Buying a Restaurant Business
In many ways buying an existing restaurant is the easiest and least expensive way to get into the restaurant business. It also can offer the lowest risk, the greatest financing options, and the lowest overall cost for someone looking to get into the business.
Purchasing an existing business is also the easiest way to get into the business if you have no related experience because everything you need is already in place. Most people don't think of this option first because they've always had a vision of their own place that they create from the ground up but that entails a lot more work and significantly more risk.
Buying a business can provide a degree of comfort you don't get in a new restaurant or even with a franchise restaurant because what it comes with cash flow from the very first day and a tangible operational and financial history that can be evaluated. This history allows the new owner to learn from the past mistakes and successes of the business, eliminating the need for the trial-and-error processes that every start-up will experience even in the best of circumstances. Vendor relationships, employee base, customers and operational processes are all in place.
The easiest new business to fund is an acquisition because a value can be established and the risk much more easily quantified. It also has assets which can be used to help secure a loan. There is also a good chance of owner financing, which is much easier than bank financing to make work, and is paid for by the business itself.
In some cases, you can also pursue vendor financing, if the business is solid and buys a lot of products from another company that wants to continue the relationship. You can also often times find a partner to take over an existing business with you, and they can contribute funds you might not have. It is usually easier to convince a partner that a business will work if you can point to the fact that it is already working as opposed to having to pitch them just on an idea. SBA loans can work very well for business acquisitions if there is adequate documentation available and should definitely be on your list of funding sources.
Angel funding is definitely possible here, particularly if you plan to substantially grow the business by expanding the sales, franchising it, or some other action that will increase the value by a good percentage.
The purchase of an established, profitable restaurant with a proven concept, a recognized trade name and a solid customer base offers the least amount of financial risk. Overall the acquisition of a successful ongoing restaurant operation usually requires the least capital outlay and operating capital, the fastest return of investment and the smallest chance of failure.
The downside of buying a business is that good ones are often hard to find and bad ones are abundant. You don't want to spend good money buying someone else's money losing proposition and that eliminates the majority of businesses for sale. After all, if the business is so great, why are they selling? The other problem is that while some changes can be made, if you are going to make wholesale changes to the entire operation there isn't much point in paying for a going concern if you aren't going to capitalize on what it has going.
If the person selling a business is really anxious to get rid of it that's a sure sign you need to look very closely at what you will actually be getting, nevermind what they are telling you.
Most marginal operations suffer from weak management and poor concepts; if you are confident you can overcome that then you may be able to take over an existing business at a bargain basement price. If you are not sure, however, you may be simply throwing good money into a bad business and ruining your chances of success before you even get started.