Try before you buy. That should be the sacred rule of restaurant ownership – especially if you are going to purchase an ongoing restaurant and don’t plan on making any changes.
One of the first questions you will need to ask if you are going to purchase an ongoing property is “why is the owner selling”? Is it due to financial reasons? Is it a staffing problem? Is the owner’s lease up for renewal or renegotiation? These are all legitimate reasons for selling. However, they are also flags – red flags – for those considering a purchase.
I recently went to breakfast at a local Glen Ellen, Ca. restaurant and was surprised the waitress answered “yes” to the question as to whether or not there were new owners. The caf? is a neighborhood spot that has been in the same location for about 7 years. Before that it was in another location, close by, catering to the same clientele. According to the waitress the caf? ownership changed a few months ago. But one would never know it from walking into the tired caf?. One of the few places in wine country that lacks ambiance, lacks any semblance of professionalism, and needs a remake if the new owners have intentions of making money, the Glen Ellen spot is the perfect example of buying without trying.
According to my waitress, who was a fountain of knowledge, the new owners were trained by the previous owner on how to cook the menu. And nothing on the plate changed from previous owner. The Eggs Benedict looked exactly the same as it has for the past three years. There was no new signature from the new chef. A plate is the canvas to feature a chef’s artwork. If a restaurant changes owners, something in the restaurant should change to signify the change. Apprentices in the kitchen is not what a customer enjoys hearing. But that is not the only problem a new owner has to face.
The root of the problem is that if a potential buyer purchases a restaurant from an owner and decides to make few changes in ambiance, menu, service, and product, where does the increased profit – needed to cover the purchase price – come from? There is little wiggle room to trim costs in order to boost revenue.
A problem facing potential buyers is budgeting for change once they become owners. In a tough economy, many operators are looking for pie in the sky prices for properties that are not generating enough revenue to pay the bills. Yet, someone with a dream and a fantasy to become the next Iron Chef may be willing to risk everything in order to acquire keys to a culinary kingdom. The urge to leap before one looks is part of the culinary dream that often fogs clear thinking.
In the case of the caf? in Glen Ellen, the owners should have had a plan to remodel the property and change the menu before they opened their doors. However, if they paid the previous owner a sum that justifies his years behind his stove, they will not have the ability to improve revenues, profits or cash flow.
And, according to the talkative waitress, the owners are learning the business as they go. And that is a terrible position to be in.
So before you leap into that first, second or third location, make sure the numbers work, the property is up to your standards, and that there is a potential for increased revenue, cash flow and profit. If there isn’t your dream will quickly become a tossing and turning night mare.