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BUYING A RESTAURANT

Information to consider when drafting a Business Plan for a new restaurant opening:

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Sources of Information
The following publications provide excellent information about the industry:
  • Nation’s Restaurant News 
    Lebhar-Friedman Publication                                          
  • The Restaurant Planning Guide
    Upstart Publishing Company                                         
  • Restaurant Management
    Prentiss Hall                                                                   
  • The Restaurant
    John Wiley & Sons.
Site Selection Criteria
Representative points to be considered:
  • Demographics
  • Competition
  • Activity generators
  • Demand for concept
  • Zoning Ordinances & Variance
  • Signage, Visibility and Accessibility
The Restaurant Facility
Representative points to be considered:
  • Availability of licenses and permits
  • Condition of the space & past history
  • Cost of renovations
  • Utilities – gas, water, electric, etc.
  • Workable Layout and Design
  • Rent, lease terms & R.E. Taxes
Buying a Restaurant
Documents to be requested:
  • Copy of the Lease
  • Tax Returns for 3 years
  • Financial Statements for 3 years
  • Complete Equipment List
  • Latest Health Inspector’s Report
Valuing an Existing Restaurant
These factors determine the value:
  • The potential for sales growth
  • The potential for cash flow growth         
  • The condition of LHImp & FFEq.
  • The length of the lease – 10 year minimum
  • Base rent as a percent of sales
The Professional Team
Select professionals with experience:
  • Attorney
  • Accountant
  • Contractor
Lease Negotiations
A partial checklist of salient points:

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  • Have lease reviewed by an attorney
  • Length of the lease – 10 years +
  • Base rent at Industry Average
  • Scope of Landlord/Tenant Improvements
  • Right of Assignment
  • Condition of space at delivery
  • Options to extend
  • Extent of Personal Guarantee
Unit Level Economics
Representative operating expenses:
  • Sales:  100%
  • Cost of Goods:  32%
  • Payroll Cost:  32%
  • Other Expenses:  20%
  • Rent:  6%
  • Cash Flow:  10%
Restaurant Concepts
The concept needs to be well defined:
  • Fine Dining: Ruth’s Chris, Capital Grill
  • Casual Dining: Applebees, Chili’s
  • Family Dining: Friendly’s, Denny’s
  • Fast Food: McDonalds, Wendy’s
  • Quick Casual: Panera, Baja Fresh
  • Bars, Pubs: Bennigan’s, Houlihan’s
  • Coffee: Dunkin Donuts, Starbucks
  • Other: Ice cream, Deli, Pizza, etc
Target Food and Beverage Costs
Percentage will vary based on concept:
  • Food: 29% – 32%
  • Beer: 22% – 25%
  • Wine: 29% – 32%
  • Liquor: 22% – 25%
Business Plan Outline
Samples available on the Internet:
  • Executive Summary
  • Company/Concept Description
  • Industry Analysis
  • Products and Services
  • Target Market
  • The Competition
  • Market/Sales Strategies
  • Operations
  • Management & Organization
  • Long Term Development/Exit Strategy
  • Financial Data & Projections