There are many factors to consider when purchasing a restaurant or bar. Asking the right questions and knowing where to look for the answers will go a long way in helping you determine whether or not you are making a sound investment. Getting the clearest picture of any potential sale depends upon DUE DILIGENCE.
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
Commonly asked questions regrading 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.