With the restaurant industry’s steady growth throughout the UK over the last several years, buying an existing restaurant may be a good option for many who would like to own their own business.
After a decline in 2009, the number of restaurants in the UK has been steadily increasing, according to industry statistics research firm Statista. In 2016, 83,635 businesses operated in the restaurant and mobile food service industry throughout the UK. As of 2018, the restaurant industry accounted for £21 billion in revenue, and annual growth is expected to be at around 3.2% through 2019, according to IBISWorld, a provider of independent industry research.
There are several aspects important to the due diligence process of buying an existing restaurant that makes the purchase different than buying any other type of business:
- Inspections – Restaurants can be inspected by their local council at any point in the food production and distribution process and owners are not usually told when an inspection will occur. The inspection can include a review of the premises, food, records, and procedures, plus food samples can be taken as well as photographed. Inspectors are required to follow the Food Law Code of Practice. Check with the restaurant’s local council to find out if it has had a Hygiene Improvement Notice and/or a Hygiene Emergency Prohibition Notice which bans the restaurant from using certain equipment or following certain processes.
- Liquor Licensing – If your prospective acquisition serves alcoholic beverages, make sure the restaurant’s liquor license is current and not under any threat of being discontinued.
- Reputation – In the restaurant business, reputation is everything and word of mouth travels fast. Conduct your own online search using search engines like Google and Bing and using keywords like “reviews” in addition to the restaurant’s name to see what guests and employees have been saying about the business.
- Lease Transferability – If the property is leased rather than owned, be certain that the lease for the restaurant is current and that it is possible for it to be transferred to a new owner for similar or better terms.
- Kitchen Equipment Condition – Check all kitchen equipment to confirm that it is in working order and that the restaurant is approved by the local council to use the equipment it is using – and for the purpose it is being used for.
- Buy a Franchise Restaurant – Franchise restaurants have built-in demand due to their reputation and name recognition. Like purchasing any business, they require a high initial investment but you will have a strong network of support and a proven track record.
In addition to these considerations, you will also need to address the issues that are part of the process of buying any business:
- Qualifying the Restaurant – Know its size, number of employees, owner, how long it’s been operating, what is the competitive landscape, why the owner is selling, how long it has been for sale, and its place in the local market.
- Signing a Memorandum of Sale – Once you decide you would seriously consider buying the restaurant and would like to negotiate a purchase price pending due diligence, you will need to sign a Memorandum of Sale. It’s not a legal document, but rather a non-binding agreement for the seller and buyer to enter into negotiations. It will typically specify whether the purchase is of stock or assets, the timetable and method of payment or payments, and all other major deal points.
- Due Diligence – This is the time to review all of the restaurant’s financial and sales information. This includes customer lists, tax filings, property ownership and leases, trademarks and patents, loan documents, accounts receivable, accounts payable, employee benefits, employee salary information, employee agreements, and supplier agreements and information.
- Contract – This is a legal document of purchase that essentially solidifies the information in the Memorandum of Sale and is the final agreement between buyer and seller.
- Closing the Sale – This involves the signing of the contract and when the seller should turn over all of the business’s documentation to the buyer.
- Preparing to Run the Restaurant – By the time you have finished with the Due Diligence process and a purchase appears imminent, you should be preparing a plan of how you will run your restaurant. This will include meeting with employees and suppliers and mapping out a step-by-step process to keep it running profitably while you gain an understanding of all the ins and outs.
Transworld Business Advisors is the business broker that can help you every step of the way as you explore buying an existing restaurant business. We have a large arsenal of listings for restaurants for sale you may want to review. We have been successfully specializing in the buying and selling of businesses and commercial real estate for more than 35 years. Contact us and let’s talk about how we can help you achieve your business goals.