Buy a restaurant?

[Jon Klaus]

I have a friend who wants me to back him in buying a restaurant. He has been to one of the best Chef's schools, has good restaurant management experience, has a good work ethic, is good with people, and is trustworthy. He does not have much cash or credit. He hasn't had his own business in the past.

The restaurant is in a great location in a small town. It is performing poorly because the owner operators are under capitalized, don't know the business, and are burned out. The space itself needs updating. The landlord will let them out of their lease if I sign with him. $1400/mo.

Buying the owners out is low 5 figures. Updating the space is a question. The landlord won't do any tenant improvements and he won't give me a purchase option on buying the building. He will give a right of first refusal on buying it. I'm willing to do some improvements, but see this as an area of risk. My partner only wants to do a short lease (1-2 years) to see how it goes and I think I agree, especially since I may be guaranteeing the lease. So how much TI to do? The more we do, the better for the business, but the more risk if the endeavor fails.

Also, how should we structure the equity split with me investing all the cash and guaranteeing the lease? I would not be involved in operations. My partner would give full time and attention to the business.

What other considerations? I have a lot of small business experience, but none with restaurants.

[Robert Taylor]

@Jon Klaus

-not that I normally like to resurrect dead threads, but I'm just wondering how your restaurant experience is going? I've been in and out of the restaurant/bar biz for years and have seen many come, some go and some stay and succeed. I've also seen a phenomenon where people who make a bunch of money in some unrelated biz get the wild idea that it would be cool and fun to open a restaurant/bar and make a bunch of money while having a blast. 99.9% of the time, they seem to end up going down in flames! Yet, some do make it here and there.

Just to chime in on a few of the thoughts here, I like non-franchised places, although I've seen some make good money by owning franchises as well. Yet, I've seen it more where people buy a franchise and work their *** off for maybe $100k a year in profit or less, not a bad living but not that great when you consider not only the hours you're there but the fact that you're basically on call 24/7 and those calls do come! My older brother has done very well for himself owning several non-franchised places and still could have the option of franchising them to other people as well, which is where the really big money could come in.

My other thoughts are that the restaurant/bar biz is definitely a tough one but if you can master it, you can succeed over and over again. As some have mentioned, your two main concerns are food cost and labor cost, those are your two overwhelming variables, keep them in line and serve a good product and you're likely to succeed. That having been said, its much easier said than done. Theft is always another big concern, especially on the bar end of the biz, there are many very talented bartenders that are also very talented thieves! The old trick of selling 4 drinks and only ringing in 2 of them is probably the most common technique. Thus, you just put say $20 of the customer's cash in the drawer, yet the register thinks it should only have $10. You keep a running count in your head of how much your drawer is over through the shift and at some point, remove and pocket that money when no one's looking and your drawer comes out even when they count it and no one's the wiser. Yes, you can fight this by monitoring liquor cost closely and they even sell high-tech metering systems and camera systems now, but again its much easier said than done. The biggest obstacle there is simply the time factor, when you're already rather burnt out from a crazy busy weekend or whatever and you've got a bunch of other work to do to keep the place running right, who's going to take several hours out to sit and watch some usually grainy silent video of a bartender serving drink after drink or measuring how much booze is left in each one of 100+ bottles of liquor?

One trend that is making theft harder is that more and more customers now use charge cards to pay, I really don't know how an employee could steal from someone paying with a card, but a lot still pay with cash, more than enough to make it hurt if you have some clever thieves in the mix. Of course, there's also always the occasional prime rib or whatever else that might disappear out the back door as well. I remember at one of the places I ran, the chef REALLY wanted to order some saffron for a special, which was at the time like $70 for a small tin! You only needed a pinch, so luckily we only needed to order a tin or two at a time, but I still remember pulling my hair out each week as I'd check on the saffron supply and sure enough, one tin did disappear at one point, causing me to lock the extra supply in the safe!

Anyway, just wondering how your venture is going so far?