What to Consider Before Buying a Restaurant
Category: Buying a Business
Restaurants are one of the most popular franchise categories. They’re actually a popular business choice overall - of the more than 146,000 new U.S. businesses that opened in the first quarter of 2021, more than 12% were restaurants.
You may have heard the horror stories that 60% or even 90% of businesses fail within their first few years, and that restaurants are especially vulnerable. In reality, about 20% of new businesses go under within two years of their opening.
However, just because a restaurant is established doesn’t necessarily mean it’s doing well. There are many factors that play into a restaurant’s sustained success. If you’re considering adding “restaurateur” to your resume, here are a few things to consider.
Independent vs. Franchised Restaurants
Buying an independent restaurant gives you full control over the operation. This might work if you’re already familiar with the restaurant landscape.
If you’re not, it’s a steep learning curve. And there are no guardrails.
Investing in a restaurant franchise provides a safety net. Franchises have established business models that have been proven successful. Franchisors offer help with marketing, training, computer systems, and more. You’re still your own boss, but you have an experienced team providing support. When you have tough questions, you know where to turn.
Location. Location. And Oh Yeah … Location
A great location is critical to the success of any business. For a restaurant, it can be a make-or-break feature.
When looking at restaurants, it’s important to not only look at their location but at what eateries you will be competing with nearby.
Many franchisors have a protected territory policy. This limits the number of locations they will allow to open in a geographic area. Not all franchisors have this, but if you invest in one that does, at least you know an eatery identical to yours won’t open across the street.
Are You Comfortable With The Restaurant’s Reputation?
Ever had a bad experience at a restaurant and swore you would never go back? Rescuing a bad reputation is an uphill battle that has defeated many would-be restaurateurs.
If you buy an independent restaurant, you can make any changes you want to the appearance, menu, and atmosphere. But you still have to convince wary customers with unpleasant memories to come back. And the changes you make may actually turn off your inherited customer base.
A franchise restaurant will have an established menu and appearance guidelines you have to follow. On the positive side, these guidelines have already been tested and found to give the best customer experience, so you won’t have to experiment on your business.
A franchise will also have a reputation that exists well beyond your local community. Customers could walk in the door for the first time already die-hard fans.
Consider Why An Existing Restaurant Is Being Sold
By year five, the number of small businesses that have closed up shop jumps to 45%. With that in mind, it’s important to consider why a restaurant is being sold in the first place.
There are two primary reasons an owner may decide to sell their restaurant. The first is that they are simply looking to get out of the business. Maybe they’ve decided to change careers. Maybe they’re moving. Or perhaps they’re thinking about retiring. There are plenty of reasonable circumstances that can lead to selling a profitable restaurant location.
The second is that the business isn’t generating enough revenue to offset the money and work that goes into running it.
You may have already found a restaurant for sale that’s well established, seems to always have customers and looks like a good fit for your lifestyle. Appearances can be deceiving. You can’t tell if a restaurant is actually profitable until you look at its numbers.
Having an experienced business broker in your corner can help you decipher which restaurants are worth considering and which ones shouldn’t make your shortlist.
Is A Restaurant The Right Business For You?
Above all, it’s important to determine if a restaurant is actually the right business for you. If you’ve spent some time as a server or line cook then you’ve no doubt experienced the highs and lows of the sector firsthand. But if you’re new to the restaurant space, it’s worth your time to look into the industry and see if it aligns with your investment and life goals.
Your franchise consultant or business broker can help you take a step back and get a clear view of what you’re really looking for in a business - and whether a restaurant is the best way to get it.
Were you drawn to restaurants because the franchise model sounds appealing? There are actually dozens of industries that offer franchise opportunities, from beauty to pets to child care. Try our online business personality test to help figure out which type of business is right for you.
