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Michael A.
Michael A.
Taren Point, NSW
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Hi, I’m looking at buying a restaurant and have looked at a couple within reasonable proximity to home. I’m a qualified chef but having a difficult time trusting the financial and information the business brokers are providing. Is there a proven strategy on how I may be able to get the true picture on how the business is performing, thank you

5 months ago

Responses

Hi,
You need to go through the business bank statements for the last one year and see if they telly with the financials.
Also, look at what the owners currently own and why they are selling the business.
good luck.

Hi Michael,

Conducting due diligence is of utmost importance when you buying any business, helps in making sure what you are getting yourself into. You can do so after negotiating your terms of agreement whereby you will be able to see if what was told (claimed by seller) is true or not.

Obvious other thing that you need to do is to get the business valuation done with a qualified accountant. solicitor or a business broker.

Restaurant business is heavily involved with cash transactions and such businesses contribute towards the cash economy which ATO is trying to crack down upon so relying on company / business financials solely would be a big mistake so take into account your industry experience.

Bottom line would be to have someone on your side who knows about the industry and can guide you / help you in making the right decision.

Best of luck.
Anuraag

Hi Michael,

Best practice is normally to have a 'Due Diligence' clause in the business purchase contract. Speak to your lawyer and accountant about it and see what is often included in the due diligence process. A large part can be done by yourself, but there are aspects that need to be done by professionals.

Be prepared to spend 1-2% of the purchase price of the business on this process. Great re-assurance that everything is fine, or great investment in saving you from buying a lemon.

Do Not rush into the purchase without getting the right advice - CPA or CA accountant looking after SME's would be the first call to make.

Hope all goes well!

5 months ago

Hi Guys, this is good information and very helpful. Getting the bank statements is not easy and I don't want to be doing the due diligence on all at once so I think it would be better to pick the most likely and go from there. thanks again

Comments

Hi Michael,

If the vendor is not keen on parting with bank statements then does this cause your bullshit meter to go from medium to HIGH?????
It should.
You are purchasing a business based on nothing more than the vendors word and some figures that almost any 14 year old with a computer could doctor up. All you need is some dummy sales figures and the time to enter it all into an accounting program. The only tangible item that cannot be fabricated is the bank statements. If the vendor wont give you his bank statements its either because he is hiding a heap of cash skimmed from the business or he is hiding the fact that his business is not turning over what he says it is.

good luck
bc

Hi Michael,
A healthy level of scepticism is a good thing at this time. Speak to your accountant and ask him what percentage of his food clients make over $100,000 per year profit.
I’d be expecting “not many”
Tread carefully and good luck
Cheers
Scott

Hi Michael,
Go to the restaurant (several times), sit down, order a meal, check the service, the menu structure, the prices, how the other diners are treated, look at the responsiveness of the table staff, look at the cleanliness of the cutlery, the table cloths, the floors etc... how good is the food?

As you know, every place is different and if all of those things are great, there is a good chance that the people running the show take pride in their restaurant, and there is a stronger chance that they'll take pride in their books etc too.

Ask questions of the staff (in casual conversation), do you like it here?, how long have you worked here? why'd you decide to work here?

Basically, get a feel for the place. And you're a Chef, you know that your 'gut feel' is one of the most important indicators you have - Trust it... If your gut feel is bad, walk away, but if it's good, then start doing the checks and balances recommended above.

I hope that helps mate and Good Luck :-)

Graham

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