How to buy a restaurant

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Your Complete Guide to Buying a Restaurant
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• Whether you have your heart set on buying a five
  star restaurant, cafe, pub, or simply a food van,
  the challenges, risks and rewards of opening your
  own food venture can be immense.
• With social and economic shifts influencing
  consumer spending, the resultant effect is
  driving a consumer demand for high quality dining
  experiences. The cafe and coffee shop
  industry alone is expected to top 8 billion
  dollars in revenue in the year 2016 2017, and
  restaurants over 20 billion. The temptation and
  enticement to wade into the market, is obvious.

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Presentation Guide

• Existing or new business
• Ideal location
• Renting or buying
• Financing your project
• Process to purchase legal issues, permits and
  laws
• Design and Layout
• Equipment
• Staff
• Marketing advice

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Existing or New Business?

• Making the decision whether to take over an
  existing business or to start from scratch can be
  tricky. The advantages of an existing business
  can be alluring. After all, the bones, such as
  furniture, fittings and equipment can be included
  in, or negotiated into the deal and can translate
  to a walk-up start.
• Equipment and fit-out, which would normally
  comprise a substantial part of your budget, may
  be integrated into the current layout. However,
  should you need to include substantial sized
  equipment or machinery such as a commercial
  freezer or oven, the presence of existing
  equipment may in fact prove to be a hindrance to
  your tailored design plan.
• Additionally, do your due diligence and have a
  professional assess all existing equipment for
  signs of damage, to verify it is safe and
  functioning correctly.

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• Goodwill is often touted as a positive selling
  point, however this is difficult to quantify.
  Conversely, badwill may have tainted customers
  perceptions of that business. You may be faced
  with having to lure clientele back to a business
  with a tarnished image or reputation.
• One simple question must be asked of any
  established business looking to sell and that
  word is why?
• After all, very few people walk away from a cash
  cow. It is true that retirement or the demands on
  time and family when running a food service
  business can have a detrimental impact on ones
  life. This being the case, there are genuine
  circumstances where sellers are motivated to sell
  a profitable business.
• Nevertheless, a vendors motives for selling must
  be thoroughly investigated. A genuine vendor
  should have no hesitation in opening up their
  financial records for your inspection.
• Do not take the vendors reasons for selling on
  face value. Do you research by speaking to other
  similar establishments in the area about their
  experiences.
• Finding that a business is simply struggling in a
  competitive market neednt be a deal breaker.
  Perhaps, simply offering a more suitable cuisine
  or price point would turn around the premises
  viability but at the very least, it provides you
  with some negotiating leverage.

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• Performing due diligence when taking over an
  existing business therefore, is imperative. This
  can be performed by a lawyer, accountant or
  business advisor but must include a review of the
  following
• Records of accounts receivable and payable
• Income statements
• Profit and loss records for the past 3 years
• Reasons the vendor has for placing the business
  on the market
• Details about the value and condition of
  fixtures, fittings and equipment which are
  included in the sale
• Existing contracts with suppliers
• Seller's credit history
• Has the business been served with notices
  regarding health, water or sewerage which
  contravene government laws and require extensive
  work to address?

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Location- Finding the Sweet Spot

• Some of the attractions to consider are
• High visibility
• Filling a niche
• Ample parking
• Lack of competition for your particular cuisine
• Surrounding population numbers and demographic

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To Rent or Buy?

•  Renting
• If capital is limited and your vision for your
  cafe or restaurant is immense, you may find
  leasing a better option, especially when starting
  out. Leasing can free up vital funds which are
  then available to be invested into fit-out,
  equipment and marketing your new venture.
• The limitations of leasing are the constraints of
  the property and what the owner will permit as
  far as remodelling to fit your purpose. This is
  especially so if the premises was not originally
  fitted or designed for food service. To bring
  everything up to code as far as wiring,
  ventilation and plumbing is concerned, can mean a
  substantial overhaul of the existing building.
• It is imperative that you seek legal advice
  before signing on the bottom line of any lease.
  Clauses regarding regular rent increases can
  dramatically affect your budget, yet are a common
  inclusion in commercial leases.

