Restaurant for Sale! Watch Out When Buying an Existing Eatery

Ask people what type of business they’d open if they had the chance, and many of them will answer “a restaurant.” There’s something appealing about feeding people and becoming a well-known meeting place for your friends and neighbors in the community. There’s also the potential to make a lot of money. According to the National Restaurant Association’s State of The Restaurant Industry Report, sales in the food and beverage industry are projected to total $789 billion in 2021, up almost 20% from 2020.

But not all restaurants get a piece of that pie. The Restaurant Association estimates about 30% of U.S. restaurants fail.

Investors who dream of becoming restaurant owners but who don’t have the desire or skill to build one from the ground up often look for “Restaurant For Sale” notices for local eateries. Buying an established restaurant theoretically lets you bypass the difficult early years and step right into the profitable ones, increasing your chances of success.

But it’s not as easy as it sounds. Before buying an established restaurant for sale, there are six things you need to do to make sure you’re not throwing your money away.

1. Find out why the owners are selling.

They may be ready to retire and travel the world or spend more time with the grandkids. Health problems or other family issues may mean they no longer have the time, the energy, or the desire needed to run a restaurant. They may also be selling because the restaurant is losing money and they want to dump it before they lose too much.

2. Calculate the cash flow.

A positive cash flow means the restaurant earns more than it spends. To fully understand where the money is going, you need to examine key performance indicators:

  • Labor costs. The restaurant should spend no more than about 30% of total sales on staff wages and benefits.
  • Food costs. Food costs should also comprise about 30% of sales.
  • Profit margin. The minimum net profit margin should fall somewhere between 3% and 5%. Any lower and it may be a cause for concern.

If the restaurant’s owner refuses to give you and your accountant access to the books, it’s a sign that something might be wrong, and you should walk away from the deal.

3. Look for existing legal liabilities and tax issues.

You need to make sure the owner didn’t have any problems you’ll be forced to deal with once you take over the business. For instance:

  • Have the employees been paid properly?
  • Are the taxes or the rent delinquent?
  • Is the restaurant facing any customer or employee lawsuits?
  • Are there ongoing concerns with the health department?

4. Examine the equipment.

Restaurant equipment is expensive to replace, so you will want to make sure it’s in good working condition. Also, check to see if the restaurant owns it or is simply leasing it. If it’s leased, see if the lease can be transferred along with the sale of the business.

5. Check the restaurant’s reputation.

If there are a lot of bad reviews online or the community has a bad impression of the place, that may not change even if customers know the restaurant is under new management.

6. Ask the sellers to sign a non-compete.

While this shouldn’t be a deal-breaker, you want to make sure the former owners don’t open a restaurant down the street that’s just like the one they sold to you.

The Benefits of Buying a Franchise

You can avoid these potential problems by buying a franchise with a proven brand, like Scooter’s Coffee. One of the biggest benefits of joining Scooter’s Coffee as a franchise owner is that you’ll be in business for yourself, not by yourself. You don’t have to start it alone, like you would if you built a restaurant from scratch, or run it alone, like you would if you found an already-established restaurant for sale.

Our franchise model is designed to support you every step of the way. Even before you invest your money, you’ll able look at Item 7 of our latest Franchise Disclosure Document (FDD) to see a line-item breakdown of our startup costs. You’ll also have the opportunity to meet other Scooter’s Coffee franchisees to get an understanding of what it’s like to operate a location.

Once you’re on board, we’ll train you on everything you need to know to run a coffee franchise. We help with the construction of your facility and source your equipment and supplies so you can get the best deal. Our Field Operations team is always ready to provide business guidance and support to answer questions whenever needed. We’ll do whatever we can to help you make your franchise a success.

Franchisee Testimonials

Current franchisees are so happy with their decision to invest in Scooter’s Coffee, they offer these testimonials. When they started this journey, these investors had no coffee experience but were impressed by the customer service and the delicious beverages they experienced at a Scooter’s Coffee. They speak highly of the continued support they’ve received from Scooter’s Coffee. One franchisee called the franchise plan a “step-by-step playbook” that teaches you everything you’ll need to know.

Learn More About Scooter’s Coffee Franchising

We’re always looking for smart, dedicated entrepreneurs to join the Scooter’s Coffee franchise family. If you think you have what it takes to own a Scooter’s Coffee franchise, fill out this form, and a representative will contact you with more information.

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