Helpful guide on how to buy a restaurant. Guide details: - finance - marketing - choosing the right location - process to purchase

1. Your
Complete
Guide to
Buying a
Restaurant

2. • Whether you have your heart set on buying a five star
restaurant, cafe, pub, or simply a food van, the challenges, risks
and rewards of opening your own food venture can be
immense.
• With social and economic shifts influencing consumer spending,
the resultant effect is driving a consumer demand for high
quality dining experiences. The cafe and coffee shop
industry alone is expected to top $8 billion dollars in revenue in
the year 2016 – 2017, and restaurants over $20 billion. The
temptation and enticement to wade into the market, is obvious.

3. Presentation Guide
• Existing or new business
• Ideal location
• Renting or buying
• Financing your project
• Process to purchase: legal issues, permits and laws
• Design and Layout
• Equipment
• Staff
• Marketing advice

4. Existing or
New
Business?
• Making the decision whether to take over an existing
business or to start from scratch can be tricky. The
advantages of an existing business can be alluring. After
all, the bones, such as furniture, fittings and equipment
can be included in, or negotiated into the deal and can
translate to a walk-up start.
• Equipment and fit-out, which would normally comprise a
substantial part of your budget, may be integrated into the
current layout. However, should you need to include
substantial sized equipment or machinery such as
a commercial freezer or oven, the presence of existing
equipment may in fact prove to be a hindrance to your
tailored design plan.
• Additionally, do your due diligence and have a
professional assess all existing equipment for signs of
damage, to verify it is safe and functioning correctly.

5. • Goodwill is often touted as a positive selling point, however this is difficult to
quantify. Conversely, ‘badwill’ may have tainted customer’s perceptions of
that business. You may be faced with having to lure clientele back to a
business with a tarnished image or reputation.
• One simple question must be asked of any established business looking to
sell and that word is why?
• After all, very few people walk away from a cash cow. It is true that
retirement or the demands on time and family when running a food service
business can have a detrimental impact on one’s life. This being the case,
there are genuine circumstances where sellers are motivated to sell a
profitable business.
• Nevertheless, a vendor’s motives for selling must be thoroughly investigated.
A genuine vendor should have no hesitation in opening up their financial
records for your inspection.
• Do not take the vendors reasons for selling on face value. Do you research by
speaking to other similar establishments in the area about their experiences.
• Finding that a business is simply struggling in a competitive market needn’t
be a deal breaker. Perhaps, simply offering a more suitable cuisine or price
point would turn around the premises viability but at the very least, it
provides you with some negotiating leverage.

6. Performing due diligence when taking over an existing
business therefore, is imperative. This can be performed by a
lawyer, accountant or business advisor but must include a
review of the following:
• Records of accounts receivable and payable
• Income statements
• Profit and loss records for the past 3 years
• Reasons the vendor has for placing the business on the
market
• Details about the value and condition of fixtures, fittings
and equipment which are included in the sale
• Existing contracts with suppliers
• Seller's credit history
• Has the business been served with notices regarding
health, water or sewerage which contravene government
laws and require extensive work to address?

7. Location- Finding
the Sweet Spot
Some of the attractions to consider are:
• High visibility
• Filling a niche
• Ample parking
• Lack of competition for your particular
cuisine
• Surrounding population numbers and
demographic

8. To Rent or Buy?
Renting
• If capital is limited and your vision for your cafe or restaurant is immense, you may find
leasing a better option, especially when starting out. Leasing can free up vital funds which
are then available to be invested into fit-out, equipment and marketing your new venture.
• The limitations of leasing are the constraints of the property and what the owner will
permit as far as remodelling to fit your purpose. This is especially so if the premises was
not originally fitted or designed for food service. To bring everything up to code as far as
wiring, ventilation and plumbing is concerned, can mean a substantial overhaul of the
existing building.
• It is imperative that you seek legal advice before signing on the bottom line of any lease.
Clauses regarding regular rent increases can dramatically affect your budget, yet are a
common inclusion in commercial leases.

9. Buying
Whilst buying a property is a major financial commitment, if you have previous restaurant experience,
chances are you have the ability to make an informed decision based on that. Buying when you know
what to expect can be the more viable option in the long term.
As an example of this, purchasing a premises can offer:
• An asset where any improvements and upgrades, directly translate into value added profit
• Increased capital growth, which represents equity that can be accessed for marketing, expansion or
simply the security of having a financial buffer in reserve
• Budget for your mortgage rather than the vagaries of regular rent increases
• The flexibility of being able to adapt to your changing business needs without having to gain
consent of an owner
• Freedom to set a long term business plan and invest in a location where you know you can’t be
evicted or asked to vacate at the end of a tenancy lease

10. Financing Your Vision
• Starting up any new food business is going to require substantial
capital outlay. Leasing or buying premises, licences, equipment and
staff are just a few of the costs you will be facing. It is impossible to
quantify exactly how much you will need but it will likely lay
somewhere between $20,000 for a small venture such as a food truck
to $250K plus to fit-out a commercial kitchen.
• As a guide consider the Business Plan template provided by the state
government which can be viewed here.

