What are the Common mistakes restaurant buyers make when buying a restaurant? The answer is complicated but simple at the same time. There are several common mistakes that potential restaurant buyers should be aware of when deciding to buy a restaurant.
The Restaurant Broker at EATS Broker provides some of the most common mistakes restaurant buyers make based on his experience of selling restaurants for eleven years.
- No Business Plan– The restaurant industry is a lifestyle with financial obligations. Restaurant buyers should have a clear and comprehensive business plan for the restaurant, which should outline their vision, strategies, and financial projections.
Restaurant Buyers should consider how the restaurant operations affect their current lifestyle, whether the spouse supports the decision, and whether they can afford any hardship from the restaurant.
Restaurant Business Broker Tip: The benefit of buying an established restaurant is that the current owner has done the hard work to get the restaurant up and running. Restaurant buyers are provided with Profit and Loss statements and tax returns to understand the strengths and weaknesses of the restaurant operations.
- Financials ready– It’s common practice for Restaurant Business Brokers to have interested buyers sign a non-disclosure agreement and request proof of funds for certain restaurant listings for sale. This is not always the case. It really depends on the restaurant listing.
When selling a restaurant that is a Franchise, an EATS Broker will request proof of funds that meet the franchisor’s financial requirements, ranging from $100,000 to over $1,000,000. Buyers can send a copy of a bank statement, 401K statement, or letter from a banker.
Potential restaurant buyers who request information on restaurants for sale that don’t have proof of funds ready to send will not be taken seriously by a Restaurant Brokerage.
Restaurant Business Broker Tip: When buying a restaurant, the landlord will request financial information for the new lease or lease assignment approval.
If the restaurant is a franchise, proof of funds will be needed for Franchise approval. When inquiring about a restaurant for sale, buyers should have proof of funds ready to be shared to get more information on the listing.
- Not understanding restaurant numbers: Restaurant buyers who understand how to analyze a profit and loss statement or tax return usually make better decisions. Restaurant buyers who understand food, labor, and rent costs compared to sales make decisions on financials and usually not emotions.
Restaurant Business Broker Tip: Research the expected ratios for food cost, labor cost, and rents for the restaurant segment you have an interest. Ask the restaurant broker or seller questions if you see odd ratios.
To avoid the three Common Mistakes Restaurant Buyers Make, prospective restaurant buyers should conduct thorough due diligence, seek professional guidance, and develop a well-thought-out business plan.
Additionally, it’s essential to understand the restaurant industry, local market conditions, and the specific challenges and opportunities associated with the restaurant they intend to purchase.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Restaurant Business Broker Dominique Maddox at 404-993-4448 or email at [email protected]. Visit our website at www.EATSbroker.com
