether by starting your restaurant or purchasing an existing business, owning a restaurant is a significant investment. In many ways, buying a restaurant can be more complicated than opening a new one from the ground up.
New restaurants face different challenges and disadvantages than existing restaurants. However, established businesses can also come with a host of challenges and pitfalls. Before you purchase an existing restaurant business, consider these aspects to ensure your investment is well placed.
Past Success And Future Prosperity
The past success of a restaurant may indicate its future prosperity. This connection is a starting point for evaluating an established restaurant and should be explored before signing on the dotted line. One of the most vital questions to answer during your evaluation is why the owner is selling the restaurant. A business owner always sells for a reason, and you need to feel comfortable with what that reason is and why.
While the answer you receive from the seller may seem negative, it is up to you to look beyond stated reasons for putting the business on the market. Due diligence at this point will help you make the best decision for your investment. Consider circumstances of the seller’s reasoning, such as increased competition, neighborhood change, and restaurant reputation. Answers to these questions may not indicate that purchasing the business is a bad idea; they merely help you to understand the scope of your work ahead better.
Assets Of The Restaurant
Upon purchasing a restaurant, you will obtain any assets that it possesses. Knowing the condition of these assets is crucial in determining the worth of your possible investment. A restaurant’s most vital asset to assess is its cash flow. You can do this by reviewing the restaurant’s financial statements and calculating any property, depreciation, and amortization. Don’t forget to include contracts, insurance policies, and intellectual property owned by the restaurant in your assets calculations.
When you purchase a restaurant business, you also purchase its liabilities. Most common liabilities include any company debt like mortgages and loans that should be clear in the business’s financial records. Also, consider tax liabilities accrued by the restaurant. A full audit of the company’s tax records will tell you what you need to know about the business’s financial health before making your investment.
Don’t Go It Alone
Purchasing a restaurant is an investment that should not be entered into lightly. Restaurant brokers can help you throughout the process, understand your options, and feel confident with your decisions.