May jump into a brick & mortar

82's BBQ · Posted: Jun 10 2013 Post subject: May jump into a brick & mortar

Hey everyone. We were just introduced to a decent deal on a restaurant, $25k for a small place (capacity 50). Nice lot size, semi well traveled road. Current restaurant has been there for 50+yrs but the owner is finding it to be too much to handle now. What are some pitfalls or things to consider before making a commitment?
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Can I get an order of fat, dipped in fat, wrapped with fat with some fat on the side?
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Char Broil Akorn grill
QDS drum
Bubba 250 RF 5x10 trailer w/ rib box
Engelbrecht Braten
"82's BBQ Crew"
Liar #82
www.82sbbq.com

marubozo · Newbie Joined: 26 Mar 2013 Posts: 45 Location: SW Michigan

I'm in the process of opening a small place right now myself, so here are a few things to consider first.

Call up your health department and ask the health inspector if he can come meet you at the building and do a walkthrough with you. The will be very helpful in pointing out both the good and the bad and give you some insight as to what you can or can't do if you buy the place. Sure, it may be in operation right now and be kosher for the current establishment, but there are probably a lot of things that have been grandfathered in over the years and if you were to make a slight change or remove/add a piece of equipment, you could then be required to do it up to current code, which could end up costing thousands, if not tens of thousands of dollars. Hell, just getting the OK to have a smoker may end up being a deal killer. I ran into a situation like this with the existing hood and ventilation system at my place. It's fine as long as I don't touch it. If I try to change something with it, I would be looking at something in the neighborhood of at least $10k to replace it up to current requirements.

Get your own inspection. Inspections typically aren't required for commercial properties, and if you are paying cash or working with a private sale, certainly not required. But it will be the best money you can spend before making an offer. Expect to pay $500+ but they will tell you everything you need to know about the building. Even if it looks just fine and the owner says it's all good, you have no idea the little things that a good inspector will find. Even if there are problems that doesn't mean it isn't a good deal, but you want to know from day one what issues, or even potential future issues there may be. A few hundred bucks today could save you many thousands later.

Start talking with insurance companies before you commit. This was a big mistake I made and I waited too long. I figured a few weeks before closing would be plenty of time to get coverage, but insurance on restaurants is a very unique beast. Don't be surprised if you call 10 insurance companies and get 10 denials. And even when you do find coverage, expect it to be much more than you expected if this is your first foray into the restaurant business.

Finally, plan on having twice as much money set aside as you think it will cost. People joke about this all the time in the restaurant business, but it's true more often than not. Even if you budget everything out and think you have a realistic handle on pre-opening expenses, you will quickly find that there are tons of unexpected costs that find their way into the mix. I'm a finance guy by trade and I thought I had my spreadsheet and budgets dialed in like no other. I was off by quite a bit. I think by the time I even signed the papers at the closing I was in around $6k out of pocket between insurance, inspections, water tests, sewer tests, ordering a new sign, a $1,500 electric company deposit, appraisal, and on and on.

So, all I can say if you're buying a place is do your homework. And don't fall in love with a place. I was in the market to buy a place for near two years before I settled on this building. I probably looked at a dozen properties, and in hindsight maybe wasted a lot of people's time and spent a lot of money on inspections or consultant fees on places that never panned out. But in the end, I think that was all time and money well spent since it kept me away from some places that just weren't the right fit.

Good luck.

82's BBQ · Posted: Jun 10 2013 Post subject:

Thanks for the head's up on the grandfathering of certain items. Out of everything that has ran through my head that is one thing that I missed, so far. I plan to call my HD tomorrow and get their opinion/concerns of the place. I currently have been catering already and have a really good relationship with the HD. The good thing is that I will be able to keep one of my 2 fulltime jobs while I get up and running. I would plan on doing a friday/saturday operation to get started and see how things go. The place was loved by the neighbors, but changing from a diner to a BBQ restaurant is a bit different. My gut is stirring something fierce. Every time we think of a "negative" something pops up to change it. It feels like we are being lead down this path.
_________________
Can I get an order of fat, dipped in fat, wrapped with fat with some fat on the side?
------------------------------------------------------
Char Broil Akorn grill
QDS drum
Bubba 250 RF 5x10 trailer w/ rib box
Engelbrecht Braten
"82's BBQ Crew"
Liar #82
www.82sbbq.com

qfanatic01 · Posted: Jun 11 2013 Post subject:

I would think about transitioning the menu if this place is making any money. See if that could be part of your purchase agreement. Add your BBQ as new special addition and celebrate the new ownership. You might find you can keep the cash flow of the past clientele along with expanding your customer base.
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The lessons are in the customer's criticism. They aren't always right. The rewards are their satisfaction.

82's BBQ · Posted: Jun 11 2013 Post subject:

we went and looked at the building today and took some pictures.

http://s529.photobucket.com/user/emtp82/library/Leons%20Diner

It's a bit smaller than we were hoping for, but the lot size gives room for expanding. It doesn't have a storage room. All of the equipment comes with the building.

Anything you see that stands out as an issue?

I was hoping to be able to get it on contract for the rest of the year and then pay it off at the beginning of 2014. The owner said she isn't able to do that, it was wishful thinking.

My other option is to try for a business loan, but am afraid that I don't have enough history in the business to be accepted. What is your experiences with getting a business loan?
_________________
Can I get an order of fat, dipped in fat, wrapped with fat with some fat on the side?
------------------------------------------------------
Char Broil Akorn grill
QDS drum
Bubba 250 RF 5x10 trailer w/ rib box
Engelbrecht Braten
"82's BBQ Crew"
Liar #82
www.82sbbq.com

Harry Nutczak · Posted: Jun 12 2013 Post subject:

82's BBQ · Posted: Jun 13 2013 Post subject:

The building is currently not generating any income for her and she is tired of making payments on nothing. It was a "ma & pa" diner before it closed down for health issues. So taking it over and adding to it really isn't an option.
The option of buying on contract was a an option that I was hoping for myself. I figured I could make payments while still working my 2 full time jobs. That way, I could get it set up for my needs, collect another months worth of vacation, get my Christmas bonus and then collect my profit sharing as soon as I quit one fulltime job at the beginning of the year. I would then have used the profit sharing money to payoff the building.
The second fulltime job has a very flexible schedule (I could work back to back 24 hr shifts as a paramedic). That would allow me to start off being open Friday/Saturday and still collect another check of some sort.
_________________
Can I get an order of fat, dipped in fat, wrapped with fat with some fat on the side?
------------------------------------------------------
Char Broil Akorn grill
QDS drum
Bubba 250 RF 5x10 trailer w/ rib box
Engelbrecht Braten
"82's BBQ Crew"
Liar #82
www.82sbbq.com

marubozo · Newbie Joined: 26 Mar 2013 Posts: 45 Location: SW Michigan

MO Barbecue · Posted: Jun 18 2013 Post subject:

If its not making any money, it's probably not worth 25k unless its got a nice new kitchen. The value of a restaurant depends on good will and income, if neither are present, then there's not much there unless the equipment is worth it.

I'm on my second restaurant, both were built out restaurants, with some equipment, but nothing of any real value. I got both for just a lease payment. In my opinion, a closed restaurant with no income has no value outside what you can get it from the landlord on a monthly lease.

To what Harry touched on, when I sold my first restaurant, when I walked it was netting 10k a month, i have excellent credit, owned my house with equity, and own a other piece of property free and clear. I had a min of 25k a month in my operating account (with the same national bank) for over 2 years with 50k+ a month in deposits, yet was turned down for a loan to open my next restaurant. I wish I understood bankers, guess if I did I'd be doing something else!