11. The Process
to Purchase
• As we have seen, arriving at the point where
you are ready to make a commitment to
purchase a restaurant, may involve a number of
false starts. Unmotivated sellers or those with
unrealistic expectations can be frustrating to
those keen to begin their journey as an
independent restaurateur. View these hiccups
as learning curves which will hold you in good
stead when you begin negotiations in earnest.

12. Step 1- Retain a Lawyer
For the uninitiated, purchasing a business can seem like an intimidating undertaking and should be a embarked upon only
under the guidance of a Commercial Real Estate Lawyer. These specialised lawyers are experienced in legalities
surrounding:
• Drafting of contracts
• Contract negotiations
• Taxes
• Titles
• Conveyancing
• Conducting due diligence
• Licensing requirements
• Restrictive covenants
Securing the expertise of a Commercial Real Estate Lawyer, may save you more in the long term, than the initial financial
outlay for their services.

13. Step 2- Inspection and Inclusions
Organise a time to inspect the property, ideally in the company of the current owner. Take
notes regarding:
• Inventory
• Existing equipment including leases and warranties
• Condition of existing equipment
• Note the layout and design of the kitchen and whether it will work with your plans
without major overhaul
• Assess what you don’t require — furniture, fixtures and equipment. These may be
negotiated out of the sale price
• If the current kitchen and dining area will require renovation or modernisation, budget
contingencies need to be formulated to allow for the time the business will be closed.

14. Step 3- Assessing the Value
Once you have a good grasp of the scope of the assets and inclusions, it is time approach
your lender so they can organise a valuation. This process covers four areas:
• Asset valuation — subtracting the business’ existing liabilities from the value of it’s assets
• Cap rate — the future return potential of the business
• Earnings multiple — multiplying the earnings before interest by the cap rate
• Comparable sales — comparing like sales (or apples with apples)

15. Step 4- Letter of Intent
A letter of intent, is not a purchase agreement, rather a formal indication to the vendor of your interest
in the property and an outline of the major details involved in the transaction. The letter can be
drafted through your lawyer and should specify that it is non-binding.
This letter will outline:
• Your interest in the property
• A tentative purchase price based on the above assessments
• The terms of the purchase
• Conditions of the sale including provisos which may involve:
• The condition of equipment at handover
• Final inspections before settlement
• Inclusions such as equipment, furnishings and lease agreements

16. Step 5- Section 52
By law, all sellers of small businesses (up to $350,000) must supply buyers with a Section 52.
Prepared with their accountant, this statement outlines the financial performance of the
business for the past two years and provides a due diligence guide for buyers.

17. Step 6- Due Diligence
Once a letter of intent has been presented to the vendor and he has been assured of your serious interest, you are now entitled to a closer
examination of the business’ minutiae, including:
• Examination of the lease — is the lease ‘assignable’? — meaning, does the current owner have the right to transfer the property’s lease to
you?
• Ensuring the business is unencumbered by debt.
• Organising professional inspections of all equipment including cookers, cold storage and electrical appliances along with, furniture, fittings,
electrical wiring and plumbing to ensure they are deemed safe and in good working order.
• If applicable, ensuring the liquor license is included in the sale. Check that it is transferrable through your state’s liquor control board.
• Determining which intellectual property will be included in the sale — business name, branding or trade secrets such as recipes.
• Have your lawyer analyse the profit and loss statements and review their findings under their professional guidance.
• Examine staff contracts and the ramifications of a change of proprietor.
• Research the reputation of the restaurant through platforms such as social media reviews.
• Through your lawyer or accountant, ascertain if there are outstanding debts including — tax, lease payments on the premises or equipment
associated with the business. Also any pending lawsuits or health code violations.

18. Step 7- Negotiating a Price
To this point, your intentions have been to assess the business’ prospect as a viable concern
and perform a valuation on the equipment and resources you would wish to include in the
deal.
Armed with this information and based on previous due diligence regarding assessment of
the value based on the local market, previous turnover and future forecasts, it is time to
make a formal offer. The offer should cover the specifics of the sale including all assets and
be carried out in conjunction with your lender. It is always prudent to make the offer subject
to finance.