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• Buying
• Whilst buying a property is a major financial
  commitment, if you have previous restaurant
  experience, chances are you have the ability to
  make an informed decision based on that. Buying
  when you know what to expect can be the more
  viable option in the long term.
• As an example of this, purchasing a premises can
  offer
• An asset where any improvements and upgrades,
  directly translate into value added profit
• Increased capital growth, which represents equity
  that can be accessed for marketing, expansion or
  simply the security of having a financial buffer
  in reserve
• Budget for your mortgage rather than the vagaries
  of regular rent increases
• The flexibility of being able to adapt to your
  changing business needs without having to gain
  consent of an owner
• Freedom to set a long term business plan and
  invest in a location where you know you cant be
  evicted or asked to vacate at the end of a
  tenancy lease

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Financing Your Vision

• Starting up any new food business is going to
  require substantial capital outlay. Leasing or
  buying premises, licences, equipment and staff
  are just a few of the costs you will be facing.
  It is impossible to quantify exactly how much you
  will need but it will likely lay somewhere
  between 20,000 for a small venture such as a
  food truck to 250K plus to fit-out a commercial
  kitchen.
• As a guide consider the Business Plan template
  provided by the state government which can be
  viewed here.

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The Process to Purchase

• As we have seen, arriving at the point where you
  are ready to make a commitment to purchase a
  restaurant, may involve a number of false starts.
  Unmotivated sellers or those with unrealistic
  expectations can be frustrating to those keen to
  begin their journey as an independent
  restaurateur. View these hiccups as learning
  curves which will hold you in good stead when you
  begin negotiations in earnest.

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Step 1- Retain a Lawyer

• For the uninitiated, purchasing a business can
  seem like an intimidating undertaking and should
  be a embarked upon only under the guidance of a
  Commercial Real Estate Lawyer. These specialised
  lawyers are experienced in legalities
  surrounding
• Drafting of contracts
• Contract negotiations
• Taxes
• Titles
• Conveyancing
• Conducting due diligence
• Licensing requirements
• Restrictive covenants
• Securing the expertise of a Commercial Real
  Estate Lawyer, may save you more in the long
  term, than the initial financial outlay for their
  services.

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Step 2- Inspection and Inclusions

• Organise a time to inspect the property, ideally
  in the company of the current owner. Take notes
  regarding
• Inventory
• Existing equipment including leases and
  warranties
• Condition of existing equipment
• Note the layout and design of the kitchen and
  whether it will work with your plans without
  major overhaul
• Assess what you dont require furniture,
  fixtures and equipment. These may be negotiated
  out of the sale price
• If the current kitchen and dining area will
  require renovation or modernisation, budget
  contingencies need to be formulated to allow for
  the time the business will be closed.

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Step 3- Assessing the Value

• Once you have a good grasp of the scope of the
  assets and inclusions, it is time approach your
  lender so they can organise a valuation. This
  process covers four areas
• Asset valuation subtracting the business
  existing liabilities from the value of its
  assets
• Cap rate the future return potential of the
  business
• Earnings multiple multiplying the earnings
  before interest by the cap rate
• Comparable sales comparing like sales (or
  apples with apples)

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Step 4- Letter of Intent

• A letter of intent, is not a purchase agreement,
  rather a formal indication to the vendor of your
  interest in the property and an outline of the
  major details involved in the transaction. The
  letter can be drafted through your lawyer and
  should specify that it is non-binding.
• This letter will outline
• Your interest in the property
• A tentative purchase price based on the above
  assessments
• The terms of the purchase
• Conditions of the sale including provisos which
  may involve
• The condition of equipment at handover
• Final inspections before settlement
• Inclusions such as equipment, furnishings and
  lease agreements

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Step 5- Section 52

• By law, all sellers of small businesses (up to
  350,000) must supply buyers with a Section 52.
  Prepared with their accountant, this statement
  outlines the financial performance of the
  business for the past two years and provides a
  due diligence guide for buyers.

