When considering buying a restaurant or bar, it's important to conduct thorough DUE DILIGENCE. This involves looking at various aspects of the business, such as financial records, operations, legal documents, and the surrounding area. By doing your due diligence, you can gain a clear understanding of the business and make an informed decision about whether or not to purchase it.
DUE DILIGENCE should include:
Information on nearby competition
Neighborhood changes (businesses closing, people moving away, etc.)
Area crime rates
Restaurant’s reputation in recent years
By carefully reviewing all these factors, you can protect yourself from making a bad investment and negotiate a better price for the business.
Commonly asked questions regarding the process of buying a restaurant or bar:
Besides the purchase price, what other fees are involved?
There are escrow fees, health inspection fees, entertainment permit fees, if any, lease assignment fees, city permits and licenses and liquor license transfer fees.
How much is the restaurant or bar worth that I’m buying?
There are industry standards to follow to insure you’re paying a fair and right price. The most critical item to calculate properly is what’s termed as “working owner cash flow” or “discretionary earnings”. It is critical to review the calculation before relying on the number. Tax returns should be the only resource used to calculate this. Once that is calculated, and then you generally multiply that number 2 to 3 times to determine the value.
How long does it take?
Generally plan on a 45 to 90 day closing process.
What’s included in the purchase?
The establishment name (in some cases), equipment, furniture and fixtures and equipment, consumable inventory, menu and recipes, customer contact lists, phone number, liquor license, if applicable.