Are you about buying a restaurant and you want to do due diligence? If YES, here are 20 important questions to ask when buying a restaurant business for sale.
One of the ways of launching out as an entrepreneur is to buy a business. Though it is not as easy as it sounds, but the truth remains that buying a business will enable you overcome some of the tasking hurdles that you will encounter if you start a business from the scratch.
Please note that buying a business in itself does not guarantee you success especially if you did not do your due diligence before buying the business. Carrying out due diligence means that you should be able to ask the right questions and asking the right questions will help you make the right decision.
Knowing the right questions to ask when buying any restaurant that is put up for sale is the key to a successful purchase, and it will help you discover the right information about the business. As a matter of fact, when you ask the right questions you will be able to buy a successful restaurant business that in no distance time will start yielding profits for you.
I must mention that no seller will be glad to tell you any potential red flags or the challenges that is making them sell the restaurant. It is your responsibility to ask the right questions that will reveal all you need to know before making any financial commitment. If you fail to ask the right question, you might end up being at the losing end. So, if you are interested in buying a restaurant business, here are 20 important questions you must ask the seller.
Buying a Restaurant Business for Sale – 20 Questions to Ask
- Why is the Restaurant Business for Sale?
Chief amongst the questions you should ask the seller of a restaurant is to know the reason why they are selling the restaurant. Although you are not expected to get an unbiased answer to this question, but you will sure get a pointer to the real reason why the restaurant is put up for sale.
With that, you will be able to know whether you should go on with the bargain or call it quits. For example, if you find out that the reason why the owner of the restaurant is selling the restaurant is because the government has marked the facility for demolition and the owner of the restaurant has been given 2 years grace period to relocate, would you still want to go ahead with the deal? Of course not!
- What is the Asking Price?
The second important question that you are expected to ask especially if you are cool with the reason why the owner is selling the business is to know the asking price. Of course, the asking price is what will determine if you have the capacity to go on with the negation. Please note that no matter how high the asking price might be, it is still open for negotiation and you are expected to negotiate based on your financial capacity.
For example, you might be surprised to note that a restaurant business that is put up for sale with an asking price of $200,000 that can actually be sold for $50,000. It all depends on your bargaining prowess and of course the desperation of the seller.
- What Assets Are Included in that Asking Price?
When any business is put up for sale, there are also assets that the buyer stands to gain when they purchase the business hence another key question that you would need to ask if you want to buy a restaurant business is to know the assets that are included in the asking price.
The truth is that in some instances, the assets that are included in the asking price of the restaurant might just be the enticing bait that will make you purchase the restaurant.
For example, a restaurant that is put up for sale might have some delivery vans, standard kitchen and kitchen equipment, free parking lots and security gadgets amongst others as part of the assets that you will inherit when you buy the restaurant.
- What’s the History of the Business?
Another critical question that you must ask when you want to buy a restaurant business or any business at that is to know the history of the business. Knowing the history of the business is part of the information you need to be able to make an informed decision.
As a matter of fact, it will not be a wise decision to buy a restaurant business that you don’t know a hoot about. At least you should be able to know when the restaurant was established, who were the founding owners, how consistent the business has been, what are the challenges the restaurant has gone through, accolades the restaurant has received and the accomplishments of the restaurant over the years.
- Do You Have the Experience Necessary to Make This Restaurant Business Successful?
Aside from asking the seller of the restaurant the reason why they are selling their business, it is paramount that you also ask yourself questions.
One of the questions you should ask yourself before buying a restaurant business that is put up for sale is to know whether you truly have the experience necessary to make the restaurant successful when you eventually purchase the business. Please note that having the money to buy a restaurant business is not enough, your experience is part of the important factors that will help you grow the business to profitability.
- How Long is the Seller Willing to Give You to Perform Due Diligence Required by Your Lender?
Another important question that you are expected to ask when buying a restaurant business is to know how long the seller is willing to give you to perform due diligence as required by your lender. This is paramount because no lender will want to give you money to purchase a business if you did not carry out their due diligence on the business. So endeavor that you ask this question even if you are borrowing money to finance the purchase of the restaurant business.
- Does The Restaurant Business Currently Lease Space? If So, Will The Lease End Soon? Does it Need to Be Renegotiated After the Expiration of the Current Contract?
Part of the questions that you should ask when buying a restaurant that is put up for sale is to know whether the restaurant business is currently on a lease agreement.
If the restaurant is on a lease agreement, it means that someday the agreement will lapse, hence you should know the end date for the lease agreement and if as the new owner of the business you can freely negotiate the lease agreement. As a matter of fact, if you are good business negotiator, you may be able to get a fantastic deal that will help you cut cost especially for a new business like a restaurant.
- What Licenses or Permits Will Be Needed to Operate the Restaurant Business?
In the United States of America and of course in most developed countries of the world, you cannot freely run any business without applying and getting the required license and business permits to run the business in the state of city. As a result of that, it is paramount that you ask the owner or seller of the restaurant business all the necessary business license or permits that you need to operate the business in the city and if possible how to go about applying and securing the license or permit.
- Who Are Your Biggest Competitors and How Do Each of Them Directly Impact Your Revenue?
Another important question that you should ask if you are truly interested in buying the restaurant business is to know the biggest competitors of the business and also how each of the competitors directly impact the revenue of the business.
The answer to these questions will be able to help you come up with highly competitive strategies that will give you an advantage over your competitors. Please note that there is hardly any business that does not have competitions within and around the location where the business is domiciled, hence you need to know them and how to maximize your sales despite their presence.
- Which Employees Do You Need to Make Sure is Staying with the Restaurant Business Post-Closing?
