The food industry, in particular restaurants and other similar establishments, is thriving and developing faster and faster every day. This is the reason why buying a restaurant will be a promising investment with unlimited growth opportunities. One of the ways to become part of this commercial network is to start your own restaurant business, especially if you already have experience in the catering industry. This article will be useful for those who want to learn about the basic steps of buying a restaurant and understand how much such a purchase can cost.
Cost of acquiring a restaurant business
Acquiring a Restaurant business can cost significantly less than buying a structure in any other industry. In addition, this business often has a faster payback period, which also makes a certain contribution to its prospects. On average, according to recent calculations and surveys, the average cost of a restaurant, excluding land, will be $ 275,000. The plot alone has a cost of approximately $ 95 per square foot. Thus, the average price together with the land will be about 425 thousand dollars.
It is worth noting that, of course, the above figures are given as averages – you can find cheaper offers. In addition, among other factors, think about where your establishment will be located: naturally, the restaurant business in the city will be much more expensive to buy than in the countryside or even in the suburbs.
The procedure for acquiring an already operating and in operation restaurant has a lot of nuances and can seem confusing and incomprehensible to you, especially if you have no idea about the restaurant industry in general. We’ve outlined a few simple steps below that you can follow to understand the process.
First step is finding a suitable restaurant for sale within the market of your interest
The first thing to do if you are thinking of buying a restaurant is to research the market you are interested in and see what offers are available in your area. In the list of restaurants, you will find a lot of useful information, in particular, regarding the cost of the transaction, the size of the restaurant itself, the zone, the reach of the clientele, the age of the building and other characteristics of the business.
However, there are a few things that you should pay special attention to when reviewing the offer lists. Below we highlight a few basic things.
- Analysis of the competitive environment. When studying the offers, be sure to pay attention to how many and what kind of establishments operate in the area within which you want to do business. If the competition in the area is too high, then you risk making a failed investment.
- Explore the location. In particular, here you should study whether the establishment will have good pedestrian traffic, whether it is close to leading highways and similar significant places, if there are parking spaces nearby, etc.
- Analyze future business profitability and cash flows. When buying a ready restaurant business, find information regarding its profitability and income. In some cases, you will need to contact a realtor.
- The reason for the sale of the business. Be sure to ask about the reason for the sale – this is one of the most important points. It is possible that the sale of the restaurant is connected with some kind of financial problems.
Checking general financial information: cash flows, costs and income flows
At the time of buying a business, you must have all the information regarding all financial information, in particular, directly the cost of selling a restaurant, and all its financial flows. Your task is to get and calculate all the numbers related to your future establishment. This way, you will be able to determine the profitability and financial viability of a given business, which is, whether the cost of a restaurant is worth investing in and whether it will pay off. However, do not forget that when you become the head of a business, a lot can change depending on your plans.
Knowing your credit score and getting financial support
Next, you need to find out your credit rating, which is assessed on a separate scale – 300 (worst) – 800 (best). It is determined by several basic factors: the general state of your credit history, the money in circulation, how long your credit history is, the type of loan and its size.
Your credit score will play a major role in obtaining start-up capital for your business and any loans. If you have a high rating, banking institutions will be happy to finance you and cooperate with you. With a poor credit rating, you can also get a loan, however, at a higher interest rate.
Preparing a contract with a lawyer
Once you have received funding, you can enter into negotiations with the restaurant owner regarding the purchase. This step assumes that you become familiar with all the liabilities and assets of the restaurant, in particular, what exactly is included in the sale. You should ask the current owner for answers to the following questions.
- What assets does the restaurant have (staff, equipment, furnishings, etc.)?
- Does the establishment have a license to sell alcoholic beverages? And is such a license included in the price?
- What is the equipment, in particular, its age and quality, compliance with safety standards?
- Are there pest problems?
- Will you be able to use the previous menu or will you need to develop your own recipes?
- What is the reputation of the institution?
- Will the lease be handed over to you?
The answers received will help you get a deeper understanding of the profitability of the proposal and the benefits of investing in this business.
Perform a due diligence check
This event is a final audit covering all parties – operational, legal, financial and structural. To carry out such a check, you will need all the information that can be requested from the owner, in particular, the following:
- financial data: reports, balance sheets, tax return;
- records regarding the legal status of the establishment, including insurance policies, licenses, trademarks, and more;
- data on employees;
- information about the inventory available in circulation.
The importance of conducting a final audit is to have a general and as clear understanding of the business and its profitability. This step must be done prior to completing the sale.
You can see more interesting offers in the category “Restaurants”.
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