19. Step 8- Contract to Purchase
When both parties have agreed on a purchase price, a contract to purchase will be drawn up. The
purchase and sale agreement is a formal legal document outlining your legal rights and
responsibilities, warranties, transactions and agreements which must take place before closing.
This is the time to include conditions regarding:
• Repair or replacement of non-functional furniture, fittings and equipment
• Disbursements and ownership of debts
• Final inspection prior to settlement
• Cooling off period
• Restraint of trade covenant — prevents the current owner from opening in immediate competition
to you
• Unforeseen changes occurring within the business prior to the transaction being completed
• Misrepresentation made by the vendor regarding inaccurate or false financial information

20. When both parties have agreed on a purchase price, a contract to purchase will be drawn up. The
purchase and sale agreement is a formal legal document outlining your legal rights and
responsibilities, warranties, transactions and agreements which must take place before closing.
This is the time to include conditions regarding:
• Repair or replacement of non-functional furniture, fittings and equipment
• Disbursements and ownership of debts
• Final inspection prior to settlement
• Cooling off period
• Restraint of trade covenant — prevents the current owner from opening in immediate competition
to you
• Unforeseen changes occurring within the business prior to the transaction being completed
• Misrepresentation made by the vendor regarding inaccurate or false financial information

21. Step 9- Make a Date
Once you have completed the processes above and when both parties are satisfied with the
conditions of the purchase, a date will be arranged to sign the contracts to complete the
sale.
A week prior to the settlement date, an inspection of the premises and equipment should
be carried out.
This inspection protects you from any loss or damage which may have occurred during the
settlement period. It is also a time to ensure repairs and maintenance have been carried out
as per the terms laid out in the Contract of Sale.

22. Step 10- Sign on the Dotted Line
On settlement day, once all parties have signed the contract, the business has now
transferred ownership to you. Congratulations! Time for that glass of champagne. Now the
hard work begins…

23. Professional Protection-
Calling in the Experts
There is a wealth of advantages in employing the services of a
professional, ideally with experience in laws regarding:
• Health and safety requirements
• Licences
• Permits
• Contracts including property leases or purchases
• Tax laws
• Planning restrictions
• Insurances

24. As with a lawyer, the expertise of a talented business
accountant is a necessity when starting up any
business. They can assist you from day one in your
business venture by:
• Performing due diligence with regards to vendors
accounts and financial records
• Setting up business accounts
• Navigating business tax laws
• Minimising business tax

25. Licences-
Navigating
the Maze
If you are planning to apply for a liquor licence for your premises you will
need to apply through your state government department. The paperwork
involved can be daunting and generally involves:
• Notice of application
• Applicant and premises details
• An application fee
• A ‘personal particulars’ form of each person involved in the application
• Submissions from a public interest assessment
• Plans, specifications and details of the proposed premises
• Certificate of local government
• Development approval certificate issued by the local government
• Certificate of title (of the property)
• Evidence of the applicant's exclusive right to occupy the premises
(tenure)
• Training certificates — mandatory training
• Harm minimisation including codes of conduct, house policies and
management plans

26. • There will be an ongoing licensing fee. To give
you an idea of the base fee plus any loadings, you
can use this calculator to estimate ongoing
charges for a licensed restaurant or establishment
in NSW.
• Local councils need to be approached regarding
other permits and licensing, and businesses also
need to meet standards outlined in the Australian
New Zealand Food Standards Code (FSANZ) and
Food Act 2003 (NSW). Restaurants must satisfy
the food and safety regulations.
• Frustratingly there is no uniformity in Australian
food service laws. Each state acts independently
so you will need to consider the laws relevant to
your state.

27. Design and Layout
Unlike your average domestic kitchen, a commercial kitchen requires fit
for purpose design which will be based around the specific type of
kitchen you require.
With the use of architectural software such as AutoCAD, a designer can
bring together a virtual modelling which will include:
• Thoughtful designs incorporating food, hygiene and health and
safety compliance
• Sanitation compliance
• OH&S compliance
• Mechanical ventilation systems
• Sustainable ergonomic design
• Building code compliance
• Designs to optimise workflow and productivity

28. The specific type and volume of cuisine you intend to deliver, storage
requirements (both dry food storage and cold), preparation
areas, cooking equipment plus plumbing and electrical placement all
need to be catered for in the design phase.
The multitude of considerations involved in creating a practical,
efficient and safe work area requires the expertise of an architect or
specialist kitchen design company. They will be able to make the best
use of your space to create a flow in high traffic areas as well as
include:
• Industrial ventilation systems (including H-VAC and range hood)
• Commercial refrigeration
• Building code compliance
• Compliant electrical, gas, plumbing and sewage implementation

