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HOW DO I BUY A RESTAURANT OR BAR?
Make no mistake, buying a business is stressful, difficult and time consuming. And restaurants are one of the most challenging business purchases because of all the regulations and moving parts related to liquor licenses, health inspections, taxing authorities, entertainment permits, landlords and complex loan processes. So making sure you have an experienced restaurant broker is critical to your success and can make the difference between success and failure.
Here are some of the typical questions with answers:
1. How much is the restaurant worth I’m buying?
Generally speaking, value is in the eyes of the beholder. That being said, there are industry standards to follow insuring you’re paying a fair price. This broker strongly relies on income based valuation analysis. There is only one good source to determine real cash flow and that's tax returns. Don't rely on anything else. Here is a link on how restaurant valuations are determined: VALUE MY RESTAURANT PURCHASE
2. How long does it take to close a deal?
Each state has different rules and regulation regarding the sale of a business. Generally plan on a 45 to 90 day closing process.
There are a number of factors effecting how fast a deal closes:
- LANDLORD APPROVAL: The larger the landlord the longer it takes to get the landlord’s approval. This can be anywhere from 15 days to several months with the typical approval taking a month. If you’re getting a new lease, that could take two months. Use an attorney to review.
- LIQUOR LICENSE: some states require a posting be places on the business for a certain period of time before escrow can close. That could be 30 days or more. While other states there is no waiting period and at the close of escrow you march down and get a temporary license to operate the restaurant.
- BULK SALE STATES: there are still a few states hanging on to the old fashion concept of notifying the world the business is for sale in the local news papers. This requires about 30 days from start to finish.
- SBA LOAN: This is usually the longest lead-time item in a deal. An SBA loan could take 60 to 120 days, depending on how well prepared the buyer, seller and broker are. We’ve done complete restaurant deals in 45 days from open to close using an SBA loan.
3. What am I buying?
Generally you’re buying the furniture, fixture and equipment, leasehold improvements, leasehold, goodwill, consumable inventory, menu and recipes, customer lists, phone number, liquor license, if any, and if it is personal property in your state, and finally if it is a franchise, you’re buying the franchise rights without the menu and recipes. Of course every deal is different and in some cases perhaps the seller isn't selling the name or recipes.
4. Do I need a broker?
Although SellingRestaurants recommends you use a broker, our documents and processes makes it simple for buyers to follow since we’ve sold hundreds of restaurants. We strongly suggest using an attorney to review your rights and obligations as well as a CPA to review tax consequences and the value of the business.
SellingRestaurants generally represents the Sellers and never does duel agency relationships.
Remember, Selling Restaurants owes you a duty of fair and honest dealings.
5. Where do I start?
First sign the NDA on our website for the listing you're interested in. You’ll find a golden button titled “sign NDA.” Once that’s complete, the name and address of the listing will usually appear, but highly confidential listings you’ll need to call the broker.
Go to the business to observe it. Don’t talk to a soul about it being for sales. Respect the owner’s privacy please. If you like what you see, then call the broker and arrange a discussion with the owner. Be prepared with questions.
Then if you’re satisfied with the initial information, then call the broker and write the offer! The broker will help you.
6. What does it cost to buy a restaurant?
Besides the purchase price, you'll have escrow fees ($500-$2,500), health inspection fees ($200-$2,000), entertainment permit fees, if any, lease assignment fees ($500-$2,000), city permits and licenses ($200-$500), liquor license transfer fees ($500-thousands), possible point of sales transfer fees (could be thousands), utility deposits (could be thousands) and petty cash at the day of closing.
Call us at 800.576.3615
We at Selling Restaurants feel obligated to educate the public, our customers & our clients with information helping them make more intelligent buying & selling decisions.