Found a Restaurant business I'd like to buy

Discussion in 'General Business Forum' started by Jwan, Jun 9, 2017.

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  1. Jwan

    Jwan UKBF Regular Full Member

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    Hello all

    So from my previous post, you know that I'm interested in opening a restaurant. And one piece of advice was buying a restaurant business that is already established, this way, we avoid all the planning permissions headaches, and save money on the kitchen equipment ..etc

    Well we have now found such a place. We're going tomorrow for a meal. What things should I be careful of? What should I be on the lookout for?

    I will ask to see the turnover and net profit accounts when things go a bit further ahead. I was wondering, is it OK to ask the owner to shadow / be there for a week to see how good the business really is?

    Any tips / advice would be greatly appreciated
     
    Posted: Jun 9, 2017 By: Jwan Member since: Nov 2, 2015
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  2. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

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    Definitely not.

    I bought a going concern restaurant some thirty years ago and spent some time dining there and also outside watching what was going on before I approached the owners.

    You need to know how it operates as per normal and not when they are putting on a show for you
     
    Posted: Jun 9, 2017 By: Ian J Member since: Nov 6, 2004
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  3. Clinton

    Clinton UKBF Big Shot Full Member

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    You should be careful of assuming you know the first thing about buying a business ;)

    Play it smart by getting professional advice and paying for proper expert assistance...right from the start!
     
    Posted: Jun 9, 2017 By: Clinton Member since: Jan 17, 2010
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  4. Jwan

    Jwan UKBF Regular Full Member

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    I thought not, but not because of the "putting a show for me" aspect. The restaurant at the moment does not match our concept / vision, so we plan on changing the decor, the menu, the name ..etc. Also ours will be a family business, so our family will be our staff.

    @Clinton, who do you go to for such advice? Is it Restaurant Consultants?
     
    Posted: Jun 9, 2017 By: Jwan Member since: Nov 2, 2015
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  5. Clinton

    Clinton UKBF Big Shot Full Member

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    These are good questions. Unfortunately, I don't have any easy answers.

    I maintain the UK's largest knowledge base of business brokers - I have data on all the main players, their sector expertise, fees, fee structures, geographical coverage, languages spoken, FCA regulation status, in-house talent on valuation / accounting (forensic, corporate finance and restructuring, whatever) / languages spoken ... and much more.

    But all that provides a useful guide only for businesses in the lower mid-market and mid-market, not Main Street businesses (which tend to have t/o of considerably less than £5m).

    In fact, in the sub £1m market there are a lot of fly-by-night players. And almost none of them have experience actually buying a business!

    But there are solicitor firms and others who have advised in a lot of such acquisitions of small, food businesses.

    I could come up with some suggestions for you ie. tell you where to start looking, and how. But I'd need some information. For the type of businesses that normally come to me location is not a problem - the investment banks, PE firms, corporate finance boutiques and M&A advisory houses that serve these clients tend to be pan UK in their coverage. However, in your case location is probably material. So I'd need to know at least the county / town. Also, I'd need to know the approx turnover of the business, the net profit in the accounts (an unreliable as that number is), the number of covers, and whether it has an alcohol licence. You could send that to me privately if you want.

    Just to be clear - I'm helping you with no expectations of any payment ...so I'll do it when I can spare a few minutes.

    Oh, one more thing, if you're ditching the concept and starting from scratch ... you basically have no interest in their turnover, profit etc., do you? It's basically like starting a new business i.e. you're back to square one! Saving a few quid on kitchen equipment is a lot smaller a deal than having a regular flow of well paying customers!
     
    Last edited: Jun 9, 2017
    Posted: Jun 9, 2017 By: Clinton Member since: Jan 17, 2010
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  6. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

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    OK so your first move is not to leave well alone until you know what you are doing, but to change everything from Name to decor and menu

    Do you really think this makes sence, whats the use of accounts when everything has changed and all new marketing starts from a cold start

    Do you have a chef in mind for this new project at least they will have a very slightly bit more knowledge than you, to give it the once over

    Did you not have a uncle in the business if so make it up and use his advice which will be the cheapest good advice you will ever get
     
    Posted: Jun 9, 2017 By: Chris Ashdown Member since: Dec 7, 2003
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  7. wevet

    wevet UKBF Enthusiast Free Member

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    I agree with Chris: you might be paying for goodwill but, if you make a total change to the theme/pricing/menus then the goodwill is pretty much written off and you need to hope that your offering will appeal to old customers and also attract new ones.

    If the restaurant is popular now should you risk changing it.