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Step 6- Due Diligence

• Once a letter of intent has been presented to the
  vendor and he has been assured of your serious
  interest, you are now entitled to a closer
  examination of the business minutiae, including
• Examination of the lease is the lease
  assignable? meaning, does the current owner
  have the right to transfer the propertys lease
  to you?
• Ensuring the business is unencumbered by debt.
• Organising professional inspections of all
  equipment including cookers, cold storage and
  electrical appliances along with, furniture,
  fittings, electrical wiring and plumbing to
  ensure they are deemed safe and in good working
  order.
• If applicable, ensuring the liquor license is
  included in the sale. Check that it is
  transferrable through your states liquor control
  board.
• Determining which intellectual property will be
  included in the sale business name, branding or
  trade secrets such as recipes.
• Have your lawyer analyse the profit and loss
  statements and review their findings under their
  professional guidance.
• Examine staff contracts and the ramifications of
  a change of proprietor.
• Research the reputation of the restaurant through
  platforms such as social media reviews.
• Through your lawyer or accountant, ascertain if
  there are outstanding debts including tax,
  lease payments on the premises or equipment
  associated with the business. Also any pending
  lawsuits or health code violations.

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Step 7- Negotiating a Price

• To this point, your intentions have been to
  assess the business prospect as a viable concern
  and perform a valuation on the equipment and
  resources you would wish to include in the deal.
• Armed with this information and based on previous
  due diligence regarding assessment of the value
  based on the local market, previous turnover and
  future forecasts, it is time to make a formal
  offer. The offer should cover the specifics of
  the sale including all assets and be carried out
  in conjunction with your lender. It is always
  prudent to make the offer subject to finance.

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Step 8- Contract to Purchase

• When both parties have agreed on a purchase
  price, a contract to purchase will be drawn up.
  The purchase and sale agreement is a formal legal
  document outlining your legal rights and
  responsibilities, warranties, transactions and
  agreements which must take place before closing.
• This is the time to include conditions regarding
• Repair or replacement of non-functional
  furniture, fittings and equipment
• Disbursements and ownership of debts
• Final inspection prior to settlement
• Cooling off period
• Restraint of trade covenant prevents the
  current owner from opening in immediate
  competition to you
• Unforeseen changes occurring within the business
  prior to the transaction being completed
• Misrepresentation made by the vendor regarding
  inaccurate or false financial information

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• When both parties have agreed on a purchase
  price, a contract to purchase will be drawn up.
  The purchase and sale agreement is a formal legal
  document outlining your legal rights and
  responsibilities, warranties, transactions and
  agreements which must take place before closing.
• This is the time to include conditions regarding
• Repair or replacement of non-functional
  furniture, fittings and equipment
• Disbursements and ownership of debts
• Final inspection prior to settlement
• Cooling off period
• Restraint of trade covenant prevents the
  current owner from opening in immediate
  competition to you
• Unforeseen changes occurring within the business
  prior to the transaction being completed
• Misrepresentation made by the vendor regarding
  inaccurate or false financial information

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Step 9- Make a Date

• Once you have completed the processes above and
  when both parties are satisfied with the
  conditions of the purchase, a date will be
  arranged to sign the contracts to complete the
  sale.
• A week prior to the settlement date, an
  inspection of the premises and equipment should
  be carried out.
• This inspection protects you from any loss or
  damage which may have occurred during the
  settlement period. It is also a time to ensure
  repairs and maintenance have been carried out as
  per the terms laid out in the Contract of Sale.