Interestingly, when businesses are sold, it is the tradition that one or more key employees or management staff are assigned to the business post – closing period. This will be able to guarantee smooth transition of the business from the previous owner to the new owner and also for the new employees to be trained to carry on with the business without much stress.
In essence, one of the key questions you should ask is to know the employee or employees that will be needed for this purpose and the role they are currently playing in the restaurant.
If you are not satisfied with the employee that is assigned to play the role, you can request for a change during your negotiation; it is part of the deal. So also, you might want to know whether the seller of the restaurant will be staying for some period of time after the sale to ensure a smooth transition.
- Is The Restaurant Business Highly Dependent on The Personality of the Owner, or is it Fairly Independent from the Owner?
It might interest you to note that some businesses are driven by the personal brand of the owner, and not the organizations’ brand. For example, a restaurant business that is owned by an award winning chef may likely be driven by the by the personality of the owner and you would not want to buy into such business because you are likely going to struggle to grow the business.
So, part of the question you should ask when buying a restaurant business is to know whether the business is highly dependent on the personality of the owner, or if the restaurant is fairly independent from the owner. If you must buy a restaurant, then it is advisable that you buy one that is fairly independent from the owner. With that, you can easily continue with growth of the business rather than struggling to find your feet with the business.
- What Were the Annual Gross Revenues of the Restaurant Business for the Past Two Years and Up to Date?
Another important question that you must not fail to ask when buying a restaurant business is to know the annual gross revenues of the business of the past two years and to date. The answer you get from these questions will be able to help you write your financial projection. You will be able to know the profitability of the business and if you are planning to buy the business with loan, you will be able to project and work on a workable payment plan.
- What Were the Annual Net Profits of the Restaurant Business for the Past Two Years and up to Date?
Aside from knowing the annual gross revenues of the business for the past two years and up to date, another key financial related question that you should ask is to know the annual net profits of the restaurant business for the past two years and up to date.
It will enable you get a clearer picture of the profits you are likely going to rake in from the business and also the strategies that will help you increase the profits from the business when you eventually take over the business.
The fact that some businesses might not be making profits does not mean that they cannot make profits. So, if a business is not making profits, it is not enough reasons to back off from buying the business. With the right business strategies and approach, you will be amazed at how profitable the business is.
- What are the Existing Liabilities of the Restaurant Business?
No doubt, when a seller wants to sell a business, they will ensure that they do all they can to conceal whatever will make them not to sell the business and concealing the liabilities of the business is part of it. So, if you are making plans to buy a restaurant that is put up for sale, then you must make sure you ask questions that will help you discover the existing liabilities that will be transferred to you.
Part of the liabilities that you are likely going to inherit are unpaid overtime, unpaid sales tax, health code violations or other liabilities. Trust me, if not properly handled, these liabilities have the potential to jeopardize your ability to successfully operate the restaurant business.
- Is the Lease Agreement Transferrable?
Earlier on we talked about the need to know whether the restaurant is on a lease agreement. Going forward, you are also expected to know if the lease agreement of the restaurant is transferable to a new owner unconditionally. Please note that aside from the lease agreement of the facility, some restaurants also have lease agreement for their equipment, delivery vans and even furniture et al.
- What is the Condition of the Equipment You Will Inherit?
Another important question that you must not fail to ask when buying a restaurant is the condition of the equipment that you will be inheriting. The truth is that as a new restaurant owner you would not want to start on the note of committing huge sums of money repairing and trying to ensure that the equipment you are going to be inheriting is in good shape before commencing business. If at all you must inherit equipment that are not in good condition, you will be able to use it as a bargaining advantage.
- What Are People’s Perception of the Restaurant in the City?
Another important question that you must not fail to ask when buying a restaurant that is put up for sale is to know people’s perception of the restaurant. Of course you are not expected to get the true answer from the seller of the restaurant hence the need to go all out there to ask people within the immediate community what they think about the restaurant.
For example, if you get to know that the restaurant that you are about buying is a household name in the city and customers are proud to identify with the restaurant, then by all means do all you can to buy the restaurant. Remember, in the restaurant services industry, perception is everything.
- Will the Owner of the Restaurant Be willing to Sign a Non-Compete Clause?
One of the disadvantages of buying a restaurant that is driven by the personality of the owner is the possibility of the owner to open a similar restaurant within same location. With that it will be easier for the owner to transfer most of his or her clients to his or her new restaurant.
This is why it is very important to ask if the owner of the restaurant will be willing to sign a non-compete clause when they sell the restaurant to you. For example, it is easier for a restaurant that is built on the owner’s recipes, cuisine and culinary style to establish a new restaurant within same location and still attract most of the old customers.
- Will You Inherit the Liquor License from the Restaurant Owner if Any?
It is common for restaurants in their bid to maximizing profits to also sell alcohol and beverages hence the need to apply and secure a liquor license. So if you are interested in buying a restaurant that is put up for sale, it is important to know whether they sell alcohol and if they do you need to know the status of the liquor license and if it can be transferred to you. Of course, you don’t want to be on the other side of the law by selling liquor in your restaurant without the proper liquor license.
- Who are the employees of the business, what are their roles, and what do they do every day?
Lastly, you might want to know all the employees of the business and the roles they play on the daily running of the restaurant. The answer to this question will be able to give you a clearly picture of the number of people to employ and the role they are expected to fill in. So also, you will be able to know if you can merge some position in the restaurant especially in the bid to cutting down cost since it is a new management that is managing the business.
There you have it, 20 important questions that you are expected to ask if you are interested in buying a restaurant that is put up for sale. Please note that there are more questions you can ask and all you need to do is to ensure that you are creative with your questions and you will sure get more info than you set out to get. Good luck on your quest to purchasing a restaurant.