The food and beverage industry has always been one of the most attractive for the would-be entrepreneur. When we consider fundamentals, something that each one of us must purchase to survive, food and drink of course comes in at the top of the list. This may very well be true, but so many interrelated complex issues arise when you look to buy a business, that you should remember that only one in 10 companies such as this will actually survive. Correct valuation upfront and an adequate process of due diligence will help you to survive against these odds and prosper.
When you begin trying to buy restaurant business assets, you’ll quickly learn that one of the key skills you’ll require is the ability to decipher information and to communicate effectively. A number of meetings will be required with the seller and don’t be frustrated if the meetings don’t reveal some of the significant information. Normally, a seller will want to be just a little protective and will want to see how enthusiastic you are or whether you are really serious before any important data may be divulged.
There are some basic facts and figures to absorb before you are able to project your own figures for the future. How many tables are there in the restaurant and what style of food does it focus on? You need to know how many meals are served per day, per week and by month and if the menu is somewhat specialized, are the supplier contracts strong enough and is the supply chain sufficient?
Labor is a major cost in any business and particularly here. How do the costs breakdown in this particular business and be careful if the strength of the organization is entirely based on certain personalities, key figures, or even the master chef. Tread carefully here as the seller may well want to keep news of the potential sale away from his employees, so you might not get some of the finer details right away.
Write up a check-list of questions to ask the owner; you should have hundreds and not be afraid to be very specific, nor to insist on detailed answers. Before you even go there, however, understand that this kind of business involves very long hours and is typically a seven days per week concern. You will definitely be required to be good at managing people, dealing with significant problems and you might have to be patient before you can expect to see any profit from your endeavours.
As a new owner, you will need to set up and develop new relationships with all your suppliers. Some suppliers see a change of ownership as an opportunity to significantly “amend” their contracts, and prices. Don’t be surprised if you have to deal with distraught people who may be concerned because their table is not ready for them, although they booked it but still arrived past their scheduled time. You must be able to motivate your employees and be able to handle all situations immediately, resulting in praise or termination accordingly.
If you are really sure that you want to get involved with the restaurant industry, have thought about the right questions and received full answers from the seller, have crunched the financials and studied the contracts, then you are now ready to look at the business value. Experts in this field should be engaged to help you understand what you are dealing with and you should use their findings to help you solidify your thoughts. Find out what the bottom line is, how much the owner makes in terms of salary, net profits and benefits and then adjust this figure downward based on any capital expenditure you feel you may have to make.
With any restaurant for sale, the three major costs involved – labor, rent and food, should be no more than two thirds of total expenditure and always remember that you will have to have a superb marketing plan so that you can tell everyone about your new creation.
Richard Parker is the President and founder of the Diomo Corporation - The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.
