Buying an existing restaurant trades one risk for another. You avoid the build-out, the permitting calendar and most of the equipment spend. In exchange you inherit a lease, a reputation, a staff, an equipment fleet and a claims history you did not create. This checklist covers the seven areas to work through before closing — and the two that buyers most reliably skip.
Start with the financial records, and ask for the raw data
Request three years of profit and loss statements, tax returns, current year-to-date results and the raw POS export behind them. Payroll, occupancy costs and a schedule of claimed add-backs go with them.
A summary spreadsheet is an assertion. A POS export is evidence. If the seller will not provide the export, that is itself information.
Understand how the price was built
Restaurants are usually valued on a multiple of owner cash flow — commonly 2 to 3 times for full service and 1 to 2 times for quick service — or on asset value.
The multiple is less interesting than the question underneath it: does this cash flow survive the current owner walking out? If the owner is the chef, the host and the buyer, some of that cash flow is a job rather than a business.
Read the lease as though you are buying it, because you are
Remaining term, renewal options, percentage rent, assignment and transfer, and redevelopment rights. A strong restaurant on a lease with two years and no renewal is a two-year business.
Get the landlord in the room early. A transfer the landlord will not approve ends the deal after you have paid for the diligence.
Verify the licenses and find out what transfers
Health permit, occupancy, signage and — where it applies — the liquor license. Some transfer with approval, some must be reapplied for, and in a quota state the license may be the single most valuable asset in the deal.
Confirm the mechanism before agreeing a price. It can move the valuation by more than the equipment is worth.
Inspect the building and the equipment fleet
Refrigeration, the hood and suppression system, HVAC, plumbing and the grease interceptor. Ask for service records, and treat the absence of service records as a finding.
Equipment breakdown claims cluster on tired compressors. The walk-in that is working on the day you view it may be the walk-in that fails in August.
Check the inspection history
Health inspection results, fire inspection records and any outstanding violations. A pattern of repeat findings describes how the place is run, which is more useful than any single score.
Outstanding violations are yours the day you close.
Look at employment and labor properly
Wage structure, tipped employee compliance, scheduling practice, turnover, and any open disputes. Labor is the least compressible cost in the building and the most likely source of an inherited claim.
Ask who actually runs the kitchen, and whether they are staying.
Review the supplier and vendor agreements
Food and beverage suppliers, linen, waste, pest control, point of sale, delivery platforms and any equipment leases. Some carry termination penalties, some do not transfer, and some are simply more expensive than what you could negotiate today.
Equipment leases are the ones most often forgotten and most often still owing.
⚠ Get five years of loss runs
This is the area buyers skip most often and it is the one that describes the operation best. Loss runs show what actually went wrong — the fire, the slip, the liquor claim, the employment dispute.
A cluster of small claims usually describes an operational habit rather than misfortune, and habits transfer with the building. Read them before you read the sales brochure.
Plan the insurance before closing, not after
Your program has to be in place at closing, the landlord will require evidence, and a lender will too. The loss history you just reviewed is also what your own program will be priced on.
Our restaurant insurance page covers what the program contains.
The two things buyers skip
The lease transfer terms and the loss runs. Both are unglamorous, both are quick, and both routinely change whether the deal is worth doing.
Everything else on this list is work you were probably going to do anyway.