Communicating With Your Real Estate Agent

Ready To Go Into Business For Yourself? 4 Steps To Take When Purchasing An Existing Restaurant

If you're in the market for a restaurant, you'll need to do your due diligence. Buying a restaurant is a little more complicated than your normal real estate transactions, especially when you consider that a lot of restaurants fail in their first year. While the restaurant won't be brand new, your ownership will be. Because of that, you want to make sure that everything is in proper order before you purchase an existing restaurant. Here are just four of the things you should do before looking at restaurant listings in your area.

Verify the Cash Flow

When it comes to buying a restaurant, the first thing you need to do is verify cash flow. This is where you want to dig into the books and get concrete confirmation about the numbers. When you're buying a restaurant, it's not enough to have verbal confirmation from the owner. You've got to see those cash flow numbers for yourself, and if possible, have them confirmed by an accountant. Confirming the actual cash flow will allow you to determine if the asking price is accurate, or if there's room for negotiation based on the numbers.

Identify Lease and License Issues

When you run a restaurant there are leases and licenses that need to be worried about. If you're going to be purchasing a restaurant that is in a leased commercial building, you want to make sure that the lease is transferable. If the restaurant sells alcoholic beverages, you want to ensure that the liquor license is also transferable. The last thing you want is to purchase a thriving restaurant only to discover that you have to move or you can't sell alcohol until you obtain your own liquor license. Ensuring that existing licenses and leases are transferable will ensure a smooth transition.

Check the Reviews

When you're in the market for a restaurant, you want to make sure that the one you choose has a good reputation. You don't want to invest money in one that the community avoids like the plague. If you have a restaurant in mind for purchase, spend some time reading the online reviews. Purchasing a restaurant with a bad reputation means you'll already be fighting an uphill battle when you take over ownership.

Obtain a Non-Compete Clause

If you're purchasing a thriving restaurant in a community where the owners are well-known, you'll want to obtain a non-compete clause before you purchase. The non-compete clause ensures that the previous owner doesn't open up a new restaurant nearby that will end up competing for business.