Restaurant Management Toolkit
Restaurant Management Forms, Restaurant Software, Business Plan Templates, Marketing & Promotions For Restaurants, Cafes And Hotels.
FYI: This blog is under construction. I have articles pointing here so I need to get something down now! Sorry. The info is still goo just a bit disorganized. Check back for continued improvements. Thx
Fact & Reality Check #1
You WILL operate the business differently.
If you plan to increase sales then the inventory, labor, cost of sales, even utilities may all change. So why spend all that time studying what the current operator is doing.
Fact & Reality Check #2
Don't focus on the profit
If you are buying a business for less than $100k don't focus on the current operators profit because there is none! At least not enough to get excited about. Highly profitable businesses are much sought after and not advertised (for free) on Craigslist. You are purchasing furniture, fixtures, equipment and potential and that is where your focus needs to be.
Fact & Reality Check #3
Due Diligence...Research, Research, Research!
It's really your responsibility to know what you're getting (or getting into). Once you get the keys it's all up to you. No seller (in their right mind) is going to guarantee your success. They won't get a share of the profits nor will they help pay the bills.
Now I don't want to mislead you here. The price you are considering paying for F.F.E. (furniture, fixtures and equipment) may well be worth it or even more. A purchaser of used equipment will tell you that all that stainless is only worth half or even ten cents on the dollar. But then he's going to have to sell that. Believe me when I tell you that if the equipment is in place and in good condition it's worth much more. Obviously not new prices but, after doing 40+ openings, in-place and operational are valuable things! Sourcing, transporting and installing equipment can be back breakers.
"Potential" (blue sky) is another thing all together. Of course you think you can increase sales and lower costs, right? Would you be buying a business if you didn't? But in the mean time you'll have to survive so that means knowing what your "break-even" point is then building a cash flow summary to see if you can make it to break-even and on to profitability.
Don't let these things intimidate you. I'll show you exactly how to develop both a break-even and a cash flow analysis.
Most new hospitality industry owners don't do either of these things and therefore go on to contribute to the exceedingly high rate of failure in this business being mover 90% within the first 36 months.
For more than twenty-five years I've been operating, buying and selling businesses in the hospitality industry and I am coming to you today to make your life easier. Easier that is until you acquire a business when "easier" ceases to exist.
At the moment I have a business for sale which prompted me to start this blog. Having received countless phone calls and emails with ridiculous questions, I felt there must be some way to help these people.
"Ridiculous" may be a bit harsh. A better description would be uninformed, or naive.
Questions like;
"What are your expenses?"
"How much are your expenses?"
"Can you give me more details?"
"Why are you selling?"
First of all remember. The people selling, usually, are not sales people or brokers. In the vast majority of cases they're owner/operators just like you want to become. They are not accustomed to answering such open ended questions so it's best to be very specific.
Another reason to be specific and, at least, appear to be knowledgeable is to demonstrate some level of experience. This is important especially if you want a seller to carry a contract. It's in the sellers best interest for you to succeed so you can send a check every month. Even for experienced operators the failure rate is humongous!
Scared yet? No need to be, I recommend Cautious Optimism.
If you're looking to purchase a business wouldn't it seem logical to find out WHAT exactly what the expenses are, specifically, for that business?
NEVER ask a question without already knowing an (or the) answer!
Let me be more precise. Let's say someone asks "How much is your labor"?
This may seem like a normal question but a truthful response would be "Well that depends".
Which is to say...
Why Are You Asking Something You Should Already Know?
Okay I know, but stop and think for a moment. If you've been considering a business that requires employees wouldn't be in your best interests to have already figured an estimated labor cost? Maybe a pro forma schedule?
Restaurant Management Toolkit
Restaurant Management Forms, Restaurant Software, Business Plan Templates, Marketing & Promotions For Restaurants, Cafes And Hotels.
Learn to estimate expenses based on the business YOU plan to have...
NOT The Sellers'
Ask Yourself:
a) What hours will your business be open?
You may decide to stay open later or open earlier
b) How much time do I plan on actually working there?
This means time you will spend working instead of paying someone else
c) What level of service would I like to provide?
Table vs walk-up service for instance.
Once you've answered these questions open a spreadsheet or grab a piece of paper and sketch out a basic schedule. Enter the shift start and end times for each day.
You should already know the minimum or prevailing wages are in your area.
Get a total number of hours. Subtract "your" hours and multiply that total by the hourly wage.
Take that number and add your costs (L&I, federal matching funds, etc. On avg this amounts to around 18%.)
There you have it.
A fairly accurate, albeit ballpark, estimate of YOUR labor costs NOT THEIRS because you will, no doubt, operate your business differently than the current operator...guaranteed!
