Restaurant For Sale Due Diligence

Once you've found a restaurant for sale you think is woth further investigation based on your initial assessment then the real work begins. This process is called performing your due diligence and it basically means checking the business out as thoroughly as humanly possible to make sure you know what you are buying and the price you are paying matches the value you will receive.

Here are the things you will want to investigate, or investigate further if you have already seen some of it:

The most difficult part of buying a restaurant for sale for the "right" price is figuring out how much the business makes. Very often, independent restaurant owners don't keep great records, and of the records they do have a significant portion of their sales may be unrecorded to help them keep their taxes low.

Since you don't want to simply take the owner's word for it, you need to check the other documents, particularly sales tax records, merchant acocunt statements and vendor invoices to help work backwards into what they are selling. Using restaurant financial software makes this job a lot easier.

You will likely also want to spend sseveral days observing the business during different days and different times of day to see what kind of crowd appears, how much they order and how they seem to feel about the restaurant- it is a positive vibe or so-so or do you get the sense they are only eating here because nothing better was available?

If you aren't comfortable yourself checking the condition of the equipment you can hire someone to do it- pay particular attention to the cooling units (refrigeration and the building A/C) and ask who the owner uses for repairs. If you get a name call and ask how many times they've been out in the last 12 months and if they have recommended any repairs that haven't been done.

If employees have been getting paid off the books, you may have some problems. For one, the insurance has likely been underpaid and for another, if you plan to do it by the book they may leave when they find out they will be having taxes deducted from their checks. That is fine, just be prepared to have to get new staff.

Find out what problems have been noted on the health inspections and if they have been resolved. If not, find out what it will take to fix them. If there are out of date or missing permits, find out what it will take to get everything in compliance. Find out BEFORE it becomes your problem.

If there are any contracts in place you don't intend to keep, make sure you know what they are and make it clear in the purchase agreement you don't intend to inherit them. If there are ones you want to keep, talk to the reps and determine if you want to keep the same plan or if you can negotiate something that will work better or cost you less.

The bottom line is to investigate everything and get answers to all your questions before you move forward. If you would like some help with this process we can help.

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