The Decision of opening a new restaurant or buying an existing one

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 being 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 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 requirement.
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:

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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, existing restaurant may turn out to be more financially viable business model than to establish a new restaurant business from the 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 favorable deal to get him rid of the inventory and to 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 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 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 restaurant.


The overhead cost

Overhead costs is 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 to be accounted for in the initial business plan for capital requirements.


Define your target audience 

Even when there is the 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 himself sure that the restaurant would pass any and all the inspections, otherwise it will add to the cost of acquisition and delay the opening

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Proprietorship Firm


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One Person Company


If you want to have full control over your business with limited liabilities, then OPC is the best choice to start with. But ensure that you convert your business structure (within six months) to the private limited company after crossing an average turnover of 2 crores over three consecutive years or has a paid-up capital of over 50 lakhs.

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When two or more people agree to do business together and both might be from same family or same association. Once partners are engaged in a business, each partner is personally liable for the actions of that business, including the obligations of the other partners There are no shields against personal liability.

LLP Registration


If you don’t want to take responsibility or liability for another partner's misconduct, incompetence or negligence and also want to limit your liabilities for the debt and losses. If you want to enjoy tax benefits, then LLP might be the best option to go with. It’s the most flexible type of business structure to start with.

Private Limited Company


It’s the most renowned legal structure for business. The financial liability of the shareholders is limited to the their shares in case of any defaults, bankruptcy and/or any suits or recovery by banks/creditors. This simply means that personal assets of the sahreholders are kept seperate from the Company itself. Private limited company has more credibility as compared to other business structures available.

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