    If the establishment is quiet look at the reasons: change in footfall; a reputation for food poisoning. A difficult location will remain a difficult location no matter what you do. So, spend a few weeks on differing days looking at what activity there is on or in the place.

    Even the highest profile operators such as Ramsay and Oliver are closing establishments and consolidating.

    Good luck!
     
    Posted: Jun 9, 2017 By: wevet Member since: Mar 7, 2008
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  8. The Byre

    The Byre UKBF Ace Free Member

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    Questions that you must answer, when buying ANY business -

    1. Why are they selling? Now tell me why they are REALLY selling! Nobody sells a business that is making a healthy profit and is a real business, unless they expect problems or are desperate for money, or maybe about to die! What's their reason?

    2. If you are buying the business with others, have you drawn up a WRITTEN contract that sets out the relationship between all those investing in this turkey? Do all of you understand the implications of such things as partnerships and Ltd companies? Above all, does that agreement set out how one or more can exit that agreement?

    3. Is there enough money in the pot to revamp this turkey and make it profitable? It can take a year or two, so don't turn it around, only to run out of money!

    4. Is there enough money in the pot for marketing this business, once we have got it back up and running? Movie budgets are 50% marketing. HiFi systems are 30% marketing. Cars cost as much to market, as they cost to build. Is that pot large enough?

    5. What TUPE issues are we going to face with existing staff? Even if you are buying the assets only and not the company itself, you or the existing owner will have to either make the staff redundant, or take them on if the place stays in business in one form or another.

    6. Are you buying a job, a dream, an 'opportunity' or is this a real business? Dreams and so-called 'opportunities' are not worth anything, but jobs are worth a bit and businesses are worth something. If a business requires you to work there full-time and you get to keep just £20k gross profit, it ain't a business - it's a job that just pays £20k gross.

    7. What problems are coming down the pipeline? Is that industry about to undergo some major disruption? Will zoning and-or planning laws mean you have to shut down or move? Are there constant battles with neighbours about noise, smells, or other issues? Do the drains back-up when it rains? Is a giant supermarket going to be built next year that will kill the High Street? Will a bypass road kill off all the tourist traffic? Has planning permission been granted for a factory a mile away making Limburger cheese?

    8. Have you actually worked out what this turkey is really worth? One very simplistic rule of thumb is to say that a business is worth roughly four times gross profit, plus assets. Now work it out - value of restaurant fittings, say £50k, owner claims £50k p.a. profit, so he/she claims it whole thing is worth £250k. But if he and his wife work there and the equipment and fittings are five years old, it's worth maybe one-tenth of that figure - just £25k for the old equipment and fittings. The £50k is not profit, but wages for the working owners. Never confuse a dividend on an investment, with wages!

    9. Are you just working to pay the landlord's mortgage? For a bricks and mortar business, it is nearly always better to buy the place freehold, if you can. That puts you on the right side of the desk in the property game.

    10. Have you read EVERY word in every contract that you are being asked to sign? Do you understand every part of every contract and do you agree with every part of every contract? You would be amazed how many times I get told that somebody has signed something and failed to read and understand what it was that they were signing! That sort of numpty call for help by someone who "didn't read the small-print" gets asked on this very forum on an almost daily basis!

    So you see, that was just ten things that popped into my mind. There will be other issues - there always are other issues! That's why it is so important to have someone with you that can hold your hand as you negotiate the mine-field of buying a business!

    Oh, and good luck BTW!
     
    Posted: Jun 9, 2017 By: The Byre Member since: Aug 13, 2013
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  9. Clinton

    Clinton UKBF Big Shot Full Member

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    Great post and good questions, but ...

    Yes, they do.

    People sell for all kinds of reasons. Sometimes it's because they've fallen out with the other directors. Sometimes it's health. And with several clients I've assisted recently it's been retirement ... usually after running the business for 20 or 30 years.

    There are often other good reasons - tax planning being one of them. And that's just the deals involving sale of 100% of the business. In private equity and other deals, where only a portion of the business is being sold, it's to attract investor partners who can accelerate growth.

    There are a lot of good reasons why people sell businesses. It's not the case that "nobody sells a business that is making a healthy profit".
     
    Posted: Jun 9, 2017 By: Clinton Member since: Jan 17, 2010
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  10. The Byre

    The Byre UKBF Ace Free Member

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    Considering that I sold a business that was indeed making a profit, I am beginning to wonder why I wrote that! However, I think what I was trying to get over to the OP was that a fair old whack of scepticism is required.

