HOW TO NEGOTIATE WHEN BUYING A RESTAURANT

Like a boat, the best days of a restaurant owner's life are likely the day he or she buys a restaurant and the day it sells. three-people-closing-agreement-sm.jpgThe restaurant business is tough but no one appreciates this until they have opened one and failed. And as it is the highest mortality industry in the country there are many, many would-be restaurateurs who are savoring the day they got out of the business.

Assuming that you are planning to open a new concept, your concept, or a franchise in a new location, there are reasons to try to acquire an existing restaurant property. Typically the existing owner is looking to lick his wounds and get out with as little pain as possible. You, on the other hand, are looking to get into a location to start your business with a minimum of expenses. So this gives a buyer a negotiating edge if you are looking to capitalize on another's woes. Restaurants are capital intensive to build out so taking over an existing establishment makes a lot of sense. That is, if the site is viable for the new use.

In this situation rule one is to pick the best location then look for an available restaurant property that fits your needs. Never, ever let a deal drive your decision and lead you to take an inferior location unless you want to become the next fatality trying to get out of your lease and investment with as little pain as possible.

When negotiating to buy a restaurant property there are a few things to clarify at the onset:


  • What are you buying?

  • What are the terms of the lease?

  • Which equipment items are leased?

  • Which equipment items are financed?

  • What are the fixed costs associated with the property?

In a scenario where you are looking to buy out an existing restaurant business and continue to operate that business the best advice is to be forewarned. Yes, you can greatly reduce your investment by purchasing an operating food-service business. You are buying an established customer base and cash flow. However, beware of representations made by a desperate seller. Verify the customer counts and cash flow before you start negotiating. Make sure you gather tax returns and financial statements then create your own business forecast based not on what you hope you will do but what you know you will do. Read the lease and all amendments. Meet with the landlord to verify the lease is in good standing. Only then are you ready to start negotiating.
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When negotiating to buy a restaurant concept there are a few things to clarify at the onset:


  • What are you buying?

  • What are the terms of the lease?

  • Which equipment items are leased?

  • Which equipment items are financed?

  • What are the fixed costs associated with the property?

  • Who are the vendors and are they current?

  • How many employees are there who have been on the payroll for more than 6 months?

  • What have the sales trends been since opening?

  • What has the profitability trend been since opening?

The bottom line is that the more information you gather before you start to negotiate for a restaurant the more likely you will see the problems with the property or concept and be deterred from moving forward. The very best thing you can do at this juncture is to avoid making a mistake.