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Step 10- Sign on the Dotted Line

• On settlement day, once all parties have signed
  the contract, the business has now transferred
  ownership to you. Congratulations! Time for that
  glass of champagne. Now the hard work begins

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Professional Protection- Calling in the Experts

• There is a wealth of advantages in employing the
  services of a professional, ideally with
  experience in laws regarding
• Health and safety requirements
• Licences
• Permits
• Contracts including property leases or purchases
• Tax laws
• Planning restrictions
• Insurances

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• As with a lawyer, the expertise of a talented
  business accountant is a necessity when starting
  up any business. They can assist you from day one
  in your business venture by
• Performing due diligence with regards to vendors
  accounts and financial records
• Setting up business accounts
• Navigating business tax laws
• Minimising business tax

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Licences- Navigating the Maze

• If you are planning to apply for a liquor licence
  for your premises you will need to apply through
  your state government department. The paperwork
  involved can be daunting and generally involves
• Notice of application
• Applicant and premises details
• An application fee
• A personal particulars form of each person
  involved in the application
• Submissions from a public interest assessment
• Plans, specifications and details of the proposed
  premises
• Certificate of local government
• Development approval certificate issued by the
  local government
• Certificate of title (of the property)
• Evidence of the applicant's exclusive right to
  occupy the premises (tenure)
• Training certificates mandatory training
• Harm minimisation including codes of conduct,
  house policies and management plans

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• There will be an ongoing licensing fee. To give
  you an idea of the base fee plus any loadings,
  you can use this calculator to estimate ongoing
  charges for a licensed restaurant or
  establishment in NSW.
• Local councils need to be approached regarding
  other permits and licensing, and businesses also
  need to meet standards outlined in the Australian
  New Zealand Food Standards Code (FSANZ) and Food
  Act 2003 (NSW). Restaurants must satisfy the food
  and safety regulations.
• Frustratingly there is no uniformity in
  Australian food service laws. Each state acts
  independently so you will need to consider the
  laws relevant to your state.

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Design and Layout

• Unlike your average domestic kitchen, a
  commercial kitchen requires fit for purpose
  design which will be based around the specific
  type of kitchen you require.
• With the use of architectural software such as
  AutoCAD, a designer can bring together a virtual
  modelling which will include
• Thoughtful designs incorporating food, hygiene
  and health and safety compliance
• Sanitation compliance
• OHS compliance
• Mechanical ventilation systems
• Sustainable ergonomic design
• Building code compliance
• Designs to optimise workflow and productivity

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• The specific type and volume of cuisine you
  intend to deliver, storage requirements (both dry
  food storage and cold), preparation
  areas, cooking equipment plus plumbing and
  electrical placement all need to be catered for
  in the design phase.
• The multitude of considerations involved in
  creating a practical, efficient and safe work
  area requires the expertise of an architect or
  specialist kitchen design company. They will be
  able to make the best use of your space to create
  a flow in high traffic areas as well as include
• Industrial ventilation systems (including H-VAC
  and range hood)
• Commercial refrigeration
• Building code compliance
• Compliant electrical, gas, plumbing and sewage
  implementation

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Equipment Matters- Products and Performance

• Commercial grade restaurant equipment is a must
  for any food service venture. The essential base
  equipment required is
• Stainless steel benches
• Sinks
• Dishwashing Facilities
• Dishwashing Machines
• Cooktops
• Oven Ranges
• Range Hoods
• Refrigeration

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• Depending on your cuisine, other equipment such
  as deep fryers, pizza ovens, blenders, food
  preperation equipment and coffee machines, will
  need to be included in your shopping list and
  catered for during the design phase.
• Higher quality, commercial kitchen equipment is
  specially designed for purpose and manufactured
  to
• Higher industrial standards using a thicker gauge
  metal and reinforced welded components
• Withstand high volume use
• Have the capability to be banked with other
  equipment such as commercial cookers, ovens and
  deep fryers

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Utensils

• As with your large commercial equipment, utensils
  need to be a quality, heavy duty investment. From
  kitchen scissors and tongs to commercial sized
  pots and pans, woks, steamers, baking trays
  and oven to table cookware  the list is diverse
  and substantial.
• Your chefs will know exactly what knives to buy
  for their kitchen. As well as each chef's
  preference for knives, colour coded knives are an
  ideal way to avoid cross contamination, whether
  at a deli counter or in the heart of your
  commercial kitchen.
• Catering supplies need to be fit for purpose,
  induction compatible and designed to withstand
  excessive heat and high volume usage.
• Article Some of your customers will have food
  allergies, intolerances and their own dietary
  preferences, so it's important to read up on all
  of the different requirements your customers
  could have. Check out our Restaurant's Guide to
  Dietary Preferences for everything you need to
  know.