    But when I sold my company, I realised that the dot-com boom was coming to an end, but there were many, many people in The City and elsewhere who honestly believed that the party would never end. That is the kind of thing I wanted to get over to the OP - maybe the owner has realised that the industry is facing a great change or disruption that could kill the business!

    I even (within that company) oversaw market research papers on several markets, such as broadcast equipment, software, mobile phones and other techy stuff, that predicted (insofar as one can predict anything!) the end of the dot-com boom and indirectly, the demise of my company.

    You may remember that there was a sort of hysteria over tech around the year 1998-9 and anything on-line and funky was seen as 'The Future'. I am eternally grateful to those days and it gave me the ability to retire at the grand old age of 50 and fight for the revolution!
     
    Posted: Jun 9, 2017 By: The Byre Member since: Aug 13, 2013
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  11. Jwan

    Jwan UKBF Regular Full Member

    149 3
    Thanks guys, some solid advice here. According to trip advisor reviews, the food is mixed between "awesome" and "very average".

    I'm going today to have a look around the place. The owner will be taking me around the establishment.
     
    Posted: Jun 10, 2017 By: Jwan Member since: Nov 2, 2015
    #11
  12. ethical PR

    ethical PR UKBF Legend Free Member

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    Are you buying a business or just taking a lease?
     
    Posted: Jun 10, 2017 By: ethical PR Member since: Apr 19, 2009
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  13. Jwan

    Jwan UKBF Regular Full Member

    149 3
    @ethical PR I'm not sure, we saw the place today. The decor doesn't suit the concept we have in mind, neither does the name. So we'll have to change the name and paint the place and add decorations inline with our concept.

    But the chairs, the kitchen, the tables, the bar are all good and we're happy with those. Rent is £2500 and the business rate is £900.

    He wants £59000. What are your thoughts?
     
    Posted: Jun 10, 2017 By: Jwan Member since: Nov 2, 2015
    #13
  14. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

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    How busy was it last night?

    If your concept is much different to the existing restaurant you stand the chance of losing all of the existing regulars which means that any of the £59,000 asking price that doesn't equate to fixed assets is wasted and you may be better off looking at empty restaurant premises where there won't be such a premium
     
    Posted: Jun 11, 2017 By: Ian J Member since: Nov 6, 2004
    #14
  15. ethical PR

    ethical PR UKBF Legend Free Member

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    I agree if you are coming up with a different concept, you would be much better looking for an empty premises.
     
    Posted: Jun 11, 2017 By: ethical PR Member since: Apr 19, 2009
    #15
  16. Jwan

    Jwan UKBF Regular Full Member

    149 3
    Get an empty place, getting planning permissions for that place, and installing a new kitchen, with tables, chairs, pub equipment, plastering ... etc ...etc will cost a lot more than £59K no?
     
    Posted: Jun 11, 2017 By: Jwan Member since: Nov 2, 2015
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  17. The Byre

    The Byre UKBF Ace Free Member

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    There are hundreds of small (eight rooms or fewer) hotels up and down Britain, standing empty and going begging. One near us sold (freehold) for under £200k and had a fully kitted out kitchen, two bars, eight guest rooms, an owners flat, parking for c.a. 20 cars, two bars, one 50 sq m conference/event room and a full kitted out 50-cover restaurant.
     
    Posted: Jun 11, 2017 By: The Byre Member since: Aug 13, 2013
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  18. ethical PR

    ethical PR UKBF Legend Free Member

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    Empty premises which has previously been a restaurant and is still kitted out. You don't need to buy a going concern unless you want to take over an existing business.
     
    Posted: Jun 11, 2017 By: ethical PR Member since: Apr 19, 2009
    #18
  19. Mike_Cartwright

    Mike_Cartwright UKBF Regular Free Member

    155 16
    Hi, Jwan.

    @ethicalPR does make a great point. I think it's smart to scout for other places that has the things that you're looking for. Since you're going to change a lot of the interior, it's more practical to look for an empty place with a fitted kitchen. I'm just not entirely sure where that is, but there should be one. :)
     
    Posted: Jun 12, 2017 By: Mike_Cartwright Member since: May 7, 2017
    #19
  20. Jwan

    Jwan UKBF Regular Full Member

    149 3
    I asked for the accounts, and I was given this. I've taken off the name of the place. But couldn't this be typed in Word? Indeed, it looks like someone has just typed that in Word!

    I am new to all this, but I was expecting something different, something from the HMRC or an accountant ...etc
     
    Posted: Jun 13, 2017 By: Jwan Member since: Nov 2, 2015
    #20
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