Industry Specific Tips

5 Ways to Reduce Risk When Buying a Restaurant as a Going Concern

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5 Ways to Reduce Risk When Buying a Restaurant as a Going Concern

5 Ways to Reduce Risk When Buying a Restaurant as a Going Concern

As mentioned in Part 1 and Part 2 of this article, there are two methods of valuing a restaurant: the assets-in-place method; and the going-concern method. While purchasing a going-concern business is less risky than buying an asset-in-place business or starting one from scratch, there is still some degree of risk.

While you have the built-in advantage of an existing customer base and brand identity, minimize the risk whenever possible.

1. Don’t make any major changes right away.

Wait until after you’ve been operating the restaurant for a while and you’ve had time to learn all the details. Remember, you already have a loyal customer base and you wouldn’t want to make any changes that would negatively impact on business.

2. Retain all existing personnel.

After you have the restaurant up and running and you’ve had a chance to get to know everyone, you can start weeding out any undesirable workers. Proceed cautiously, as some of these employees are familiar to customers; they have built relationships and largely responsible for attracting business.

3. Budget for any compulsory remodeling.

If you purchased a franchise, be aware that periodic remodeling may be required every 5-7 years or so. This is necessary for brand image and uniformity.

4. Stick with the same vendors.

Your best bet is to continue using the previous owner’s established vendors and not risk making any changes. Your best bet is to wait until the business has been in operation at least thirty days.

5. Keep existing insurance in place.

Assuming the previous owner had minimal insurance claims and a good history, it is usually beneficial to keep the existing liability and workman’s compensation insurance in place.

Understanding the general methods of valuing a restaurant is an important step in the business buying process. Yet, in order to determine a more accurate sale price, it would be wise to contact an experienced business broker in your local area who specializes in restaurant transactions. Search BizBuySell’s business broker directory now to find one in your local area.

Steve Zimmerman, Founder, Principal Broker and CEO of Restaurant Realty Company
Steve Zimmerman (CBI, M&AMI, CBB, FIBBA) is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1,000 restaurant, bar or club businesses, sold many commercial buildings and completed over 3,000 restaurant valuations since 1996. His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building.

Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company, Steve had over 20 years of restaurant experience and was President and CEO of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area.