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Buying a restaurant: The pitfalls to avoid.

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Buying a restaurant: The pitfalls to avoid

Before buying a business, precautions are necessary. Turnover, balance sheet, overview of the right questions to ask and many more. Becoming his own boss attracts more and more people. And the corporate creations in the catering industry are constantly growing. Yet, before embarking on the adventure and buying your own restaurant, a number of precautions are needed to avoid any unpleasant surprises.

With or without the walls

A goodwill alone does not necessarily have the same value as if it is sold with the walls. The price of the monthly rent will in fact be added to the basic loan to buy the property. In other words, you have to be aware of very low selling prices that hide a rent on top that adds several hundred euros per month.

Another advantage of owning the walls: nobody can kick you out of your own restaurant.

A commercial lease has usually a term of 9 years, and even if the tenant has a right of renewal, it is not automatically granted. The owner may decide to resume his premises. In this case, he must pay an eviction indemnity to the owner of the goodwill. This indemnity is intended to compensate the damage suffered by the restaurant owner, but this rarely compensates for the loss of the goodwill in which the initial money was invested. In the case of a self-entrepreneur, it is better to own the walls as there is obviously no protection. Clearly, a landlord can decide to recover his walls overnight without any veto by the entrepreneur. It remains that a goodwill alone does not have the price of a goodwill with its walls.

What license?

Big or small license, bars, restaurants or snack do not all have the same degree of authorization to sell alcohol. It is good to inquire very precisely before buying. With the big license, all spirits (wine, beer or aperitifs and digestives) can be served, with or without meals. And that's the big difference with a small license that does not allow strongly alcoholic beverages (that is, anything that goes beyond wine and beer) that accompanies a meal.

The differences in terms of sales are therefore enormous and it is important to take into account the type of economic impact these beverages can have on the turnover of the business.

Evaluating turnover

As part of the sale of a restaurant, the law imposes to communicate the balance sheets of the last three months. It is important to report these annual figures to the number of opening days of the gastronomic business: A restaurant closed for two days a week and for one whole month will necessarily have a lower turnover than a business that opens every day around the year. But is it really comparable? This connection is very important and must be studied thoroughly.

Pay attention to Standards & Security norms

All equipment sold with the goodwill is deemed to be up to standard. Similarly, at the time of purchase, the seller must inform the buyer of all the items that need to be reviewed (re-painting the kitchen walls (appropriate for food-contact) or the renewal of washbasins, machines etc.) following a preliminary visit by the responsible governmental institution.

Must be taken into account:

  • Safety: Stick always to the regulations concerning maximum capacity, emergency exits, electrical installations etc.
  • Hygiene: Know the origin of your products and pass on this information to your guests, as specified in the European Directive 178/2002
  • Try to ensure the accessibility for people with reduced mobility.

Bribing: Beware!

To avoid to high tax expenses, many sellers tend to ask for bribes: they lower the sale price of the property if you pay them part of the difference in cash. Usually this is a win-win situation: the seller who avoids the extra tax and the buyer, who will see his notary fees (in the order of 6-7% of the total price of the sale) dropping accordingly. Yet, mistrust! For both the seller and the buyer, the risks are big. The buyer who will have, in the first place, an asset whose value will be substantially less on paper than what he has paid. Result: When you want to resell that property, you are losing a lot of money or you will have to be heavily taxed due to your capital gain. Moreover, such practice is punishable by law and can lead to a case of tax evasion. In summary, even if the bribe is attractive, it is better to abstain! Finally, for those who are still hesitant to start, the creation of a franchise restaurant can be the most suitable solution.

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