Buying a Restaurant

E

eternit

Hi,

I am looking to buy a restaurant. I am still negotiating on the price with the owner of the restuarant.

However, the owner of the Restaurant said that when we sign a lease with the owner of the property the price could be more.

What is the best way for me to negotiate the price on the lease of the property if I buy the Restaurant?

Thanks so much.
 
A restaurant without a lease is not much of a restaurant or anything else.

I would expect either (a) a long term lease to be in place before you purchase the restaurant or (b) a binding long term lease to be entered into conditional only upon you completing the purchase of the restaurant.

I would never buy a business if I wasnt provided with security of tenure. Either way the lease has to be finalised before you finalise your negotations to purchase the business.
 
Ok cool.

I will need to have a meeting with the owner to discuss the lease terms if we can agree on something and a contract is signed then I will have the settlement on the Restaurant.

Thanks for that.

Any suggestions on negotiating the monthly rent? I would prefer to have it lower then it is now if possible ;)

Also I was thinking of having a 5 year lease + 5 year option.
 
eternit said:
Hi,

I am looking to buy a restaurant. I am still negotiating on the price with the owner of the restuarant.

However, the owner of the Restaurant said that when we sign a lease with the owner of the property the price could be more.

What is the best way for me to negotiate the price on the lease of the property if I buy the Restaurant?

Thanks so much.
Click to expand...

Why would it be more?

Is the restaurant owner trying to say that the business is worth $x based on the current lease in place (and other factors), but it would be worth more if there is a longer lease in place?

The price is what it is, and the lease is part of that price you would expect.

You wouldn't buy any business without a very secure lease in place otherwise there is no premises to operate the business from, and if you are needing to obtain finance, Banks won't lend you money without a lease - the longer the better.
 
BayView said:
Why would it be more?

Is the restaurant owner trying to say that the business is worth $x based on the current lease in place (and other factors), but it would be worth more if there is a longer lease in place?

The price is what it is, and the lease is part of that price you would expect.

You wouldn't buy any business without a very secure lease in place otherwise there is no premises to operate the business from, and if you are needing to obtain finance, Banks won't lend you money without a lease - the longer the better.
Click to expand...

The restaurant owner is saying that she knows the commercial property owner that is why the lease is cheaper currently and once a new owner comes in it might be more expensive but she said she doesnt know.

I will make it clear to restaurant owner that my offer is conditioned to the same rent as she is paying with a 5 years lease + 5 years option
 
I'm not sure why you think that the owner would be at all interested in allowing you to sign a lease for less rent than their "mate" is paying. :confused: Other than you just wanting to pay less, is there any reason for you to think this is reasonable? Has the market substantially softened recently?

And a gratuitous aside: I trust you're buying this restaurant because you have a passion for the expensive hobby of being a restaurateur, not because you view it as an "investment"? ;)
 
ozperp said:
I'm not sure why you think that the owner would be at all interested in allowing you to sign a lease for less rent than their "mate" is paying. :confused: Other than you just wanting to pay less, is there any reason for you to think this is reasonable? Has the market substantially softened recently?

And a gratuitous aside: I trust you're buying this restaurant because you have a passion for the expensive hobby of being a restaurateur, not because you view it as an "investment"? ;)
Click to expand...

I view it as an investment, but why do you say that "not because you view it as an investment" ?

My mum is the one who has passiong and she owns another restaurant and she paid a lot more for that as it was newly built and the rent is very high for that premises compared to this one and that place is a lot smaller too.

This restaurant is in the city and is very very sp[acious. I will not be running the internals myself, we already have a main chef who will be working there for us and will hire some people for the floor.

I am not sure but are you suggesting that Restaurant business is not a good investment?
 
eternit said:
I view it as an investment, but why do you say that "not because you view it as an investment" ?

My mum is the one who has passiong and she owns another restaurant and she paid a lot more for that as it was newly built and the rent is very high for that premises compared to this one and that place is a lot smaller too.

This restaurant is in the city and is very very sp[acious. I will not be running the internals myself, we already have a main chef who will be working there for us and will hire some people for the floor.

