How to BUY a Hospitality Business and be a better Business Buyer
There are MANY bargain hospitality businesses urgently for sale for a variety of reasons including the 3 D’s – impending Death, Divorce and Disasters like a partnership split. If you could get a GREAT deal would you consider being a business buyer?
Over many years in the Hospitality Industry, as an Owner and Consultant, I have been involved in the purchase, growth and sale of many Businesses.
You want to be able to QUICKLY QUALIFY whether any businesses is suitable for you and whether it’s a dud or a great deal with lots of potential growth.
You can find potential businesses to buy by searching online or asking a good hospitality business broker.
TIPS FOR BEING A BETTER BUSINESS BUYER
- Always Open In A Friendly Way – Introduce yourself and tell a little about your background and purpose.
- Ask great questions and listen carefully – make notes, take pictures and write things down
- Be systematic and organised – use a questions list and be prepared in advance
- Do your due diligence and consult a lawyer before agreeing to anything
GREAT QUESTIONS FOR A BUSINESS BUYER to ASK when investigating a business to buy.
WHAT IS THE BUSINESS OFFERING?
- What are you actually selling? / What is being sold – A Franchise, A Company or the Business Assets, the Brand Name, the Equipment, Stock, Goodwill, WIWO?,
- How long has the business been on the site – History of operations?
- What comes with purchase of the business?
- Is stock/equipment included?
- Are any equipment subject to finance or lease arrangements?
- When are the busy/quiet, peak and off-peak periods?
- Is it an existing lease, a new lease or a freehold?
TELL ME MORE ABOUT THE LEASE
- What is the state of the leased on the property?
- Terms of Lease?
- Would landlord renegotiate lease / extend?
- What does the landlord want?
- Would you/they consider a rent-free period?
- Has the landlord knocked back any changes to the building?
- How much guarantee is required 3 months or 6 months?
- Has the building being sold in last 2 years – This may give an indication that the new LL is a developer and at the end of the term may not extend lease.
TIMING OF THE SALE – URGENCY
- What is your timeframe?
- How much time do you have?
- What are you trying to achieve?
REASON FOR SALE
- Is there a particular reason you’re selling now?
- Are there any disputes between partners, neighbours, residents or landlord?
- How is Revenue? Traffic Flow? Any Building nearby?
- How long has the business been for sale & how many other brokers have been involved
ANY SYSTEMS IN PLACE
- What procedures and systems do you have in place?
- Do you have standard recipes and food photos?
- What is your actual revenue?
- Food % Wage % Rent %?
- Tell us about Previous Years P & L? – 3 years of P&L, debtors, ATO & Workcover records
- Any Cash missing from accounts – If books are incorrect – then why?
- How profitable is the business?
- What addbacks (non-operational costs) is the current owner charging to the P&L
- TIP: Get Copy of 2 years BAS statements.
- TIP: If there is a POS system – Look at all key indicator reports for past 2 years, has there been a shift in different products being sold.
- TIP – Ensure your accountant reviewed the financials and given you advise on what they see. If the business is a franchise has either your accountant or a lawyer reviewed the franchise agreement.
THE OWNER’S ROLE
- What do the owners do in the business – duties and hours?
THE TEAM – HR & OPERATIONS
- How many Staff are employed – Full-time, Part-time and Casual
- Staff stability? How much staff turnover
- How many managers and what are their duties?
- Is it operating under management?
- Are staff entitlements paid and up to date?
- What award are the staff employed under or is it an EBA
LICENCES & PERMITS
- What licences do you have?
- What are the Licence conditions – food/liquor
- Any restrictions relating to site, liquor licences or renovations?
- Any lawsuits or Workcover claims – past or pending?
- (see the blog on Due Diligence)
- Any agreements or contracts with suppliers?
- Utility bills and contracts?
- Any details of repairs, maintenance or refurbishments?
- Who are your main competitors? & who are the new competitors that have entered the market in last 2 years?
- What is your key Product/Theme/Setup?
- What’s your Advertising Spend? As a % of sales
- How is your Online reputation?
- Do you have Access to your Customer Database / loyalty programs?
Then deal really has to be an agreeable for the Business Buyer and Seller.
- What are you looking for?
- What’s in it for me?
- Why should I buy it?
QUESTIONS TO ASK YOURSELF ABOUT FINANCING THE DEAL
As a Business Buyer it’s better NOT to be under-capitalised.
- How are you planning to finance the business?
- What investment are you planning to put in & how much finance are you planning to borrow
- What are you planning to use as a guarantee – Your house or other investments
- Do you have a finance broker & are they looking at different options?
Remember – Caveat Emptor – Always Let The Buyer Beware!
BIG Disclaimer – This is NOT an exhaustive list of everything that you need to ask before buying a business but just some of the many things that can be found out during hospitality business due diligence prior to a purchase.
Doing good due diligence during the buying process will help smooth your transition to hospitality business owner.
BUSINESS BUYER RESOURCES FOR CAFE or RESTAURANT BUYERS
- Gina Ezard has written a great book about buying a cafe or restaurant called OPEN FOR BUSINESS
- Eldred Hospitality has a great 2 day workshop for people opening a new cafe or restaurant run by Gina Ezard.
ABOUT THE BLOG AUTHOR – David Staughton CSP
Big Hat Professional Services can help you grow your hospitality business and improve your Function Event & Wedding Sales. David & Kevin can help you!
David Staughton CSP is an award-winning International keynote speaker, and experienced Small Business consultant. With over 15 years ‘hands on’ experience in the Hospitality industry, he speaks and consults on a wide range of hospitality business improvement in the areas of sales, staffing, service and strategy.
Kevin Kosky is a skilled business communications trainer. He is a specialist on inbound phone skills, presentation skills and delivering sales presentations. Kevin is an expert teacher of face to face communication skills like sales, supervision, and presentation skills.
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