“It’s hard work and it’s not as easy as I thought it would be” is often the answer I get to “why are you selling your restaurant”. Many restaurant patrons buy for investment purposes, without having done their homework properly. consequently, many new restaurants fail and sell out in their first year, often losing money.

For anyone thinking about entering the restaurant market, it’s important to understand that owning a leased restaurant can be like owning a second-hand car. Replacing the engine of a car valued at £2,000 does not increase the value above £2,000. Similarly, spending £250,000 to redevelop a restaurant does not necessarily increase the value by the same amount. However, and I’m sure you’ll be pleased to know that owning a successful restaurant can provide you with a steady income, which with the help of a good accountant can provide you with a “comfortable” life. The secret is to know your market and be prepared to sacrifice family life to work long, unsociable hours!

So now that you’ve read the public health advisory, owning a restaurant is not for the faint of heart. Here are some helpful tips to help you secure the right place at the best price, and hopefully allow you to approach your restaurant purchase with more confidence, while being aware of some of the pitfalls and pitfalls.

The first step to a successful purchase is the business plan, and as a Chartered Surveyor I’m probably not the best person to advise on preparing a plan, however, having read my fee share, it’s imperative that you have answers to the questions questions. next questions;

• Why do you want to buy a restaurant?
• What will be your unique selling point?
• Who will be your target market?
• How do you expect to achieve your target sales?

Once you have established your business model and plan, the next step is to assess your accommodation requirements, and accordingly, issues such as: number of place settings, kitchen/storage space, foot traffic, parking, line of kitchen, staff accommodation, etc. .

With leased properties, it cannot be assumed that you will be able to modify the premises to suit your purposes, as the consent of the owners may be required. As with older listed buildings, planning restrictions may prohibit alterations.

Financing will be essential for any purchase, as well as for starting your business. It would be advisable to approach your bank or lender, to explain your business plan. A letter from your lender providing, in principle, proof of financing will demonstrate your seriousness in making an offer on a property and help expedite the purchase process, particularly in obtaining the consent of the owners, required for the assignment of the lease. lease.

Finding the right site is the next step and is probably the most important part of the process, and as with all properties, “location, location, location” will be the dominant factor affecting value now and when you sell. Never compromise on location, because while a secondary location to your business model may secure cheaper rent, your sales forecast and your restaurant’s potential are unlikely to be fully realized.

Finding the site can be accomplished through a number of means. First, you can register your interest with licensed appraiser firms that specialize in restaurant sales, either locally or nationally, or even by appointing a specialty firm to help you find your site; the latter may result in you paying a fee, but usually the agent locates the site successfully. Alternatively, you may consider a direct approach to an existing restorer, however such approaches rarely result in a sale unless you are willing to pay “above the odds” to entice the owner to sell.

Once you’ve found your site, do your homework, understand, and visit the current and future competition. Check if there are any new applications sent to the local authority for new restaurants. Understand how the flow of traffic (automobiles and pedestrians) works and if modifications are proposed. Investigate future developments regarding; roads, pedestrianization, car parks, etc., which can alter the attractiveness of the place for your customers.

Once you’ve done your homework, you need to understand what you’re buying. When you buy a restaurant for lease, you are buying: the lease on the property, the fixtures and fittings, and the goodwill of the business; stock will normally be purchased additionally upon completion. At this stage you have not needed to seek outside advice and if you have a basic understanding of general terms, hiring specialists can be postponed until you have a better understanding of the restaurant for sale and if the price being sought by the seller is affordable to you.

When an agent has been appointed to handle the sale, a formal inspection should be allowed and this is the opportunity to see behind the scenes and inside areas. While a budding restorer when inspecting the facility will tend to focus on operational issues, don’t forget that a quick look at cracks in the walls, or shared access rights, or ripping sticking out of neighboring property, or not secondary means of exhaust, it can alert you to potential trouble ahead.

Similarly, where a property is openly marketed, account and lease details may also be available, and although the accounts (audited or management) do not always give the full picture of the existing business, they can reveal key expenses that they can be incorporated. in your business model. The sales level can also provide useful support for your own business sales projection; however, at this stage it may be appropriate to seek the help of an accountant for a better interpretation of the figures.

While you are not expected to understand the lease and associated documents, useful information such as the length of the lease (not expired), lease approval, frequency of lease reviews, permitted usage, and associated documents should be available. whether the lease is protected (renewable). of the selling agent. Typically, restaurant owners look for leases with 5+ years that are renewable at the end of the term, i.e. “Landlord-Tenant Act Insider”. Rent reviews will also normally be every 4-5 years. The date of the next review will be important as it will affect cash flow, if the rent is to increase significantly and consequently valuation advice should be sought, if progress is to be made further.

Now to the price. The purchase price or “premium” of a leased restaurant will ultimately depend on how much the business of the premises is worth to you and, as a general rule, will be a multiple of the “adjusted net profit” (after rent but before depreciation, interest and taxes).

The premium will be made up of a combination of factors (below), but in essence it is “key money” to allow you to trade from the premises. Although a value can be assigned to a business’s fixtures and fittings, the purchase price contribution is often arbitrary.

• The opportunity cost of being able to trade from the premises with the benefit of building permission and licensing
• The fixtures and fittings that will be of value if they are to be reused
• Goodwill of existing business
• Benefit rent, that is, the difference between the passing rent and the market rent, until the next rent review.

Now is the time to negotiate the price with the seller. At this point, you can seek valuation advice. Your lender will require an appraisal by an independent, licensed appraisal firm, but ultimately the value of the lease and contents will be the true value to you as a restorer. The guide price quoted by the listing agent is exactly what it says, a guide and whether the value of the restaurant exceeds or falls short of the guide will depend on timing, interest from other parties and whether the agent has marketed the property to potential prospects. buyers. This is where your negotiating skills come into play and again it might be worth your while to use the services of the surveyor to help you negotiate. The “best price” is not always the highest value, but factors such as the ability to proceed quickly, proof of financing, a valid business plan, the ability to finance up to a 6 month rental deposit, will add weight to your offer.

Once the terms are agreed, subject to the contract, it will be convenient to instruct a lawyer. You may also want to instruct a building surveyor to help you with projected renovation and repair costs. Your choice of consultants is critical to the speed with which you can make the purchase, and unsurprisingly, appointing professionals to talk to restaurant sales will be critical to a successful purchase. Dealing with the purchase of a leasing business is extremely different from dealing with the purchase of a residential property, and involves matters such as personnel, which will be transferred to the buyer and, therefore, issues such as employment contracts, vacations, pensions will arise. , trunks, etc. . In the same way, the granting of licenses, the goodwill, the day to day of business, the latter that implies; Reservations, contractual agreements, promotions, suppliers, etc. will need to be addressed.

Once you’re on your way to buying your restaurant, their team of professionals should be able to guide you through the legal process. Only if something “unforeseen and unusual” comes up during the “due diligence process” should a price renegotiation occur.