how to start
- buy - sell - fix & flip
a restaurant
bar or club. 
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.
- Business Buyer Resource Center - "Learn 100s of tips, strategies
and techniques to help you find and buy the right business. This
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