The food and beverage industry has always been one of the most attractive for the would-be entrepreneur. When we consider fundamentals, something that each one of us must purchase to survive, food and drink of course comes at the top of the list. While this may be the case, there are many complex and interrelated issues to consider before you buy a business involving an existing restaurant and it’s important to bear in mind that less than one in 10 purchases will actually succeed. Correct valuation upfront and an adequate process of due diligence will help you to survive against these odds and prosper.
One of the key skills that you can possess when you get ready to buy restaurant business is the ability to communicate and to decipher information. You will need numerous meetings with the seller and don’t be surprised if the early ones don’t reveal some fundamental facts and figures. It is natural for the seller to be a little protective and to want to gauge your enthusiasm and see whether you are really serious and qualified before divulging delicate data.
There are some basic facts and figures to absorb before you are able to project your own figures for the future. What style of food does the business favor and how many tables are there in the restaurant? How many meals, or covers are sold per week or by day and if you have a specialized menu, how strong is the supply chain and the supplier contracts?
Labor is one of the greatest costs in any business and in particular here. Find out how the costs breakdown and whether the strength of the entire business is based on the skills and strong personalities of key figures, notably the master chef. You may not expect to get a lot of the finer detail during the early process, as a seller often wants to keep any news of a potential sale away from the employees until the appropriate moment.
Write up a checklist of questions to ask the owner, you should have hundreds and not be afraid to be very specific, nor to insist on detailed answers. Before you do this, though, remember that this type of business involves working long hours and can be a seven days per week activity. You will be required to deal with many “fires,” be great at managing people and your time and may not expect to see a specific net profit for quite a while.