What should I ask the owner of a restaurant when considering purchasing the place?

Question

I am looking at buying a small cafe and I am trying to think about what questions I should ask the owner. What are the hidden costs in a restaurant, that a newbie may not think to ask? I have list of questions, but would love suggestion to make sure I am on the right track and have not overlooked anything.

Answer 1

You would want him to give you his past 3-5 years operating statements. That means his income statement and tax bills. If you don't know how to interpret them, find someone who does. Go to an accountant and ask them what kind of income they usually see in businesses such as that. Ask him what vendors he uses and talk to the vendors about pricing and things like that. That will get you on pretty solid ground as far as finances go.
Then you'll want to get into things like why he's selling the place. Go around to the other businesses and ask them if they've noticed any trends (i.e. increased/decreased traffic) and if they know of any negative things that may be happening in the future (code changes, construction in the area, etc.) Ask him to take you on a tour of the place too, and show you how things are run currently. Maybe you can spot problems as he takes you around.
Try and see how old equipment/furniture is in the shop. If some of it will need repair or replacement in the near future, obviously that will detract from what you're willing to pay. Also, get a copy of the lease agreement (if they have one) and make sure its terms are in line with what you want to do with the business. If you plan on keeping things as they are, then this isn't such a big deal; but if you want to take things in a new direction, there may be restrictions set forth in the lease agreement that prevent you from doing certain things. If they own the building, you may want to get it inspected.
Last, but not least, talk to the customers that go to the store and the employees (if they're aware the business is being sold). Ask them what they think about the store and why they go/work there. Ask them what their least favorite part of the store is (maybe it's something you can change).
Do all of that, and you should be in pretty good shape. WRITE EVERYTHING DOWN! There's no way you're going to remember it all. Good luck!!

Answer 2

Well, I would not go into this blind if I were you. I would get a lawyer to help with the transaction. There is a saying in the lawyer world, better to pay a little now than everything latter on. Meaning, it is better to hire a lawyer and spend a little bit of money rather than have something go wrong and cost you a fortune.

I know of one thing to check on. Make sure the tax bill is current on the place. I have heard of people buying businesses and then later learning that the property tax and other taxes had not been paid. They had to pay them because the business was seen as an entity that owed taxes and it did not matter who the owner of the business was.

Answer 3

I would strongly recommend that you talk to a business counselor before you do anything especially spend money. I'd call the local office of SCORE (go to http://www.score.org and input your zip code to find the chapter nearest you), the advice is FREE.

The counselor at SCORE will most likely advise you to write a business plan which is very good advice because it will force you to dig out all of the details and the costs of buying a restaurant and force you to also understand all of the aspects of this business including the customers you'll concentrate on (your market ) and how you'll go after them.

You'll need to check with with your state controller's office about licenses and make sure that you have any city and county licenses if any are needed where you live. All of this will come out in a business plan.

Try this link :
http://www.ychange.com/small-business-consulting-articles.html and read some of the articles especially the ones about a business plan and starting a business.
Good Luck