Long before a restaurateur celebrates a grand opening, hires staff, purchases linens or installs a point of sale system, they are faced with one basic, yet essential, question: Should I start a new business from scratch or is it more advantageous to purchase an existing restaurant?
Your gut reaction may be to create an original brand from square one, choosing a property and building your new culinary hub from the ground up. That way, the restaurant feels personal and you can control each decision, from the kitchen’s layout to the way the parking lot faces.
Unfortunately, building a new restaurant from the ground floor isn’t always an option. Maybe you can’t find the perfect piece of land or the right contractor to build your dream. Most likely, the decision will come down to two things businesses never seem to have enough of: time and money.
Luckily, restaurateurs have options. According to data from BizBuySell.com, the number of restaurants for sale across the country is on the rise. Many of these restaurants are even turnkey ready and available at a fraction of the cost of starting from scratch.
Unfortunately, building a new restaurant from the ground floor isn’t always an option.
As you set out on the search for your new restaurant, start by securing your financing. Before you can decide on a new location, you need to know how much you can afford. If you are eligible, a small business loan is a good fit for many restaurateurs.
Once you have a budget in mind, focus your search on the physical location. You can rebrand and change the cuisine for an existing restaurant once it’s in pocket, but steady foot traffic, accessible parking and line of site from major roadways are aspects of your location that can’t be retooled after purchase.
Keep in mind that the site itself is just as important as the location. If the plumbing needs work, the electrical’s shot and the kitchen requires thousands of dollars to update, the only question worth asking is whether or not there are other options in the area.
Once you find your ideal location and secure financing, find a good business lawyer. Just like buying a house, buying a commercial property comes with potential pitfalls and legal ramifications. If you don’t follow the proper procedures, you could be creating a tangle of issues before you ever set foot in the kitchen.
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When you sit down with your lawyer, make sure you’re making a clean break from the previous owners. In some states, if you purchase an existing business, you’re on the hook for any taxes owed on the property. This also goes for any debts or legal action pending against the prior owners. An indemnity created by your legal counsel and agreed upon by the seller will protect you against any actions the seller may have taken prior to sale, as well as protect the seller from anything you do after the business has been purchased.
If you don’t have the option to purchase the building outright, you’ll have to ensure you can assume the current lease. Otherwise, you’re really just purchasing the brand, equipment and furniture–another option entirely, but only if that’s what you decide you want.
Finally, before investing in an existing business, the savvy restaurateur should ask a few more questions about the property’s history:
Why is the existing business up for sale?
If the current owner has run a successful business for years, and simply wants to retire to someplace warm, this may be a solid investment worth the effort of acquisition. Further, if the restaurant was popular with locals, the existing brand’s value may carry over.
However, if the physical location has problems that require a larger investment, or the location doesn’t drive customers, you may want to consider other options.
What was the previous restaurant’s concept?
A Caribbean-themed restaurant parked next to an ice rink in upstate New York may not draw couples looking for an Instagram-ready date night as much as a cozy pub with a roaring fire could.
Consider what the prior owners thought would succeed, and see if it’s a fit for your location. You might find that the only thing standing in the way of the previous establishment’s success was its theme. Try to make your concept, restaurant name, and menu appropriate for your location’s surroundings as much as possible.
How much did the previous owners know about running a restaurant?
If the management team had a reputation for pouring free drinks for the entire neighborhood, cutting corners with inventory or being abusive to staff, the property itself may still be viable for a new brand if handled by someone with a little more business acumen.