29. Equipment Matters-
Products and Performance
Commercial grade restaurant equipment is a must for any
food service venture. The essential base equipment required is:
• Stainless steel benches
• Sinks
• Dishwashing Facilities
• Dishwashing Machines
• Cooktops
• Oven Ranges
• Range Hoods
• Refrigeration

30. Depending on your cuisine, other equipment such as deep
fryers, pizza ovens, blenders, food preperation
equipment and coffee machines, will need to be included in
your shopping list and catered for during the design phase.
Higher quality, commercial kitchen equipment is specially
designed for purpose and manufactured to:
• Higher industrial standards using a thicker gauge metal and
reinforced welded components
• Withstand high volume use
• Have the capability to be ‘banked’ with other equipment
such as commercial cookers, ovens and deep fryers

31. Utensils
As with your large commercial equipment, utensils need to be a quality, heavy duty investment.
From kitchen scissors and tongs to commercial sized pots and pans, woks, steamers, baking trays
and oven to table cookware — the list is diverse and substantial.
Your chefs will know exactly what knives to buy for their kitchen. As well as each chef's preference
for knives, colour coded knives are an ideal way to avoid cross contamination, whether at a deli
counter or in the heart of your commercial kitchen.
Catering supplies need to be fit for purpose, induction compatible and designed to withstand
excessive heat and high volume usage.
Article: Some of your customers will have food allergies, intolerances and their own dietary
preferences, so it's important to read up on all of the different requirements your customers could
have. Check out our Restaurant's Guide to Dietary Preferences for everything you need to know.

32. Staff
Your staff can be the difference between return custom
and a one star rating on Yelp. Professional, courteous and
knowledgeable wait-staff helps make your customers’
experience the best it can be. So it’s important to hire the
right people.
Ready-made, trained staff can be sourced through
hospitality agencies or alternatively, you can source and
train your own staff. Staff will require food handling
certificates and, if you intend to serve alcohol on the
premises, they will require Responsible Service of Alcohol
(RSA) certification.
Obviously, an exceptional chef will be the star player on
your team and can have patrons queuing up to sample
their creations. Sourcing this vital component to your
success can be tricky, time consuming and costly but
ultimately rewarding.

33. The Magic of
Marketing
You may have lured the greatest, most acclaimed
chef in the world to your kitchen, secured the
ultimate desirable address and have a retinue of
immaculate wait-staff ready to cater to your client's
every whim. The trouble is, if nobody knows you
exist, you might as well be serving lukewarm dim
sums out the back of your station wagon.
There is no better recommendation than word of
mouth and this is where the advantages of digital
marketing gives you a sustainable, competitive
edge.

34. Online content can connect and align
your business with your customers
using multi-faceted platforms,
including:
• SEO (Search Engine Optimisation) —
can put you in the front row of
search engine results. Considering
over 90% of searchers don’t go past
page one of search results and 50%
of them don’t go past the first three
results on page one, your business is
basically invisible without the
implementation of SEO. Involving an
experienced digital marketing
specialist or agency who has
quantified, proven results can be a
winning combination.
• An interactive, well designed
website should reflect your business
brand. Not only would it contain
staples like menu details, opening
hours and contact information, it
can also incorporate the capability
to take bookings.
• Interactive apps which encourage
diners by streamlining their
connection to you.
• The big social media players —
Instagram, Facebook, and Twitter.
These furnish customers with real
time ability to create a ‘buzz’ around
your business through user
generated content, feedback and
testimonials.
• Social media also assists with
branding and promotes customer
loyalty and alignment.
Article: Check out our complete guide
to marketing your restaurant.

35. • In today’s world of multi-platform technology, where Gen Y are
able to react and review businesses in real time, having a digital
marketing campaign in place can increase your business traffic
manifold. With almost 90% of business reporting that social
media has generated more exposure for their business, it makes
perfect sense to incorporate it into your marketing campaign.
• Sites such as Trip Advisor and Yelp are increasingly being utilised
by those seeking highly ranked eating establishments and can
draw visitors from not only your local neighbourhood but also
from around the world, wishing to experience local colour and
cuisine. You don’t have to be a five star restaurant to become a
sought after destination for travellers.

36. A Word About Passion
• Entering into the realm of the food industry can’t be done on a whim. The outlay both
financially and emotionally are immense. The hours are long and the demands on your
life can be 24/7 and dominate your time to the exclusion of family, friends and a social
life.
• To those who have the calling, it can be the most rewarding experience of their lives.
• Positioning your business to optimise it for success requires thoughtful planning and
research backed up by reliable professional acumen. The good news is, if you get this
preparation period perfected, you can enhance your prospect of success immeasurably.
• The ingredients are there, the tools are at your disposal, all they need now is you to bring
them together to create a masterpiece of culinary cuisine which will delight and attract
custom both locally and from around the world.