The numbers are just awful: 25% of restaurants fail in their first year, 60% are closed by the third year, owners work 80+ hours a week, are overworked and ...and the list goes on. But, the allure of owning a restaurant or bar is as strong as ever, and aspiring restaurateurs still dream of opening their own establishment.
For many would-be owner/operators, their best option is to buy a restaurant that is already up and running. Like anything else, this choice has its own risks and pitfalls. So what do you do if you are thinking of buying a restaurant, but have little or no experience?
Look And See What's There and What's Not.
The legal term is called due diligence, and it means that you must fully understand the business (and restaurants are in fact businesses) you are considering buying. This includes financial statements, sales (cash and credit), inventory, assets, staff, lease, permits, official documentation, alcohol sales, etc. It also means studying the demographics of the neighborhood, current customer base, and the competition. This is a lot of work, but doing your homework ahead of time will save you a lot of pain later. You also need to know why the owner is selling. The honest answer to this question can tell you a lot about the business and what it's worth.
The Price is Right
The right price for a restaurant is the most sensitive and important part of the whole buying process. Getting the number right requires some financial, and it is worth investing some time and money in professional advice if you need it. If the restaurant is shut down and not generating any money, then you should pay for the assets (and have those properly appraised). If the business is open and making money, then figure out the profit (the provable profit, not what the seller tells you). This will give you an indication of how much you should pay.
Location, Location, Location?
Location is everything in a restaurant. It's the one thing that cannot be fixed, managed, or otherwise made better by you no matter how hard you work or how smart and professional you are. You must understand the neighborhood, the customers, and the competition. Don't be afraid to walk around and ask people about their thoughts on the restaurant. Reputation is everything in the restaurant business.
It Takes A Village
You cannot really do this all by yourself. You will need help from more experienced hands, whether it is going through the documentation, to inspecting the equipment, to negotiating the final sale and purchase agreement. This is not a Do-It-Yourself project, this is a major step in transforming your life from aspiring restaurant owner to successful food guru. Surround yourself with people who can help you get there, it will be worth it.
If you would like help buying a restaurant or bar in New York, please feel free to call or email me.