Buying a Cafe, Restaurant, Bar or Pub

Updated: May 20, 2021

If you are considering purchasing a food and beverage hospitality business and you are a first time buyer, or perhaps not too familiar with the process, then it is best practice that you are fully prepared for the purchase at the outset in order to facilitate a smooth sale. Here are some of the top priorities to consider when buying a Cafe, Restaurant, Bar or Pub:

1. Experience

The industry is exciting, extremely competitive and constantly evolving. What are your motivations in wanting to buy a food and beverage hospitality business and do you have prior experience within the industry? Whether approaching a bank for finance, a landlord for approval (where required), or the patrons in your new business it is best practice to have already formulated a detailed business plan which demonstrates the viability of your proposed business and intentions. An accountant or an industry consultant will be able to assist you with this.

F&B businesses are generally multi-faceted so it will pay to ensure that you have considered effective operational continuity for each facet at the outset; even if you are planning to absorb existing staff you need to consider implementing your own key staff members at planning stage to ensure the certainty of your operation at its commencement. For example the most accessible food business of all is arguably a cafe, and the most easily accessible type of cafe business would be the espresso bar. Operationally it is crucial to have a head barista in place within an espresso bar, so if that is not your skill set then having contact with more than one barista at the outset is operationally critical for your business.

If you are a prospective investor and you are not in contact with operational hospitality professionals, consider hiring or going into partnership with an experienced operator may be the best way forward.


2. Obtaining Finance

Do you have finance in place for the acquisition? If you need to obtain finance then it would be prudent to meet with the bank first to understand your ability to borrow, along with what are the banks requirements. Your current assets and viability of your business plan will go a long way in building a solid dialogue with your bank, giving you the understanding of what you need to secure the required finance. Still struggling, being backed by an investor partner may be the solution.


3. Finding a Solicitor

Having the right legal representation from the start can make all of the difference. Research into several firms which are known for handling business and commercial law. Your legal contact needs to be an industry professional, ideally within relative close proximity, easily contactable and they must understand you... so that they can help to ensure that your commercial objectives are met.


4. Finding a Site

Confident in your ability to buy, now you can actively search suitable businesses. As your interest progresses, apply considered and consistent due diligence investigations, explore the financials of the business and (where applicable) obtain any information as prescribed by your financier. Look into the consistency and the trends of the trading history of the business; for bars and pubs in particular the cash flow statement and balance sheet will give you a greater insight into the health of the business, and the extent of its assets. Who are the customers, what are the popular food and drink items, when are the rush periods, what are the income streams to the business. But even if the business ticks every rational box, and your intention is to be operational, can you see yourself running the business, and being effective?


5. Valuation

Do you know exactly what you are buying? An inventory or an assets schedule should be provided so that you know what items of equipment are included in the sale. You also need to be aware of what items not included in the sale (personal items); and which items are not owned outright (leased items) and whether the lease of these items can be transferred with the sale, paid out upon completion of the sale, or removed from the premises at the buyers discretion. It is industry standard for a Cafe, Restaurant, Bar or Pub to be sold at plus stock at value. Although trading stock is a variable cost the business owner should be able to provide you with some certainty regarding the minimum stock value and this figure can be inserted into the sales contract prior to exchange. Conversely a maximum stock value can also be inserted into a contract of sale should the purchaser want certainty of what to budget for (IE. if applying for a fixed amount of finance). For the majority of cafe and restaurant purchases stock at value is generally determined between the vendor and purchaser, which is the most efficient and cost effective method. With bars and pubs a third party professional is often engaged to conduct a valuation, this is an opportune time for the purchaser to attend the premises and observe the stock you intend to purchase. In rare cases where a third party valuation is not agreed upon, an independent valuer may be the best way to facilitate the matter.


6. Compliance

Check that the use of the premises is permitted by the local council; most councils will have an online DA Tracker and the relevant consents attached to the premises will usually be searchable by the property address. Where the consents predate the online records, then you will need to visit the relevant council and ask to view their archives; each council has their own process for this. Another way to ensure the compliance of the operation is to inquire about the latest hygiene and food safety inspection and certification, undertaken by local council and the state food authority. What licences are attached to the business IE. Liquor, Gaming, Outdoor Dining etc. and are the licences up to date? You can conduct your own preliminary check of a liquor licence on Service NSW website. For the transfer of a liquor licence you need to consider who will be the licensee for the premises, and does that person have their RSA and meet all other requirements. For outdoor dining licences it is worth contacting the local authority to ensure that the licence is current and to find out the most efficient way to transfer a licence with them. Most food businesses must employ at least one Food Safety Supervisor in each premises, as a prospective owner do you have this covered?


7. Handover

Prior to completion of the sale do you know how the business will be handed over to you upon settlement? (strange question?). A lot of business owners and purchasers alike seem to think that a walk in walk out settlement is the best way forward for all involved; but in reality a seamless walk in walk out can only effect if a carefully considered handover is executed beforehand, even when executed only in the morning before completion. If your intention is to continue with the employment of existing staff members then you must be in contact with your prospective employees before you complete the purchase, you also need have all of the major supplier contact details… together with an understanding of how and when to order, this will ensure effective business continuity. Are all services ready to be transferred into your entity? Do you have login details to websites, social media accounts, business email, POS? Have you ordered your EFTPOS machine; this can take up to a week to be delivered… you cannot afford to turn away paying customers for this oversight. Whilst the sales contract may have the provision for the vendor to hand over online account details, financial, trading, and any other sensitive information, you must be prepared to ensure that the required information is properly transacted at the time of purchase - so that you hit the ground running!


Summary

There will a plethora of questions and quirks unique to your prospective business to consider. When you do buy an existing business, if your intention is to maintain it, then the best advice is to stay humble, get your head down and run the business… and keep any proposed changes at bay until you fully understand your customers, and you are operationally in control.


If you have any questions then please contact Barn on info@retailbusiness.com.au


We would also love to meet you to discuss the value of your business, or the business you intend to purchase, you can book this online using the following link www.retailbusiness.com.au/book-online


We look forward to hearing from you.

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