I am not sure but are you suggesting that Restaurant business is not a good investment?
Click to expand...

All businesses can be good or bad.

I think what Ozperp is intimating is that running a restaurant is a "hands-on" business in most cases.

I'm sure you know that, and if you feel the figures work, then go for it with both eyes open.

You know that we will always be the devil's advocates and give you the "what-ifs" to help make sure you are safe and sound.
 
Leases can lock you in for years. Which of course is what you want if you have a successful business. You don't want to build up a great restaurant and client base then after 3 yrs be told to move on as the lease has expired and you are out on the street.
On the other hand should the business fail the landlord can chase and sue for everything. Your house and all.
So make sure you get proper legal advise before just signing 100 pages of a commercial lease. They can be very involved.

Good luck

Gee Cee

P.S. Have you read up on small business or looked into doing some of the short courses available.
 
I know a few people who have "done very nicely, thank you" from operating their own business. None of this (small) group have done it as price takers on leases. If you are leasing, you must be a bit like Woollies and have the property owner keen to keep you. I know and like a couple Asian restauranters and I would hate be trying to raise their lease. :eek: One Chinese lady who came here from a Pacific nation while working for ANZ still has them (ANZ) giving her rates on her plastic transactions that bigger groups can only dream about.

If you take a step lower on the "success path" a lot of guys run a good biz for years (decades, actually) and when it comes to retiring, their (freehold) premises are their real retirement fund. The business, which allowed them to become millionaires, is unwanted by a generation which believes the path to riches is by borrowing, not working.
 
eternit said:
I meant to say that how can I negotiate less rent on the premises with the current owner of the commercial property....
Click to expand...

Doh! Sorry, I get it now..... :eek: Somehow read your original post as you buying the property, not you as tenant.

Cheers,

The Y-man
 
Hi eternit,

When buying a business, our main concern should be with profits, not turnover which in my humble opinion is what too many people get hung up on. My point simply, is that any rental increase, will impact negatively on your profit.

Therefore in this particular case, you may wish to insist on sighting a new contract from the landlord, stating exactly how much the new rent will be so that you know if there is still enough $$$ left over from trade, for you to generate a profit.

Basically this is what Boomie said already, I just want to drive home how important this is. The current owners will realize that if the rent is going to go up substantially, this will reduce the amount of money the business is worth to you, ( although it does not mean that someone else won't be prepared to pay more than you)

They sound like they have been honest with you so far, so hopefully if they sense you are really interested they will play fair in further negotiations.

Please keep us up to speed with how this works out for you.

Regards Jodie
 
:eek:

oops! Seems I missed several posts after Boomies and realize now you already have this part all sussed.
All the best in negotiations. 5+5 year options are very popular with LL's so hopefully that will get you off to a good start.
 
silversands said:
Hi eternit,

When buying a business, our main concern should be with profits, not turnover which in my humble opinion is what too many people get hung up on. My point simply, is that any rental increase, will impact negatively on your profit.
Click to expand...

Exactly right. That's all that is important - nett profit after tax.

Not much use having $5mill turnover business with a NPAT of $50k.

It's also good to analyse the expenses to see where the current owners are spending too much.

It's really nice when you can see another $10 or $20k (or more) you can save money on. ;)
 
Gee Cee said:
Leases can lock you in for years. Which of course is what you want if you have a successful business. You don't want to build up a great restaurant and client base then after 3 yrs be told to move on as the lease has expired and you are out on the street.
On the other hand should the business fail the landlord can chase and sue for everything. Your house and all.
So make sure you get proper legal advise before just signing 100 pages of a commercial lease. They can be very involved.

Good luck

Gee Cee

P.S. Have you read up on small business or looked into doing some of the short courses available.
Click to expand...

Very good points above.
Another drawback on a short term lease can be the fact that the restaurant is very successful. If the landlord know this they'd be mad not to bump up the rent.
 
Bradsdad said:
the restaurant is very successful. If the landlord know this they'd be mad not to bump up the rent.
Click to expand...

Not if he can't cook. :D If you run a good business, why would your landlord want to kick you out?

Not all landlords are as hungry as many here seem to be.
 
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