65 Restaurant Business Buyer Checklist Items To Review Before You Buy a Restaurant
Owning a restaurant is the quintessential small business. Restaurants are the life blood of many communities, owned by recent immigrants and experienced American restauranteurs alike. For many, many reasons, buying an existing restaurant is far more practical than starting a new business. If you plan on buying an existing restaurant, the following Restaurant Business Buyer Checklist is a useful tool to help you consider essential information before you buy.
Your investigation of the restaurant is the essential part of the process. Do not rush the process and do a thorough job of performing your due diligence. As needed, assemble your team of professionals to assist you in your acquisition, particularly in areas that you are unfamiliar with, i.e. law, accounting.
NEVER let a seller rush you into the transaction. There’s always great opportunities available — keep that in mind so that you don’t succumb to undue pressure. Take time to review all financial, business and financial records. Additionally, verify the information. Restaurant Brokers do not verify any information offered by the seller. Consequently, it’s up to you to verify the information presented individually and through your professional support.
Though you may alter the business and may not be as concerned with the restaurant’s past performance, it’s still critical for you to understand the past history of the restaurant. You want to understand any past issues that the restaurant faced so that you can avoid subjecting yourself to the same issues. Investigating and verifying the seller’s information takes you out of the dream of restaurant ownership into reality.
Investigate thoroughly — it’s well worth you time to do your due diligence before you invest your time and resources. Use the following Restaurant Business Buyer Checklist as a guide to help you clearly understand the business opportunity. As you plan and investigate, take your newfound information to update your business plan.
Restaurant Business Buyer Checklist
Before you buy a restaurant, be sure that you investigate the following items and that you understand the representations that the seller is making.
- Why is the seller selling? Is it a legitimate reason? If the seller is vague or avoidant in their response, that’s a red flag that you should pay attention to in deciding whether to proceed.
- Length of seller ownership
- Who is the actual seller? What is the ownership structure of the business (Corporate? LLC? Partnership?)
- If corporation or LLC or partnership, is there a resolution by all owners/members/partners to sell?
- Lease: Get a copy of the lease and be sure to read it. Too many clients that I have worked with never read the lease. It’s important to understand what you are committing to either in a lease assignment or new lease. If you have concerns, consult a commercial real estate attorney.
- Seller’s disclosures regarding the business
- Furniture, Fixture & Equipment (FF&E) list
- Title, warranties and documentation regarding FF&E
- Did the seller make any improvements?
- Insurance Policies (commercial, workers’ compensation, etc.)
- Any outstanding litigation or pending lawsuits?
- Vendor Information
- Employee Information (general information is usually available before the sale closes but specific names probably won’t be made available until the close of escrow).
- Undocumented workers?
- Under the table payments? (Adjust the contract price to account for the undocumented deduction).
- Key personnel staying or leaving?
- Workers Compensation claims ?
- Any wage and hour claims?
- Any employee lawsuits?
- Union issues, if any
- Contractor Information (any people working with them who are not employees – what is the arrangement.)
- Zoning or Use Restriction information
- Key competitors in area; past competitors; future competitors
- Liquor license – any infractions with the Alcohol Beverage Control Board (ABC)?
- Past litigation.
- Past owners; past employees
- Health department relationship — recent health inspection report.
- Parking issues?
- Storage issues?
- Any hazardous waste disposal issues?
- Vandalism or crime in neighborhood?
- Changes in neighborhood?
- Zoning changes? Construction issues? Road changes?
- Neighboring business relationships? Complaints?
- Any local government issues at all in last three years? Neighborhood issues or complaints (smells, etc?)
- Complaints with EEOC or California Department of Fair Employment & Housing (FEHA)?
- Any tax audits in last five years?
- Any change in local customer base (e.g. factory closed, mall closed, etc.)
- Any employee leave and start own business near by, etc?
- Any take out business? Percentage? How handled?
- Advertising? Where, when, how? Special deals offered to get business? Describe.
- Gift certificates? How much? How will they be handled in a sale?
- Past offers received? Pending? Status and what happened to them?
- Web sites?
- Social media?
- Trade names; trade marks; logos?
- Recipes? Copyrights? Logos? Signage cost? Depreciation on same?
- Validity of books; CPA sign off. Will they warrant level of business in the future?
- Gross, Net & Expense analysis.
- Payroll analysis.
- Three years tax returns; five years better
- Tips and how handled.
- Sales tax and excise tax returns if appropriate.
- Trends of sales; trends of net. Trends of expenses.
- Vendor history of payment (timely?) (Get a credit report on them.)
- Depreciation schedule and value of fixtures.
- What stays with landlord, what is removable (fixed?)
- What training available with the sale of the restaurant?
- Any personal guarantees have been given to what Vendors?
- Proof of payment of taxes of all kinds for business.
- Name of CPA and bookkeeper for business.
- Payroll service?
- Liquor license?
- Beer and Wine sales?
- Any favorable vendor arrangements that will terminate upon sale?
We hope this Restaurant Business Buyer Checklist will be beneficial to you as an aid to help you understand a prospective restaurant business opportunity. If you are ready to take the next step and explore your options for the purchase of restaurant, contact us today to get started on your path to restaurant ownership.