So you are considering buying a Restaurant. Before you do so there are some things you should know.
Watch Your Margins
Experienced restaurant owners know that one of the keys to success is controlling costs. Restaurants run on tight margins and if costs are not controlled it is impossible to make a profit.
Here is a general guide for the ratios of cost of goods to sales. This applies to a full service restaurant. Fast food restaurants operate at slightly different ratios.
Food costs should remain in the ratio of 28%-32% of gross food sales. Anything above 32% and as an owner you will find it difficult to be profitable. Below 28% could indicate that you are serving substandard food to your patrons and that will come back to bite you.
If you are serving alcohol, liquor costs should 18%-20% of gross liquor sales. Beer should run 24%-28% (bottle) and 15%-20% (draft). Wine should generally run 23%-35%.
Labor costs should not be much higher than 30% of total gross Sales. Most restaurateurs try to keep property rent at 8% or lower.
The margins for food and alcohol can also help to spotlight employee theft. If margins suddenly change it might be because a new employee has sticky fingers or is being a little too generous on their pours. Restaurateurs are well advised to keep a close eye on margins. Monitor your costs on a monthly or even weekly basis.
Managing employees can be a major drag. Employee turnover is a big problem in the service economy. In recent times it has become even more challenging. Keeping good employees can be a difficult task. It is important to make sure you are paying a competitive wage. But one thing that can help and costs nothing is attitude. Be fair and respectful to your employees.
Cleanliness is next to…
The health department is another major concern. A bad inspection has ruined many a good restaurant. Make sure you keep up with the requirements of your local health department. If there is a problem, fix it immediately and properly. This is one area you cannot afford to be lax.
Know your niche. McDonalds has made billions serving bad food but they serve it cheap, fast and they are consistent. If you want to charge a premium for your food then you will need to deliver quality food with good service.
My last piece of advice when it comes to buying a restaurant is this. Think long and hard before you do. Many restaurants fail. Even experienced operators go under. If you don’t have a background in the Industry the odds are against you. But hopefully the advice I offer here will get you off on the right foot.
Anthony John Rigney PA
I am a Business Broker and Board Certified Intermediary in the State of Florida. I am also the owner and founder of Quorum Business Advisors a leading business brokerage Company.