Thread: Purchasing an existing business?

Hi everyone!

This is my first post, I stumbled upon the site a few days ago so I have not read the book yet. I'm looking forward to exchanging ideas with everyone and hope I can help others some day.

I'm currently putting a rough business plan together for my first project which I call 001 (one of many).

I am thinking of buying a great Italian restaurant in a busy business district. It has been operating for 8-9 years. It's not for sale on the market but I know for a fact the owner would sell. The food is great and I have inside knowledge of the place. My offer would include the building which has 2 apartments on the second story (It might be difficult to convince the owner to sell the building). No building = No go.

Goals:
-Increase profit margin on restaurant
-Gain experience
-Length of investment could be short or long term

Facts:
-I plan on purchasing with 3-4 partners, all close friends/family (I know, I know..)
-The current chef would be a partner and manage the kitchen, he is a close friend and very talented (I know good food)
-Another partner would be the maître d'hôtel (currently in another restaurant, he has experience in restaurant management as well
-My role would be risk management, building/equipment maintenance, project organizer, etc..I have contacts in many types of business's due in part to my current job and have a very smart and talented mentor which has helped me a lot. I have worked in several restaurants in my early twenties.

Gross revenue:
-Restaurant: 800k-1M$
-Building: +80k

I estimate the business to be worth 3-400k including 500k of equipment and renovations. The building is worth over 600k. My offer will be 1M$ for everything but I'm positive he will counter offer. The numbers might be off..

I guess I'm looking for feedback and tips from someone with relevant experience. I have 20-30K to invest and will ask the same from my partners. The owner is open to owner-financing although I do not want to pay high interest and I'm not sure how this works exactly.

Thanks,

S

I wouldn't even begin to make on offer until you get him interested in the idea of selling, you will need to see his Financial Statements,

I won't pretend to know anything about the restaurant business, but I have to ask, what do you expect the profits as a % of sales to be?

Spliting profits of 10% (assuming its even that high) 4 ways is 20-25K per year

what type of salary would you be making?


if profits are high enough, perhaps the business will finance its self , like buying his business with his own money

I purchased an existing 500K in sales business this past summer, and the purchase is financed by its profits. my downpayment was 10K

you have to see the financials before you can even think of making an offer.

What is the loyalty to the owner, do people come to the restaurant because he owns it or because the food is fantastic. and will they keep coming back after he's gone

@ XavierYZ Thanks for replying.

I absolutely agree with you about talking to the owner reviewing financials, etc. Then make an offer.

Profits will pay the loan, I have a decent salary this is more of an investment and experience. The 2 partners that run the joint will be paid as employees.

Concerning loyalty, it’s difficult to tell but the fact that the Chef is the new owner will definitely help. We will focus on reeling in new customers as well as keeping the old ones.

S

I think having a group of partners could be advantagious especially in the restaurante biz. I see you have some experienced partners but is there going to be a money man. Alot of times in deals like this there is atleast one partner who has deep pockets who can post cash if thing start getting alittle rocky. Will you be able to weather the seasonality of the business financially. Most restaurants dont make alot of money in Jan/Feb and make alot during the holidays.

Based on those numbers I would put the cash flow somewhere around 200k+- depending on liquour sales+ the building. That would put your take home at 50k not including the dept service that would be somewhere around 5K-10K/mo for the business + whatever you negotiate for the real estate depending. If you are comfortable with the risk to reward then I think it could be a great experience/ investment.

On a side note I have come across alot of successful restruantours and many of them work with a group of guys and purchase/ open several restaurants and bars. I believe this is the best way to go allowing you to spread your risk as well as increase your earnings. That way if one restaurant begins to see a drop in revenue the others can still support growth. Either way good luck

Hi Pete,

Thanks for the encouragement. December and February are actually good months. Valentines day is the best single day of the year, that evening cost me 150$, multiply that by +100 plates. but you are absolutely right about January and the unreliability of sales.

What do you mean by dept service?

S