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Staff

• Your staff can be the difference between return
  custom and a one star rating on Yelp.
  Professional, courteous and knowledgeable
  wait-staff helps make your customers experience
  the best it can be. So its important to hire the
  right people.
• Ready-made, trained staff can be sourced through
  hospitality agencies or alternatively, you can
  source and train your own staff. Staff will
  require food handling certificates and, if you
  intend to serve alcohol on the premises, they
  will require Responsible Service of Alcohol (RSA)
  certification.
• Obviously, an exceptional chef will be the star
  player on your team and can have patrons queuing
  up to sample their creations. Sourcing this vital
  component to your success can be tricky, time
  consuming and costly but ultimately rewarding.

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The Magic of Marketing

• You may have lured the greatest, most acclaimed
  chef in the world to your kitchen, secured the
  ultimate desirable address and have a retinue of
  immaculate wait-staff ready to cater to your
  client's every whim. The trouble is, if nobody
  knows you exist, you might as well be serving
  lukewarm dim sums out the back of your station
  wagon.
• There is no better recommendation than word of
  mouth and this is where the advantages of digital
  marketing gives you a sustainable, competitive
  edge.

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• Online content can connect and align your
  business with your customers using multi-faceted
  platforms, including
• SEO (Search Engine Optimisation) can put you in
  the front row of search engine results.
  Considering over 90 of searchers dont go past
  page one of search results and 50 of them dont
  go past the first three results on page one, your
  business is basically invisible without the
  implementation of SEO. Involving an experienced
  digital marketing specialist or agency who has
  quantified, proven results can be a winning
  combination.
• An interactive, well designed website should
  reflect your business brand. Not only would it
  contain staples like menu details, opening hours
  and contact information, it can also incorporate
  the capability to take bookings.

• Interactive apps which encourage diners by
  streamlining their connection to you.
• The big social media players Instagram,
  Facebook, and Twitter. These furnish customers
  with real time ability to create a buzz around
  your business through user generated content,
  feedback and testimonials.
• Social media also assists with branding and
  promotes customer loyalty and alignment.
• Article Check out our complete guide to
  marketing your restaurant.

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• In todays world of multi-platform technology,
  where Gen Y are able to react and review
  businesses in real time, having a digital
  marketing campaign in place can increase your
  business traffic manifold. With almost 90 of
  business reporting that social media has
  generated more exposure for their business, it
  makes perfect sense to incorporate it into your
  marketing campaign.
• Sites such as Trip Advisor and Yelp are
  increasingly being utilised by those seeking
  highly ranked eating establishments and can draw
  visitors from not only your local neighbourhood
  but also from around the world, wishing to
  experience local colour and cuisine. You dont
  have to be a five star restaurant to become a
  sought after destination for travellers.

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A Word About Passion

• Entering into the realm of the food industry
  cant be done on a whim. The outlay both
  financially and emotionally are immense. The
  hours are long and the demands on your life can
  be 24/7 and dominate your time to the exclusion
  of family, friends and a social life.
• To those who have the calling, it can be the most
  rewarding experience of their lives.
• Positioning your business to optimise it for
  success requires thoughtful planning and research
  backed up by reliable professional acumen. The
  good news is, if you get this preparation period
  perfected, you can enhance your prospect of
  success immeasurably.
• The ingredients are there, the tools are at your
  disposal, all they need now is you to bring them
  together to create a masterpiece of culinary
  cuisine which will delight and attract custom
  both locally and from around the world.