The downturn in the economic growth projections and the accompanying cost-cutting measures lead to large-scale layoffs. These out-of-job workers, sometimes, turn to be entrepreneurial and among other things, tend to open small restaurants to cater to local customers. Like any startup, the majority of these new food units close down by the end of the third year. Sometimes the owner is forced to close the unit or sell it to any other individual or a business entity. The new owners may keep the current name, menu and concept or change it altogether depending on their requirements.

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There are pros and cons to buying an existing restaurant or taking over a previous restaurant space. If you are thinking of opening your own restaurant or buying an existing restaurant, consider the following:

The benefits of buying an existing restaurant

A restaurant which is into existence for some period of time has developed its own operational personality and customer base. You do not need to buy kitchen equipment, upholstery or design an ambient dining room. If the price is reasonably negotiated, the existing restaurant may turn out to be a more financially viable business model than establishing a new restaurant business from scratch. 

The benefits of leasing an empty restaurant space

If the restaurant owner is not able to run the business, he may opt to close the unit, leaving behind an empty dining room, house kitchen & bar which may still be in good condition along with good quality equipment. A bank or landlord or owner may be more than willing to negotiate a favourable deal to get him rid of the inventory and fill the space with a new occupant. But before you sign on the dotted line, you need to ask yourself the following questions:

What were the reasons for the failure of this restaurant?

It is very important to ascertain the cause of the failure of the business in the first place. The reason could be any of the location, food or the service or it could be the mixture of all the three. The previous owners may have fled the rented space in which case it would be very hard to know the history of the restaurant or even the owners, if present, may not be inclined to accept that their business failed and they want an exit from this bleeding business of the restaurant.

The overhead cost

Overhead costs are the rent, utilities, payroll and other miscellaneous expenses. Too much overhead cost has killed many a business. A detailed business plan should be prepared which outlines how much money is required to cover all the overhead costs. If you are planning any significant changes, what are they going to cost you? These costs are to be accounted for in the initial business plan for capital requirements.

Define your target audience 

Even when there is talk of economic recovery, customers are still very careful while spending money, eating out is the first activity that is sacrificed. The restaurant owner/manager should smartly devise their promotional strategy keeping in mind the target audience. The requirements of a family of three are very different from that of the weekend bar-going customer

A restaurant owner/manager is also required to keep himself abreast of the current marketing techniques for his business.

Is the Restaurant having all the required or expected permissions & licensing?

Even if the existing restaurant is registered and licensed, the change in ownership may require some new permissions and licenses to be applied for depending on the law of the land. The new owner must make sure that the restaurant would pass any and all the inspections, otherwise, it will add to the cost of acquisition and delay the opening