Many business owners once dreamed of owning their own restaurant. And if you too are passionate about food then maybe it’s time to stop dreaming and start seriously considering buying a restaurant business.
But, how do you go about turning a dream into a feasible reality? We’re here to help.
The UK population is due to spend £54.7 billion on eating out by the end of 2017 which equates to 11.5 billion restaurant visits. It is, therefore, a beast of an industry.
However, running a restaurant is a serious commitment and it requires an owner who thrives on hard work and has a genuine passion for food.
As with any business, if you’re committed to succeeding you can find your way. But beginning with a
Step 1: Write a business plan
It is essential to always draft a high-quality business plan for any restaurant purchase. It should
outline the following:
- What is your USP (unique selling point)?
Look at competitors and general trends in the food industry, and see where your business can fit.
Is it an improvement of an existing idea, or is it something unique that’s not yet been seen before? Why will guests want to visit your restaurant?
- Who is your target customer base?
Who do you expect will want to come to your restaurant? What is the demographic?
- What are your fixed (rent) and variable (overheads) costs?
Consider all of your fixed and non-variable costs so you have a base understanding of how much it will cost to run your restaurant. What are the other costs you need to consider? Will food cost vary?
- Forecast your sales targets (such as average customer spend) and determine how you will meet these. What will be your profit margin?
When it comes to profit margin, it's best to be realistic. There are stories of restaurants making a 20% margin, however for the last ten years the consensus among the restaurant community is that businesses make on average between 5-8% profit.
Some restaurants don't make any real profit but their owners fund wages and raise goodwill in the business, perhaps for the love of the job or for a subsequent sale.
- Work out how long it will take you to break-even by determining your monthly profit and loss, and your cash flow
Take into account high additional costs such as refitting and updating the restaurant. Updating the decor will sometimes be necessary, even with a successful restaurant, but it won't always increase the value of the business by an equivalent amount.
- Draft a marketing plan
How will your guests find out about your restaurant? How will you generate good word-of-mouth?
Step 3: Find funding
Once you have found a few possible properties in mind, if you don't have the entire purchase price in your bank, then you'll need to approach a bank or funder with your business plan so as to ask for additional funding.
If you can then secure funding and obtain a proof of funding document - you will speed up the purchase process with sellers and landlords when you come to buy.
Step 4: Due diligence
When you have found a restaurant that ticks most of the boxes and you are sure you want to buy/invest, you'll need to carry out a detailed investigation to ensure that it really does meets yours and your funder's requirements and expectations. Check the following:
- Find out what insurance they have
- Discover their current business rates (this can also be obtained from your local council)
- Inspect the vicinity of the restaurant and get a good understanding of entrances and exits, fire escapes, rubbish disposal and research the existing relationships with nearby businesses and residences
- Ask for either audited or management accounts which will show current key overheads and sales figures (you may want to use an accountant for this)
- If the property is leasehold ask to inspect the lease, look at its length, and try to secure a lease with at least five years left on it. Also, look at when the rent reviews are, as this may impact on the cost of the business
Step 5: Negotiate a price
First you’ll need to get your own valuation of the restaurant business or property, either by scanning market prices yourself and coming to a considered estimate, or by engaging a professional. Once you have a figure in mind consider the findings from your research that may help you negotiate the purchase price.
Also, consider the timing of your offer. Are you getting your offer in ahead of any other interest, or after previous interest has disappeared, or died down?
Do make your first offer realistic, and as attractive as possible, as this will ignite their interest and secure a deal as quickly as possible.
Aid your offer by showing your strong business plan and proof of funding. Make sure you have funds available for any upfront charges.
Step 6: Finalise the Deal
Always engage an experienced and recommended solicitor to finalise your deal. You may also want to consider approaching building contractors if you want to make any refit changes.
It’s worth considering that there will be additional costs associated with buying a restaurant which will likely include:
- Any lease and professional fees
- Any refit costs
- Staff uniforms if making changes
- Furniture, crockery glassware and decor (consider second-hand or loaned)
- Marketing costs for any relaunch
- Food stock if this has not been purchased as part of the deal
- Working capital for your first month
Is there another way?
There is an alternative to buying a restaurant business, which is buying a restaurant franchise. This could be a better option for some as it gives you a business almost instantly, together with ongoing support, and the benefits of trading with an established brand name.