Whether you have your heart set on buying a five star restaurant, cafe, pub, or simply a food van, the challenges, risks and rewards of opening your own food venture can be immense.
To speak in the vernacular of the foodie — success lies in implementing a fool-proof recipe. Get the perfect combination of quality ingredients, spend time on your preparation, planning and due diligence and you have positioned yourself well on the path to achieving the realisation of your dreams.
With social and economic shifts influencing consumer spending, the resultant effect is driving a consumer demand for high quality dining experiences. The cafe and coffee shop industry alone is expected to top $8 billion dollars in revenue in the year 2016 – 2017, and restaurants over $20 billion. The temptation and enticement to wade into the market, is obvious.
So what are the ideal ingredients for those interested in venturing into the world of entrepreneurial food service, and what are the first steps one needs to undertake? Below you will find a comprehensive, step by step guide composed to assist you in selecting your ideal location, outline legal issues, permits and laws, as well as discuss financing your project, through to equipment and marketing advice.
Let’s take a look at how to navigate all these processes and pilot you on your way to becoming an independent, successful restauranteur.
Existing or New — Weighing Up the Facts
Making the decision whether to take over an existing business or to start from scratch can be tricky. The advantages of an existing business can be alluring. After all, the bones, such as furniture, fittings and equipment can be included in, or negotiated into the deal and can translate to a walk-up start.
When contemplating buying existing premises with a commercial kitchen layout and design, consideration needs to be given to whether it can be modified to suit your intended purpose and vision.
Equipment and fit-out, which would normally comprise a substantial part of your budget, may be integrated into the current layout. However, should you need to include substantial sized equipment or machinery such as a commercial freezer or oven, the presence of existing equipment may in fact prove to be a hindrance to your tailored design plan.
Additionally, do your due diligence and have a professional assess all existing equipment for signs of damage, to verify it is safe and functioning correctly.
A critical review of terms and conditions needs to be given to any outstanding lease agreements which may be in place at the time of handover.
TIP: Registering with sites such as businessesforsale.com or commercialrealestate.com.au, allows you to access comprehensive information regarding businesses for sale within your desired location, and enables you to be updated on current listings as they hit the market.
Goodwill is often touted as a positive selling point, however this is difficult to quantify. Conversely, ‘badwill’ may have tainted customer’s perceptions of that business. The resultant negative reviews and contaminated branding can be difficult to negate. You may be faced with having to lure clientele back to a business with a tarnished image or reputation.
One simple question must be asked of any established business looking to sell and that word is why?
After all, very few people walk away from a cash cow. It is true that retirement or the demands on time and family when running a food service business can have a detrimental impact on one’s life. This being the case, there are genuine circumstances where sellers are motivated to sell a profitable business.
Nevertheless, a vendor’s motives for selling must be thoroughly investigated. It may seem like looking a gift horse in the mouth, questioning the motivation behind offering a thriving, profitable business for sale, but it is reasonable to query the rationale of a vendor looking to walk away from a viable concern. A genuine vendor should have no hesitation in opening up their financial records for your inspection.
Do not take the vendors reasons for selling on face value. Do you research by speaking to other similar establishments in the area about their experiences.
Finding that a business is simply struggling in a competitive market needn’t be a deal breaker. Perhaps, simply offering a more suitable cuisine or price point would turn around the premises viability but at the very least, it provides you with some negotiating leverage.
Performing due diligence when taking over an existing business therefore, is imperative. This can be performed by a lawyer, accountant or business advisor but must include a review of the following:
- Records of accounts receivable and payable
- Income statements
- Profit and loss records for the past 3 years
- Reasons the vendor has for placing the business on the market
- Details about the value and condition of fixtures, fittings and equipment which are included in the sale
- Existing contracts with suppliers
- Seller’s credit history
- Has the business been served with notices regarding health, water or sewerage which contravene government laws and require extensive work to address?