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Purchasing a Restaurant

How do you believe the net that an owner tells you? No books, just a real busy place with great reviews and 18 years in biz?

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Answers (3)
Jeff Rauth
Commercial Finance Advisors
Oakland County, MI

I agree with John that bank financing is out. So many business owners try to figure out how to not pay the IRS, than when they have to sell or get a loan they are screwed.

Jan 2, 2011
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First thing--- I assume you have cash because financing is out of the question. Restaurant financing without bad terms and terrible rates is hard to come by even with good books.
Keep going in and observe, observe, observe. Talk to the wait staff. They can provide a plethora of info on the goings on of the place. If the wait staff has been there a while the chances are good that they making great money or else they would have moved on.
If you have the money for this restaurant this could be a great opportunity. If this is a cash biz then you hold all the cards. Since the place won't qualify for financing his pool of buyers is extremely limited.
Btw, the restaurant biz is not easy. Are you sure you want this? It's a 24/7 job. For example my place was closed Christmas day and I still spent 6 hours doing prep work and taking care of a plumbing problem. I have had 4 days off since June. Oh wait did i mention that was June of 2009?
Are you ready for the bs and drama from your staff? Are you ready for them to let you down? Are you ready for them to steal?
Owning a restaurant (non corporate, non franchise) is like being the head coach of an NFL team...and the owner, the general manager, and the star player.
Remember, don't be afraid of CASH. Just be smart and do your homework. For example, look at his staff to see if there are people off the books. Obviously they aren't going to work for free.
Forget the reviews, btw. Sometimes the best money makers are the little holes in the wall and the money losers are the high class place that gets great reviews but the place is bleeding money.
A few years ago a broker tried to sell me a place that had great reviews but had negative cash flow. They were so proud that they didn't have any microwaves or freezers. I told them to call me back when they bought a couple of microwaves and freezers and actually made a dime.
Last thing be careful of how many people are considered ownership and how many hours are they working to make the money happen. I looked at a place that had 4 family members working to make the numbers what they were. I figured there was no way I could replace them for a reasonable cost and still make money even though they were making over 150k..
If you give us some more info maybe we could help you figure out if this is a good deal or not.
Good luck.
PS- if you want you can e-mail me at johnp032500@comcast.net if you want to get into specifics without posting in public.

Dec 27, 2010
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The BAF Group LLC
MD

You can ask to verify the Seller's claims by working in the pace for a couple of weeks, and following his every move. You should also look at his Cost of Goods by inspecting and adding up his Food Invoices, to try to determine what his true volume of sale might be. But it is all guess-work. Cash businesses are the toughest, and scariest of all businesses to buy, for that very reason.

Dec 27, 2010

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