The complete guide to taking over a restaurant
In many respects, taking over a restaurant can be a good alternative. However, buying an existing business is a delicate undertaking. It means rigorously following a number of steps if your project is to be successful.
- Why take over a restaurant?
- Set out your project before taking over a restaurant
- Where can you find a business for sale?
- Analyse the restaurant’s business
- Restaurant location
- Premises and equipment
- Restaurant clientele
- Licences and contracts
- Restaurant staff
- Offer, price and reason for selling
- Check the restaurant’s finances
- Steps involved in taking over a restaurant
Why take over a restaurant?
Buying an existing restaurant has numerous advantages, and is, in fact, a solution favoured by many restaurant owners. It is generally less risky than opening a restaurant since it entails taking over a business currently in operation, whose potential has already been established.
Generally speaking, it is easier to secure bank loan financing for the purchase of an existing business than for a restaurant start-up project, as lending institutions can already ascertain the establishment’s financial viability and solidity.
In addition, taking over a turnkey restaurant allows you to immediately generate revenues and rapidly pay yourself a salary.
On the other hand, finding a business to buy can be a long process that also presents its fair share of risks. This is why it is important to carefully examine every aspect of the business before taking the plunge.
Taking over a restaurant also means adapting to an already established business, with staff in place. This can limit the freedom to make decisions.
Set out your project before taking over a restaurant
All business takeovers involve asking yourself a number of questions to define the scope of your project. This will help narrow down your search and better target businesses for sale.
Before you start, ask yourself the following:
- What type of restaurant do you want to operate (fast food, exotic cuisine, traditional restaurant, etc.)?
- Do you have previous experience in the restaurant sector and in managing staff? Do you feel capable of being operational from the outset?
- What is your catchment area?
- What are your search criteria? What factors are totally inacceptable to you?
- What is your price range?
- What are your financing options? If you are applying for a bank loan, what equity do you have?
Also consider finding out more about the following topics beforehand:
- Training required to open or take over a restaurant
- Administrative and legal procedures for taking over a business
- Financial aid for taking over a business (NACRE, CAPE, ARCE, ACRE, etc.)
- Health and safety legislation in the restaurant industry
- Mandatory signage regulations in restaurants.
Where can you find a business for sale?
Numerous websites advertise business opportunities in the restaurant industry, including the following (non-exhaustive list):
- Place des Commerces
- SeLoger Bureaux & Commerces
- PAP Commerces
- Cession PME
You can also find information on the Pôle emploi website and through your local Chamber of Commerce and Industry (CCI). In addition, consider social media platforms and word-of-mouth for opportunities for taking over a restaurant.
Analyse the restaurant’s business
It is important to appreciate that when you buy a business, you are also taking over its equipment, suppliers, staff, goodwill, contracts, clientele, brand name, trade name, etc.
Once you have selected a restaurant, you will need to carefully analyse each tangible and intangible element of the business to ensure you are getting a good deal:
- Restaurant location
- Premises and equipment
- Licences and contracts
- Offer, price and reason for selling.
Location is a determining factor in the success of a restaurant project.
The premises must be located in a high footfall area, in a lively, busy neighbourhood, close to places of interest (cinema, shopping centre, business premises, etc.). The location should also be well served and easily accessible (public transport, car parks, etc.).
Remember to study the competitive environment in the catchment area (attention: if there are no competitors, this is not necessarily a good sign!).
Check that no external factors are likely to jeopardise the business (arrival of new direct competitors, closure of a place of interest nearby, decline in the attractiveness of the area where the restaurant is located, works nearby, etc.).
Premises and equipment
With regard to the restaurant premises and equipment, the following points should be assessed:
- Layout of the space
- Surface area of the space and the restaurant’s capacity
- Quality of the equipment and furniture (cold room, storage space, cooker hood, hob, oven, counter, chairs, tables, etc.).
Check that the premises comply with health and safety legislation and make a list of any works that need to be carried out.
Good to know:
All public buildings are subject to very strict safety standards (layout, alarm, evacuation plan, accessibility, etc.). See the Service-public.fr website to find out about the regulations in force.