By the way there's a ton of information on the web including sites for state agencies that can provide specific tax cost estimates. Employment Security, Labor & Industries the list is endless. Just Google "Restaurant Employment Costs and, within a few clicks, you'll have a plethora of good information to estimate your costs.
This same basic process can be accomplished for every expense item on a Profit & Loss statement. Chances are, when you've completed your "homework" you'll know even more than the person selling the business!
Research, Research, Research!
Due Diligence...Sit in the parking lot and watch!
a) What hours will your business be open?
You may decide to stay open later or open earlier
b) How much time do I plan on actually working there?
This means time you will spend working instead of paying someone else
c) What level of service would I like to provide?
Table vs walk-up service for instance.
Once you've answered these questions open a spreadsheet or grab a piece of paper and sketch out a basic schedule. Enter the shift start and end times for each day.
You should already know the minimum or prevailing wages are in your area.
Get a total number of hours. Subtract "your" hours and multiply that total by the hourly wage.
Take that number and add your costs (L&I, federal matching funds, etc. On avg this amounts to around 18%.)
There you have it.
A fairly accurate, albeit ballpark, estimate of YOUR labor costs NOT THEIRS because you will, no doubt, operate your business differently than the current operator...guaranteed!
By the way there's a ton of information on the web including sites for state agencies that can provide specific tax cost estimates. Employment Security, Labor & Industries the list is endless. Just Google "Restaurant Employment Costs and, within a few clicks, you'll have a plethora of good information to estimate your costs.
This same basic process can be accomplished for every expense item on a Profit & Loss statement. Chances are, when you've completed your "homework" you'll know even more than the person selling the business!
Research, Research, Research!
Due Diligence...Sit in the parking lot and watch!
It's really your responsibility to know what you're getting (or getting into). Once you get the keys it's all up to you. No seller (in their right mind) is going to guarantee your success. They won't get a share of the profits nor will they help pay the bills.
When doing your "homework" don't make it obvious. Be a customer (we call them Guests) and buy some coffee or have lunch. Don't! I Mean Never! quiz the staff about anything! Just be cool, order and act like any other Guest. Go at different times of the day. Besides becoming familiar with the business dynamics you'll gain some insight on the effectiveness of the current staff members.
When doing your "homework" don't make it obvious. Be a customer (we call them Guests) and buy some coffee or have lunch. Don't! I Mean Never! quiz the staff about anything! Just be cool, order and act like any other Guest. Go at different times of the day. Besides becoming familiar with the business dynamics you'll gain some insight on the effectiveness of the current staff members.
What Questions SHOULD You Ask?
Of course there is some essential information that you will need in order to make a decision. There may be some things unique to that particular business or location. Following is a list of questions. The answers you receive will provide a good base for your research.
Lease Questions:
1. What is the square footage?
2. How long ("term") is the current lease and are there options (additional terms)?
You need enough time to establish yourself
3. What is the lease/rental rate?
If it is a "triple net" (nnn) lease you'll need to know that amount also.
4. Is the Landlord willing to re-assign the lease and what are the requirements?
Financing (if required)
1. Are they (sellers) willing to carry a contract.
If so:
a) Down payment amount?
b) Term and interest rate on the balance?
Consult an attorney especially in regard to the property lease. Too expensive? I know how you feel but it could save you a fortune in the future.
If you're dead set against that then, at least, find someone who's "been there, done that". Let them act as advisers by reviewing the lease and giving some input.
Again, there's a lot of information on the internet and free of charge just for investing a little time to locate and read. Restaurant/hospitality industry forums are another good resource. It's all anonymous just ask questions and watch for results.
There are three primary figures you should focus on when developing a proforma profit & loss spreadsheet; "Prime Cost Percentage", a "PACE" (Profit After Controllable Expenses) percentage and the "Occupational Cost". I'll go over these in anouther post.
Lease Questions:
1. What is the square footage?
2. How long ("term") is the current lease and are there options (additional terms)?
You need enough time to establish yourself
3. What is the lease/rental rate?
If it is a "triple net" (nnn) lease you'll need to know that amount also.
4. Is the Landlord willing to re-assign the lease and what are the requirements?
Financing (if required)
1. Are they (sellers) willing to carry a contract.
If so:
a) Down payment amount?
b) Term and interest rate on the balance?
Consult an attorney especially in regard to the property lease. Too expensive? I know how you feel but it could save you a fortune in the future.
If you're dead set against that then, at least, find someone who's "been there, done that". Let them act as advisers by reviewing the lease and giving some input.
Again, there's a lot of information on the internet and free of charge just for investing a little time to locate and read. Restaurant/hospitality industry forums are another good resource. It's all anonymous just ask questions and watch for results.
There are three primary figures you should focus on when developing a proforma profit & loss spreadsheet; "Prime Cost Percentage", a "PACE" (Profit After Controllable Expenses) percentage and the "Occupational Cost". I'll go over these in anouther post.