Learn What You Can Expect When Starting or Buying a Restaurant Business
Starting up a restaurant is an exciting prospect and a tall order, especially in a metro area like Denver, where there’s no lack of foodies and innovative food concepts (there are more than 11,800 eating and drinking spots in CO). So if there was a way to get a head start on the leg work of starting up a restaurant from scratch wouldn’t you want to know what it was? Buying a restaurant can be a great option for an entrepreneur to break into the restaurant industry. In this article, we outline some of the pros and cons of starting up and buying a restaurant to help entrepreneurs figure out which path to ownership is right for them.
How “Out of the Box” is Your Restaurant Idea?
If your restaurant concept is completely different from anything on the market, buying a restaurant may just not be an option. Maybe the build out is very specific or the skill set of the kitchen and wait staff has to meet certain requirements - whatever it may be - buying a restaurant only to change all the value added items of an existing business simply won’t work. On the other hand if your concept is similar to other market offerings, most small businesses are based on like business models, so an established restaurant could easily be molded into your dream restaurant with less effort than starting from scratch.
What is Your Capacity for Risk?
Starting up a restaurant comes with a lot of risk, especially capital risk, because building a business from the ground up is an expensive endeavor. When you buy an established restaurant, you can reasonably assume that it will continue to be profitable after the purchase, if it has been profitable in the past. It also provides the option to invest your capital in the business more gradually as you make changes and evolve it to fit with your strategy. Setting up a new restaurant from scratch is certainly riskier than buying a restaurant that has proven revenue and a customer base built in.
Timeline to Launch
In the current Denver landscape, finding the right space, negotiating the lease and tenant improvements, finding the right contractor, getting permit approval can take a year alone. Build out can take another year after that and often has delays and unseen costs that come into play. The delays can be stressful and can eat into your working capital. When you purchase an existing restaurant, you can make cosmetic changes without even pulling permits, making your turnaround to open very fast and setting yourself up for quick cash flow.
Restaurant Equipment Depreciation
When you purchase brand new equipment, much like a brand new car, as soon as it leaves the warehouse, it loses value. You can often find restaurants with equipment that is only a few years old and in excellent condition available for purchase. If equipment is cared for properly it can last twenty years. So there is no real need to buy brand new equipment unless you have a special need that is unique.
Can I Use the Assets and the Location of Another Business?
In active commercial real estate markets like the Greater Denver Metro Area, your ideal restaurant space location might just not be available. But a unique way around this is to buy a restaurant for its location in an asset sale. Asset sales are often priced cheaper than a sale based on cash flow, and is a really great way to snag a location that would otherwise be impossible to access. This type of opportunity is also a great way to acquire expensive restaurant equipment and a fully built out kitchen with a hood and a grease trap at a discounted rate.
What About Owning a Restaurant is Appealing?
If you’re the type of entrepreneur who wants to control every minute detail of their restaurant business, than starting up is going to be the better option for your ownership scenario. But if you’re more interested in running the business and hitting the ground running, than buying a restaurant is a great chance to dive right in to the business immediately.
Hiring employees is a time intensive process. But when you purchase a restaurant, the employees are already in place and, depending on the business, can even include high level management personnel. Starting with an experienced team all ready to go provides a foundation to build from, even if tweaks to the roster need to be made in the long term.
Another draw to buying a restaurant is the number of service providers that will already be in place for the business from linens to dry goods, most of the necessary accounts will already be established. For startups, setting up a supply chain can be difficult, and can even affect your ability to provide quality food and service to your customers. Having vendor relationships already in your pocket will make it much more simple to get your restaurant off the ground.
Starting up a restaurant and buying a restaurant are both great paths to restaurant ownership, the benefits of each will need to be weighed by the prospective owner to identify what is right for them. On one hand there is the access to a build out, assets, and employees, all valuable items, but on the other hand there is complete control over a concept from ideation to reality. Ultimately, the choice is in the restaurateurs hands.
To learn more about buying a business with Transworld Business Advisors and our buyer qualification process, schedule a free consultation with a business broker or visit our website for more information.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!
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