The clientele is another key element to be analysed before taking over a restaurant:
- What type of customer does the restaurant currently attract (age, socio-professional category, etc.)?
- What is the average budget of each customer?
- What are their consumption habits?
- Are customers loyal or does the restaurant attract more of a passing trade?
The aim is to determine whether the current clientele is compatible with your restaurant concept.
To get a better idea of the customer profile, you could ask the manager to provide you with a customer database or carry out a survey of customers and local residents to determine whether your project is feasible.
Licences and contracts
Remember to verify the restaurant’s licence. Every restaurant that sells alcohol must have an appropriate licence (Licence restaurant, Petite licence restaurant, Licence III or IV, etc.).
Check whether everything is in order and whether any administrative formalities are necessary.
If you are taking over the restaurant’s licence, you will have to apply to your local prefecture for a licence transfer.
In addition, you should carefully read the current lease agreement and verify the:
- Remaining lease term
- Rent amount
- Clauses and terms that cover the distribution of charges and revision of the lease
- Conformity of clauses.
It may also be worthwhile to check:
- Supplier contracts
- Company’s kbis (company registration certificate)
- Articles of association and any shares in the company.
Lastly, make sure that all declarations and authorisations are in order.
Taking over a restaurant also means taking over existing employment contracts.
This is a valid point, because it means you will have to manage staff that you did not hire yourself.
It is therefore important that you study the profile, experience and skills of each employee to identify key staff (head chef, restaurant manager, kitchen manager, etc.). You should also take note of employment contracts, working conditions and salary scales.
In addition, observe the cohesion and synergies within the team, as well as staff productivity.
Note that it is not uncommon for some employees to choose to resign when a new operator takes over. You will need to anticipate all this before buying the business.
Offer, price and reason for selling
Before you decide to buy the business, a number of other elements must be taken into account:
- Reason for selling (retirement, professional reconversion, judicial liquidation, etc.)
- Volume of business
- Profitability of the restaurant
- Strengths and weaknesses of the restaurant
- Selling price
- Number of covers, occupancy, etc.
Consider doing some research to get an idea of the restaurant’s reputation and its place in the local market. Study customer comments and reviews, and analyse the marketing strategy in place.
Lastly, you could of course examine the range of dishes offered, cost price, price range, average ticket, inventory levels, etc.
These various indicators will enable you gauge how the restaurant operates, its potential and its compatibility with your project.
Check the restaurant’s finances
Any project to take over a restaurant inevitably involves a rigorous analysis of its finances.
With the help of an accountant, the following items in particular should be analysed:
- Revenues of the last three financial years
- Accounting statements and profit & loss statements
- Gross margin of each dish
- Average ticket
- Expenses (payroll, rent, raw materials, taxes, etc.)
- Gross margin
- Working capital requirement (WCR)
- Cash flow.
A meticulous analysis of annual revenues will give you an overview of the business’ finances.
- If revenues are falling, look for the cause (health context, drop in demand, change in the offering, poor management, etc.) and make sure that this does not threaten the operation’s sustainability.
- If revenues are increasing, this is generally positive, but it is important to understand the reason (price increase, high season, events, etc.) to ensure that this situation lasts.
- Stable revenues are usually a sign of good financial health.
These financial indicators enable you to see whether your project makes sense and if the sales price is justified.
Steps involved in taking over a restaurant
Once you have audited the business, checked its finances and negotiated the sales price, the following steps must be taken to acquire the restaurant:
- Draw up a business plan to clarify your project’s business model and financial strategy. This document will also be useful for presenting your project to a banker or private investor.
- Draft a provisional budget: before taking over the restaurant, remember to prepare a forecast budget outlining the necessary expenses (renovation work, decoration, furnishings, equipment, compliance with norms, etc.).
- Look for financing (bank loan, business angels, crowdfunding, love money, microloan, honour loan) and find out about financial aid.
- Publish a notice in a legal gazette within 15 days before signing the purchase of business agreement.
- Sign the purchase of business agreement.
- Register the purchase of business agreement within one month.
- File the amendment dossier with your local CFE (Centre de Formalité des Entreprises).
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