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Is this restaurant a good investment?


PurpleDingo99
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Alright, a friend of mine is thinking of making a bid on a restaurant although there is some debate over the value of this place.

about 25 tables (seats around 80)

Full bar with regular clientele (seats around 20)

relatively unknown, but with a small loyal fanbase

less than a block from the heart of downtown

ample 2-hour parking

once a week farmer's market booth (one of the busiest booths out of ~50)

regular catering service

daily catering service (monday-friday) for local government-sponsored campus

The place has been open only a few years, although I don't know what the lease is off hand. Both myself and the potential owner are confident the crowd could double in six months under correct management. Hence why I am reluctant to put any name forward.

The current owner said $200k originally, changed it to $350k, and the prospective is trying to talk back down to $200k. Considering the farmer's market and the daily catering contract may or may not carry over to a new owner, how much would the place need to currently bring in annually to be a good investment (at either dollar value?) Any feedback at all would be appreciated.

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The real question is how much experience does he have in F&B?

Yeah, proper management may double the business, but (and no offense towards your friend intended) if you don't know exactly what you're getting into, it's a truly wonderful way to go broke with breathtaking suddenness.

Don't invest anything unless your prepared (both financially and emotionally) for a 100% loss.

Not to rain on his parade but I have several friends who with an absolute, unfaltering, confidence in their abilities, still managed to lose nearly everything they had with the same idea your friend is currently having.

Best wishes if he does decide to go forward with this, and keep us posted.

I'm so awesome I don't even need a sig...Oh wait...SON OF A...

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The real question is how much experience does he have in F&B?

Yeah, proper management may double the business, but (and no offense towards your friend intended) if you don't know exactly what you're getting into, it's a truly wonderful way to go broke with breathtaking suddenness.

Don't invest anything unless your prepared (both financially and emotionally) for a 100% loss.

Not to rain on his parade but I have several friends who with an absolute, unfaltering, confidence in their abilities, still managed to lose nearly everything they had with the same idea your friend is currently having.

Best wishes if he does decide to go forward with this, and keep us posted.

Anyways, she (haha) has run two successful bars and has worked food service all her life. Right now, she is a restaurant manager. She's told me exactly what she would do with the place in question and I agree with 90% of her plans (can't agree entirely with who she plans to fire and hire, but its more personal preference than skill.)

Wisco- That's what we'll be looking at. The current owner has a bit of bad blood with my friend (Let's call her Clementine) so I'll be the one looking at the books. Just want to have some idea what I should be looking for.

Also, do you think the farmer's market contract and the daily catering contract would carry over to a new owner? Likewise, could the place be transferred without interrupting the liquor license?

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If you are seriously interested, get a lawyer and an accountant who specialize in business transactions. An account can go over the books and let you know how much the place is worth (with/without the farmers market and catering).

I would think that the farmers market and catering would be included, but what's to stop the current owner from opening up a "new" business close to you, a lawyer can help you with a non-compete clause.

Liquor license laws vary by state but I assume before you close the deal you would have to get approved by the state/town (fill out an application, maybe fingerprinted, police would look at your history......).

Find out about the lease, you don't want to find out later that the building is going condo (or whatever) in 2 years and than have to scramble to find a new place.

Good Luck

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Likewise, could the place be transferred without interrupting the liquor license?

Obviously that is a state-specific question. In California, liquor licenses alone sell on the open for upwards of $80k. The transfer process is that the new applicants have to apply, a sign is placed on the restaurant's window for 30 days, and a thorough background check is done on all the major players in the business (owners as well as investors, depending on the percentage invested).

The interruption in service would only happen if the new owners take possession of and start running the business without the ABC having approved the liquor license transfer, but usually the escrows coincide and it is rarely an issue unless there are back-ground problems with one of the principals.

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Likewise, could the place be transferred without interrupting the liquor license?

Obviously that is a state-specific question. In California, liquor licenses alone sell on the open for upwards of $80k. The transfer process is that the new applicants have to apply, a sign is placed on the restaurant's window for 30 days, and a thorough background check is done on all the major players in the business (owners as well as investors, depending on the percentage invested).

The interruption in service would only happen if the new owners take possession of and start running the business without the ABC having approved the liquor license transfer, but usually the escrows coincide and it is rarely an issue unless there are back-ground problems with one of the principals.

Well, I told Clementine and it turns out she sold her old liquor license (yes, this is Northern Cali) for $16k only a couple of years back. Man, did she ever kick herself when I told her that $80k figure.

The lease has four years on it (yes!) and I could see the place moving to a bigger suite by the time this one expires. So, that's perfect for the time being.

We have a mutual friend with a strong law background (but without ever getting licensed) who should be free in a couple of weeks to help evaluate the books, so that's all dandy.

Right now, I'm considering buying into the place a bit because my current stock portfolio is doing diddly. Just waiting for my broker to get me my new password so I can evaluate that. We'd probably do something like buy 10% in, 10% net profit out, 10% final sale. In return for what seems like a biased investment, I would help out with marketing (which is more one of my strong suits than hers) and some of the unusual logistics (right now, I think she should add Wi-Fi for all the wandering businessmen who end up there. However, I had to explain to her what Wi-Fi is!)

Will update as things progress.

Edited by PurpleDingo99 (log)
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We have a mutual friend with a strong law background (but without ever getting licensed) who should be free in a couple of weeks to help evaluate the books, so that's all dandy.

PLEASE tell me that you're not going to enter into a several-hundred-thousand dollar deal without having a licensed lawyer WITH MALPRACTICE INSURANCE handle the transaction. :shock:

Life is short. Eat the roasted cauliflower first.

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In addition to the lawyer, you MUST have a financial analyst or accountant who specializes in company valuations go over the last 5 years of financial statements (full statements, not just revenue figures!) thoroughly. If the financial statements aren't accountant-audited (and I'll bet they're not), get the tax returns for the business as well. Don't mess around -- there are way too many ways to mislead outsiders about a company's value (ask me how I know!).

Good luck!

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