With the downturn in the economy, more and more displaced workers are changing careers and going into business for themselves, including opening their own restaurants. However, even before the recession, a bulk of restaurants tends to come and go within the first three years of opening. Sometimes a restaurant will close up shop. Other times it will change hands, with new owners who may keep the current name, menu, and concept or opt to change it altogether. There are pros and cons of buying an existing restaurant or taking over a previous restaurant space.
The Pros of Buying an Existing Restaurant
While you may opt to make some changes to the menu or overall restaurant design, an existing restaurant is well, existing. In theory, it has proven that it is a profitable enterprise. You don’t need to worry about what type of equipment you should buy, or designing an effective dining room. It’s all done for you. Depending on the final price, buying an existing restaurant can be far less expensive than starting a new restaurant from scratch.
The Pros of Leasing an Empty Restaurant Space
Many times a restaurant will close, leaving behind an empty dining room, commercial kitchen and bar, often still stocked with perfectly good equipment. Like an existing restaurant, this is a turn-key opportunity and the start-up costs are less expensive. The bank or landlord (or whoever owns the equipment) may be more willing to cut a deal to get rid of their inventory as well as fill the space with a tenant, leaving you room for negotiation. Before you sign anything, ask yourself why the restaurant is on the market.
Why Did this Restaurant Go Out of Business?
Was it the location? The service? The food? A combination of all three? If the previous owners have gone AWOL, leaving the equipment for the landlord to deal with, you may never know the real reason why it closed. If you are dealing directly with the previous owners, they may not be entirely honest about why they are choosing to close. Make sure to try to ascertain why the restaurant went out of business before you buy or lease the space.
How Much is the Overhead?
Overhead is your rent, utilities, payroll and such. Too much overhead has killed many a business. Part of your business plan should be a detailed budget which outlines how much money you need to make to cover all your overhead costs. If you are planning any significant changes, what are they going to cost you? These need to be accounted for in your initial start-up capital.
Who Is Your Target Audience?
While Wall Street and Washington might declare the Recession to be “officially” over, consumers are watching their money very closely and eating out is one of the first things that go. Therefore, it is important that your marketing appeals to the right group. For example, are you a family-casual restaurant, offering a kids-eat-free night can help bring in families mid-week.
Is the Restaurant Up to Code?
Even if an existing restaurant has a current health license, as a new owner you will need to apply for a new license and go through an inspection (which varies by state). Find out beforehand if the restaurant in question will pass any and all inspections. Otherwise, you will have to spend more money out of pocket and delay your opening day.