How to Know If You Should Buy an Existing Restaurant

a mostly empty restuurant
••• Cesar Haro via Pixabay

If your dream is to one day own your restaurant, you may have considered buying an existing restaurant that is for sale. However, before you buy anything, understand exactly what it is you are buying. Are you buying the actual restaurant, location and all? Are you buying the name of the restaurant or just the location or just the equipment? Read on for the basics of what you are really buying with an existing restaurant.

First, Ask Why is the Restaurant For Sale

There are a couple of reasons that most restaurants are for sale. One, the restaurant is not doing well financially and the owners want out of this sinking ship. Or two, the restaurant is doing okay, but the owners are exhausted and just want out. The first scenario is the one you need to worry about. Demand to see the bank records of the restaurant.

Not a profit and loss statement. Anyone can draw up a phony P&L to make it look like a restaurant is doing a booming business when in reality it is stuck in the red. If the current owners refuse to show you’re their bank records or tax returns, big red flags should appear. Now, even if a restaurant is doing poorly, that doesn’t mean that it isn’t worth buying. New management may be all it needs to turn things around.

Location, Location, Location

Here’s the scenario: A restaurant in your neighborhood is for sale. The first thing to consider is its location. Is it in a busy area, with ample parking and/or foot traffic? Many people underestimate the importance of location for their small business. Even if you have great food and service, if your restaurant is out of the way, or located in a bad part of town, the majority of people will opt for something more convenient.

Determine If the Restaurant Is Worth the Price

This is a tricky question. It all depends on what you are buying. The first restaurant I bought was a sinking ship with a bad rap in town. My business partners and I decided that it was still worth the price because it had an excellent location, including a good bar business (the dining room was the big problem, the food and service were terrible) and a newly remodeled banquet facility.

We kept the name the same, which saved on having to create new menu letterheads, staff uniforms, and signage. Often times, though, you can purchase an existing restaurants equipment and space for less than if you bought the name with it. 

There is no right or wrong answer when it comes to buying a restaurant that is for sale. In some cases, it makes sense to buy an existing restaurant. If it has a good reputation and solid customer base than paying more for its name and menu will be a good long-term investment.

Other times, it may make more sense to open a new restaurant in an entirely new location - one that isn't linked to previous bad eateries. Always be wary of owners who are trying to get out from a sinking ship (or restaurant, in this case).

Rather than buy a restaurant that is failing, thinking that you can turn it around, you can save yourself a lot of hassle and money by offering to buy just the restaurant equipment and lease the space, while opting to create your own unique restaurant brand.