Factors to consider while buying an existing restaurant

Factors to consider while buying an existing restaurant

How many times have you heard people around you mentioning that restaurants are sold out when they start under-performing? The common assumptions made are either it is undergoing financial losses or it’s going down. In reality, a restaurant owner may sell his restaurant for legions of reasons. Running the current restaurant could have become monotonous for him or he might be excited in starting an all together a new concept restaurant. Even though when an owner has decided to move on, it is not an easy decision to let go of a restaurant he has built from the scratch. Hence he would always be in a hunt of a buyer who would be passionate about it and aiming to take it to a different level. When a passionate buyer is planning to buy such an existing restaurant, it should not be a blind decision. He must consider following factors and then take his decision:

1.       Focusing on what you want

Purchasing an existing restaurant is going to alter your lifestyle and living significantly so evn before you think of buying it is very important to have your vision clear onto what are your aims from the deal. Some of the points you can explore on are:

Size of restaurant: What size of restaurant are you planning to buy? Is it a small scale standing setup or a full scale themed seating restaurant?

Type of restaurant: What type of restaurant you would like to own? Café style or a cuisine based?

Checkout different types of restaurant here.

Location of Restaurant: Where would you like to own your restaurant? If you are specific about the location, you need to search as per the location of your priority.

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2.       In-depth research

An in-depth research is necessary about the options you are looking for the existing restaurants to buy. While thinking of buying a restaurant, it is very much necessary to study on the reasons for selling.

It is a good option to buy from some known trustworthy person or if buying from some stranger it is always good to take help of consulting firms before taking the decision.

In-Depth Research !

3.       Smart Negotiation

Every business, including restaurant business has some flaws. If you are not able to notice them, you didn’t look hard or you are so excited about the deal, that you are not able to see cons.

Find these cons, and talk to the restaurant owner about them asking for explanations. If you can live with them, these flaws are the one useful for leveraging negotiation.

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4.        Valuating the Restaurant

Existing restaurant can be evaluated with many methods. A couple of them are as follows:

  • Applying a multiple to the discretionary cash flow

Discretionary cash is the cash generated by the business after all the mandatory expenses deductions. Generally all restaurants fall in the multiple of 1.5 to 3.0 times of this discretionary cash depending on the size and type of restaurant.

  • Applying a percentage to annual gross revenue

This method is a little less accurate due to its bottom line assumption that the restaurant always earns an average profit. Cafes would generally appraise for about 40 % of revenue.

Valuating existing restaurant

5.      Necessary Legals

Once you are ready to buy a restaurant and have necessary funding for the purchase it is essential to follow the process in making and signing proper legal documents. It is always advisable to take help from acquisition attorneys in order not to miss any minute terms and conditions of the contract.

 clear contracts

When you are buying an existing restaurant, you, your family, the surrounding society as well as the employees are going to get affected. It will be on your shoulders to convert it to a brighter future with your tremendous hard work and right decisions.

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