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California's Largest Restaurant Brokerage - Specializing in Sales, Acquisitions & Leasing of Restaurants, Bars, Clubs & Related Commercial Buildings

Important Questions and Information to Ask the Seller

By in 2012 - Volume 14 with 0 Comments

From my versatile experiences as a restaurant owner, buyer, seller, landlord and restaurant broker I have prepared the list of questions below which should make it easier for a buyer to learn as much as possible about the business they will potentially be purchasing. The more a buyer knows in advance about the business, the easier the process can be. This is no time for a buyer to be shy. They should ask away. What they learn may save them time, money and hassles.

  1. How long has the seller owned the business?
  2. What are the business’s hours of operation?
  3. Number of employees, and review in detail all employees’ histories.
  4. What should the theoretical cost of goods be for food sales—and for alcohol sales?
  5. What is the upside for the business?
  6. How many hours a week does the owner work, and what does he do in the business?
  7. Does the owner have any family members working in the business, and if so, who are they, what do they do, and how many hours does each of them work?
  8. Are there any pieces of equipment that do not work, or any that are in need of replacement? If so, what are they?
  9. How is your relationship with the landlord, and what problems have you had with the landlord past or current?
  10. Are there any lawsuits pending, and if so what are they?
  11. What are the neighbors like, and are there any problems with any adjacent neighbors or upstairs neighbors?
  12. Are there any unusual conditions or restrictions imposed on the business by any governmental agencies, such as the building department, police department or Alcoholic Beverage Control department, and if so what are they?
  13. Do you comply with the handicapped laws (ADA-American Disabilities Act), and if not what are the requirements to comply?
  14. Do you comply with all heath department, fire department and other governmental agencies requirements?
  15. What is the quest check average per person for each meal period?
  16. Why does the seller want to sell?
  17. Is there any unreported income, and if so, how much and how can you support the unreported income?
  18. Are all bills paid current? If not, which are not current?
  19. Are your employees union, and if not, what is the vulnerability for the workers organizing to have a union?
  20. Who are your vendors, how often do they make deliveries, and how do you make sure they are competitive?
  21. If we wanted to increase the size of the restaurant, is there a possibility of acquiring contiguous space that is available or may become available in the future?
  22. If we want to expand the hours of operation, is there any limitation to doing so?
  23. Are there separate meters for electric, gas, and water, and if not, how are you charged for these utilities?
  24. Is there a garbage area, and how much is your monthly garbage bill?
  25. Is there any possibility of an eminent domain or condemnation proceeding that could eliminate the business?
  26. Do you have a product mix breakdown for the menu, and if so please give me a copy?
  27. Is there any new competition coming into the area that might affect the sales level of the business?
  28. Who is the major competition in the area, and who is the head-on competition?
  29. Who are your customers, and what percent of your customers are regular customers, and how often do the regular customers frequent the restaurant?
  30. What percent of your sales is alcohol, and what is the breakdown of alcohol sales between hard liquor, beer and wine?
  31. How much inventory do you keep on hand, and how often do you take inventory?
  32. What has been your history of your promotions, and what promotions have worked best, and give me a detail on all promotions past and present?
  33. What contracts do you currently have, and could I please have copies of all your contracts?
  34. When you need to hire employees, what sources do you use to find them?
  35. Are any of your expense categories out of line, and in particular, your food and labor costs, and if so, why?
  36. Do you use any outside services, and if so, what are they, and how much do they cost?
  37. How are the daily books and records handled, and who does the daily cash reconciliation?
  38. How are deposits to the bank handled, and who handles them?
  39. How often do you receive income-and-expense statements, and if you receive them monthly, how many days after the end of the month does it take to receive them?
  40. What kind of preventative maintenance programs do you have, and how often are the following items cleaned?
    1. duct and flu system
    2. grease traps
    3. sewer drains
  41. Who handles the marketing and promotion activities for the business, and how much do these services cost?
  42. Who provides your liability insurance, and what is the premium and amount of insurance?
  43. Who provides your workman’s compensation insurance, what are the premiums and what is your experience mode?
  44. Are all your taxes current, and if not, which taxes are outstanding, and how much do you owe in outstanding taxes?
  45. Do you have any other type of insurance?
  46. Have there been any power outages or disruption of utility services for any significant amount of time.
  47. Are there any gift certificates outstanding, and if so, how much, and what is the redemption rate?

Getting responses to the above questions will enhance a buyers chances for success in determining if this is the right business for them. For further information on how to complete a thorough due diligence process in acquiring a business please contact us.

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About The Author
Steven Zimmerman, CBI, M&AMI, CBB, FIBBA

Steve is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1000 restaurant, bar or club businesses, sold many commercial buildings and completed over 4,000 restaurant valuations since 1996. His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building. Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company Steve had over 20 years of restaurant experience and was President and Chief Executive officer of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area. READ FULL BIO | HIRE EXPERT WITNESS - LEARN MORE