how to start - buy - sell - fix & flip

a restaurant bar or club. how to start a restaurant or turn around a food beverage service business


Are you still looking at one restaurant opportunity after another?

Restaurant, beverage and food service businesses are one of the easiest businesses to make a lot of money in. Or, to feed your ego. Those are the two most common reasons people go into the food/beverage business.

This also makes restaurants and lounges one of the easiest businesses to buy. Build up sales. Flip them for a profit. Or reap the rewards.

If you do not know what you are doing, you will lose everything you have and everything you have borrowed. Don't take my word for it, check out the local ads in your Sunday paper. The REALTOR MLS book or the list of available businesses from a local business brokers office.

I have met more well-to-do people from the restaurant business than any other type of business there is. From a guy in Fort Lauderdale, FL who was a multi-millionaire before he was 30 to an immigrant from Italy with three 'ho-hum' pizza parlors to a gentleman in Boston who builds clubs where others have failed. One of the early Outback Steakhouse chains was in Sarasota, FL where I had watched six restaurants come and go in less than three years time. Incidentally, the 'ho-hum' pizza parlor owner lived in a ho-hum house across from the ocean. He wasn't on oceanfront property but across the street. Once you walked into the ho-hum house your mouth dropped as the entry way was 30-40 feet high done in imported tile, marble and fountains...

A failed restaurant spells special opportunity. The landlord wants a tenant and will usually cut a deal. You may get 1-6 months free rent ( I have seen as much as 24 months free rent for a huge nightclub that brought traffic to the area...) Also the landlord owns the equipment you need to set up. Chances are it will be included in the rent or will be a purchase option later. For someone just starting out, with little money and no backing it may be a dream come true. You may get in for first, last and security deposits or the landlord may want $15-100,000 depending on the value of the assets. It is worth your while to hire/pay a broker to find a situation like this. By the time you have seen it in the paper, the brokers have ran it by professional buy/flip dealers or exposed it to a motivated buyer just waiting.

The brokers don't do this for a hobby nor is it a public service as so many think. Brokers do this for a living. It's a career and they will work for who ever is paying their fee. If the landlord is not paying a broker fee, there are buyers and franchises that will. I have had landlords call me when a tenant was in trouble and let me know the spot would be available shortly. If a buyer has paid me an up front fee or finders fee, he may walk in and be open for business before anyone knew what was going on. On the other hand, there are equipment dealers who know how to dismantle an entire restaurant in three hours. The seller usually arranges this from 2-5 AM. So if you can cut a good deal, don't wait too long...

Pay special attention to your lease and zoning. In some areas once a business has been closed for 24 hours it needs to be brought up to today's building and zoning codes. This may include plumbing, electric, hood fan, handicap restrooms, grease traps and separators, wheelchair access, air filtration, designated non-smoking area, air filtration before it can be released outside, sprinklers, halon, signage or the removal of, fire exits, upgraded kitchen equipment and more. Now you can get an idea why some will pay so much for a failing ongoing restaurant...

Next, you need to find out why the previous operator failed. There is a reason. There is no such thing as a BAD location. The location may not be good for what you want to do. If it is bad for what you want to do, move on. No matter how good the deal. Some of the highest profit generating food businesses are in bad locations. One of the busiest national pizza chains I looked at was take out only. They did no delivery. Cash only. And all the glass was 3/4 inch Lexan. Bulletproof. The rent was next to nothing. (because they were there it attracted other tenants) Another I looked at was a fried fish and chips take out restaurant business in a dangerous area. In fact, when I returned to my car it had been keyed and the antenna was gone. The two brothers operating this restaurant went through 2-3 thousand pounds of potatoes a week. Take out only. You can only guess at the amount of fish sold.


There are only a few reasons why a restaurant fails.

The biggest reason is service. It doesn't matter how good the food is, how large the portions are or how expensive/inexpensive the menu is. With poor service, a patron will not be back. And they will let anyone know whenever there is a conversation about restaurants or if your establishment comes up in a conversation. You can have them say something good or something bad. The choice is all up to you.

Slow service may be overlooked. Rude or 'if you don't like it go somewhere else' service will be disastrous. This usually comes from an owner and not the help believe it or not. An employee may be rude on an off day or if they are going to quit, but not as a rule or you (the owner) will fire them! An owner (or owner's wife, mistress, family member) knows they can do and say whatever they want.

