Ask These 7 Questions Before You Buy a Restaurant

Ask These 7 Questions Before You Buy a Restaurant

Acquiring an operating restaurant may seem to be a straightforward business purchase, but there are some things you need to look out for to avoid your purchase from becoming a poor investment decision. While a restaurant may be a more affordable opportunity than other functioning businesses, they do have a notoriously high failure rate so you need to take the necessary steps to reduce risk.

Here are 7 questions you should ask before you buy a restaurant:

1. Is the lease transferrable?

Location is critical for a restaurant, and if you are considering the purchase of an established restaurant, you will want to keep it where it is to retain the existing client base. However, sometimes landlords are hesitant to transfer leases to new owners. Before you commit to the purchase, be sure you can get the existing lease assigned to you or sign a new one for the same space.

2. What is the actual cash flow?

Sometimes the amount of income a restaurant owner reports will vary from the income on financial statements. Since your purchase is likely based on a multiple of cash flow, you need to verify the actual cash flow, not just what the owner has estimated.

3. What’s the condition of the equipment?

Repairing or replacing equipment in a restaurant is expensive, so you will want to have an equipment inspection done prior to purchase to ensure everything is in good working order.

4. Is the liquor license transferrable?

The transfer of a Florida liquor license must be approved by the Department of Revenue and a transfer fee calculated using the past three years’ average gross liquor sales (not to exceed $5,000) must be paid. As the new owner, you must also meet certain “moral character standards” in order to have an existing liquor license transferred to you.

5. Are there any existing liabilities?

As part of your due diligence, be sure to ask whether there are any existing liabilities like unpaid taxes or health code violations.

6. What are people saying about the restaurant?

Check Yelp and other online review sites to gauge the restaurant’s current reputation in the community. Changes in ownership are often invisible to customers, so if the current management has fostered a negative reputation, this could be difficult to overcome.

7. Will the current owner sign a non-compete agreement?

If the restaurant you are buying was built on the personality — and recipes — of the current owner, consider having a non-compete agreement in force. If you don’t, there is nothing to prevent him or her from opening a competing restaurant near you.

Business owners seeking legal protection for their business interests should seek a qualified, competent advisor for assistance.   Contact one of the experienced Florida business attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com.

 Share

The post Ask These 7 Questions Before You Buy a Restaurant appeared first on Jurado & Farshchian, P.L. Business Lawyer, Real Estate Lawyer, Immigration Lawyer.