Restaurant Purchasing: Buying a Profitable Restaurant

Push Operations
December 10, 2020

Ready to buy a restaurant? Congratulations! Now pump the breaks. Investing in a new business can be exciting but it’s important to be aware of the key factors that play a role in ensuring the restaurant you buy will be profitable for you.

Before you sign any leases, contracts, or agreements, here’s what you should do:

1. Determine Your Goal

Do you want to renovate or reuse the space? Most restaurant locations for sale will have an established flow and feel. When you’re shopping for your ideal space, keep in mind your brand goal, and if the space you’re touring has potential to fulfill your idea; or if you will have to invest in renovations to make it happen. You can also invest in a contractor to give you initial quotes while you’re still in the early stage of decision making.

2. Establish the Type of Operations

Do you want to purchase a franchise or open a local restaurant? There are pros and cons to both. Opening your own restaurant means more decisions and responsibilities. You have to determine a menu, an operational system, staff policies, a name, a brand, etc. It puts you in the driver’s seat, but it means more time and higher risk. With franchising, you adopt a successful method, but you have to make a substantial investment (and sacrifice independence). Evaluate the approach you’d prefer before buying a restaurant.

3. Remember: Asking Price is not Purchase Price

Good negotiating can get you the price you want, and EVERYTHING is negotiable. Buying an established restaurant? Consider bargaining for their used equipment in tandem with purchasing the property. It’s a win-win:  it can help your budget and streamline their sales processes. Throughout the entire negotiation process, keep in mind—theoretically—they want to sell (at least when logic trumps emotional attachment). Don’t be afraid to offer something within your budget to see if they’ll budge.

4. Create a Checklist

Buying a restaurant is a big decision: there are a lot of moving parts. To keep track of everything, create a checklist and stick to it. There are tools like state or provincial restaurant opening checklists that can help by giving you a good place to start, but ideally, you should make your own personalized checklist based on your individual circumstance.

5. Get Good Advice

When it comes to buying a profitable restaurant, you don’t have all the answers (or even know all the questions), and that’s okay. Instead of relying on your gut instincts and personal experience in the industry, look into hiring restaurant consultants or a restaurant broker to help mitigate the decisions you're making. Oftentimes, they’ll be aware of common pitfalls and patterns of success to help you build a successful foundation for your restaurant.

6. Seek Legal Advice

The most important thing when buying a business is knowing and understanding what you’re buying and why they’re selling it. No matter how attractive a restaurant looks on the outside, there could be hidden pitfalls. Seek legal advice, and conduct your own due diligence checklist. Hiring a lawyer to review anything you sign, and supervise your due diligence investigation, is an important way to minimize the costly risks in the transaction.

7. Consider the Location

Unless a restaurant is established as a popular brand, your restaurant won’t be worth anything if it’s in the middle of nowhere. The location matters. Consider proximity to office buildings (especially if you offer lunch), movie theaters (especially if you offer dinner), malls, schools, etc. Higher traffic means more sales, and more sales means higher profitability.