This is one of the easiest things to fix if you are taking over another restaurant. Change the name and put up a professional 'Under new ownership or management' sign. Some restaurants and other businesses do this on a routine basis every 6-12 months to bring in new customers and customers they've lost. Do it only once.

Greet your guests (it's attitude, they are not customers but guests) personally and ask what they liked and any suggestions they might have. Most people will not tell you what was wrong out of politeness so don't ask. Ask for suggestions so they can tell you what was wrong and both of you save face. I don't care if you are the cook and bottle washer, you have to come out of the kitchen and be seen. Give something away. It can be fresh garlic rolls, an after dinner drink, a desert or coupon for a repeat visit.

I recently visited a Mexican restaurant I had heard about from locals that was very good. It is about an hour away in a tiny mill town. Well, my wife and I got there on a Saturday about 2:30 and thought we'd have a late lunch. The server promptly brought over hot chips and freshly made salsa. She asked if it was our first visit and I said yes. (I guessed her age to be about 13 and the owner's daughter) Within minutes the owner appeared from the kitchen with a fresh made appetizer for us (on the house) and wanted to welcome us. The chips and salsa were delicious and the appetizer out of this world. I promptly ordered the nacho grande and we both ordered from the dinner menu. The owner showed up two more times at our table in his kitchen clothes and apron (I knew he was cooking and cared). We ended up spending over $40 for lunch when we had anticipated $15 and took most of it home! It was so bad, we've been back twice in three weeks, have made plans for a large group to meet there and recommended it to everyone whenever restaurants come up in the conversation...

The build out and decor were nothing. The bathrooms were clean but needed a bulldozer. The food was great and the service outstanding. I've since talked to him and encouraged him to open another in a busy area. He is building one now in a large tourism town in a hotel restaurant that went under... :-)


After service would be quality. Honestly, how good is the food? If the restaurant closed because of the food, you've got to let everyone know the recipes have changed. Again, a new name, new faces and a banner. Giving away a few thousand dollars worth of food goes a lot further than many more thousands of dollars in advertising.

With a pizza restaurant I had I used to show up at local lounges at happy hour with 4-5 various styles of pizza. For free. We included small menus the customers could take with them. The lounge owners loved it as it made their happy hour even busier! The customers liked it as they met me, the owner and told me what was wrong with the previous owners food. I would also bring weekly pizza pies to the managers and help of all the hotels within a 20 minute drive. Now, when a hotel guest asked who to call for a good pizza for delivery to their room, who do you think was recommended? Community and neighborhood events were another hit as it is very easy to show up with pizzas, a bucket of wings, appetizers, sandwiches etc. These are your bread and butter year round customers. You've got to get to them and get to them fast. Thousands of dollars in display ads will not do it. These methods will only work if the food is good to great. If it's average or low end, don't bother.

A common mistake a new restaurant owner makes is to immediately cut costs to increase profit. (The correct way is to increase costs to attract new business and maintain your present business...) The new owner will start by going to a lesser quality of food. A pizza restaurant using 500 pounds of cheese a week at $2.35 a pound can go to a comparable quality for $1.85 and add $250 per week immediately to the bottom line. In the short run it's great! But then customers start complaining about the grease coming through the boxes or running off the slice or the taste or the after affects... You can do the same with chicken wings, white vs. yellow meat... Cold cuts from premium to second or third best as no one will notice... To the seafood and steak... from a major brand of soda to a generic cola... quality ice cream to no name and home baked style deserts to thaw and serve. A regular customer will notice. A tourist or someone passing through will only be there once maybe twice. (This is the reason franchised dinner restaurants are doing so well...) I'll gladly pay $8 for a slice of 'Death By Chocolate' but refuse to pay $3 for a slice of pie from the restaurant bought at a discount food club.

If you are serving an 18 ounce prime rib for $14.95 no one expects it to be good. If it's $29.95 it better not be the same cut as the guy down the road for $14.95. It has to be very good, tender and done to perfection. I will gladly pay $30 or $40 for prime rib out of the oven with crispy edges. I don't want a slice from the roast that's been sitting on the counter all day and dipped in a pot of hot beef bullion and called au jour... yes, your customers know the difference. So look hard at the menu, see what the food cost is/was and what is being served.

