Best Questions To Ask When Buying A Hospitality Business

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.

Business Buyer

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?

THE FINANCIALS

  • 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?

LEGAL RISKS

  • Any lawsuits or Workcover claims – past or pending?
  • (see the blog on Due Diligence)

SUPPLIERS

  • Any agreements or contracts with suppliers?
  • Utility bills and contracts?
  • Any details of repairs, maintenance or refurbishments?

MARKETING

  • 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?

DESIRED OUTCOMES

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. 

Good luck!

BUSINESS BUYER RESOURCES FOR CAFE or RESTAURANT BUYERS

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ABOUT THE BLOG AUTHOR – David Staughton CSP

David Staughton Hospitality TrainerBig 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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