How to Protect Your Investment When Buying a Restaurant

How to Protect Your Investment When Buying a Restaurant

If you’ve been dreaming of owning your own restaurant, you are not alone. But before that dream becomes a reality, it is important to understand some of the red flags you should look for when researching a potential restaurant purchase.

Here are five things you should look out for to protect your investment:

1. Existing liabilities.

Did the previous owner employ illegal or undocumented workers? Have a series of health code violations? Been involved in an employment dispute that resulted in a legal judgment against the restaurant? These are just some of the potential liabilities you should investigate.

You can also protect yourself by purchasing only the existing assets — location, name, equipment, inventory, etc. — and not the liabilities by forming a limited liability company (LLC). The LLC then purchases the assets and the restaurant continues to operate as usual, with employees terminated from the old entity and immediately rehired by the LLC.

2. Existing lease agreement.

Most commercial leases require a landlord’s approval of a new owner/tenant and there are some commercial leases with provisions that allow the landlord to take back the space if an existing tenant attempts to assign the lease to a new owner.

In order to avoid this complication, you should contact the landlord to learn what is required to assume the lease.

3. Liquor license transfer.

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.

4. Unpaid sales tax.

Many restaurants under-report their income in order to pay less sales tax. Hire a qualified business accountant to review the restaurant’s books to help reduce the risk that your purchase will come with a sales tax liability.

5. Equipment condition.

Restaurant equipment is expensive, so be sure you have all existing equipment inspected to ensure it is in good working condition. Also check to be sure there are no liens on the equipment. If the equipment is leased, you will need to get an assignment of that lease.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business and restaurant law attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

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