If the restaurant is in a tourist area, many operators go in with the intent of getting one good season out of it or they don't care about repeat business. These are the ones dependent on a big yellow page ad, splashy outside appearance and the menu and price list taped to the front door. Or perhaps they take out discount diner club coupons. Be careful of this as you may have to honor those coupons as well.

Dine at your competition often. If you get to know other restaurants in the area and frequent them, you will notice other restaurant owners eating out often. But not at their own restaurant. Don't be fooled. They are not out on the town to spread their wealth. They are working. Trust me!


Another reason is cleanliness. Take a good look at the restaurant. Sit at some of the tables and booths. Wear a long sleeved white shirt and put your arms on the counters and tables. Do they stick? Look at the legs of the tables and chairs. Is there dried food? How about the walls? Would you take your family or friends here to eat? Look at the kitchen? How clean is the stove? How many burner tops are broken? What about the inside of the oven? Look under the oven. The walk in. How clean are the floors and walls? Again, would you eat here? Would you let a dining guest in to see the kitchen if they asked? Some do... Visit the bathroom. Sit down and what do you see? How are the sinks? Under the sinks? What do your guests wipe their hands on? Is the soap dispenser full? (if it's empty I'm sure the kitchen help carry in their own soap...) Now you may be thinking some of this is ridiculous. You just want a simple neighborhood restaurant. Well, visit your neighborhood McDonalds and look at the drain pipe under the sink in the bathroom. Do you think it was polished in the last week or last ten years? Do you think the toilets were washed that day or in the last ten years?

How about the flatware and silverware? Are they spotted? Are there deposits in the crevices of the forks? Worse yet is egg yolk on your fork at dinner time. Before you've started to eat. Or lipstick on your water glass and you're not wearing any... What about bugs? There's nothing to kill an appetite quicker than the people over at the next table trying to stab a cockroach with a steak knife on the wall. Don't laugh as I'm not kidding! Pest and rodent service is a cheap expense. Trying to do it yourself is hazardous and you won't keep up with it.


Lastly is the help. Good help can make an okay restaurant great! How many times have you gone some where and asked for a particular server? Well, some of these servers and bartenders have a following. Their friends and customers hear them talk about where they work and frequent the establishment. When you find someone good, keep them. Let them know they are valued. (be in control as no one is indispensable) Give them some leeway. If they have a good customer let them pass along something on the house.

All through my 20's I tended bar. It was my favorite job. Three establishments stand out. A gentleman's lounge that catered to politicians, professional sports players and business men (no jeans allowed); a family restaurant lounge and a full blown nightclub with three different music style dance rooms. All three owners told me if someone where a regular or spending a good amount of money, to serve a free round to their table and say it was on the owner. (Not from me as the bartender, but the owner. When a server gives you something for free and says it's on him, he's a thief. He didn't pay for it...) Each owner gave me free rein to act as the owner in that capacity. I never abused it. I never said a drink was on me. It later got back to me from the owners that they knew, as they had plants out there as well. My tips increased as did the customers spending. I wonder if the bar owners realized that, as I thought I knew it all...

If your employees are unhappy, they will justify giving away free food, stealing food, liquor or money. You won't miss $100 a day. As you get busier, the $100 becomes several hundred. It then can become several thousand a week. You still may not miss it. You'll be yelling and screaming about food cost and liquor portion control and too much labor, but you still won't catch it. Your accountant will catch it before you do. If you only see an accountant once or twice a year, that's how much you can lose. And before you say you'll only have family working there, it's usually family who steals. Who else could steal $10,000 a week and cover it up? Let's see that's only $500 a day and $2,500 on Friday and Saturday when the doorman collects $2,000 and the bar pours $20,000 each of those two nights. Not hard to do at all... I've seen it.


Most novice buyers miss all of this when looking at a restaurant to buy. They rely on the books, records and purchase invoices. 'They don't mean nuthin!' Hire a mystery shopper or a broker to go undercover and look at all these things. Watch it for a time. Get to know the help. Compile the information and formulate what you can do with the restaurant. You must know the business better than the owner does which often is easy to do. That's why the business is in trouble. If you want to buy an established well run business at the peak of it's income stream, well, that's what the professionals sell. And that's a different story.

Any reference that may appear to resemble any business you may know of is strictly coincidence (mostly) and any sarcasm is intentional so try not to miss it.

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