Purchasing a Restaurant or Nightclub

Purchasing a restaurant or nightclub is a significant undertaking. Although the old saying is that the three most important things are “location, location, location,” some of the other important elements to consider are the lease, liquor license, infrastructure, goodwill and, of course, financials.

As you look at the location, think about whether it is situated in a populated, visible and convenient spot for your target market, i.e., are there enough people that live in or travel by the area that can see the signage (and will see the advertising), and is there easy and adequate parking? Also, is it in close proximity to other businesses whose clientele could be or are a source for your restaurant or nightclub? Lastly, do not forget to factor in the restaurant’s proximity to where you live, because you will be making that commute on a regular basis (assuming you will be involved in managing the place). If you will not want to make that drive every day, better find something closer to home.

Secondly, look at the existing lease on the space. How long is left on the lease and are there any options to renew? A longer lease on a good location, obviously, is worth more than a shorter one. What is the monthly base rent, what is the rent per square foot, and is it a gross or a triple net lease? If you will be paying for the space’s percentage of taxes, insurance and common area maintenance in addition to the base rent, what are those costs? What are your rights, obligations and potential liabilities under the current lease? Finally, who is the landlord and property manager, is the owner of the building willing to allow you to assume the lease, and are they open to negotiating a new one?

Next, ask to see all of the licenses and permits that the business has. There are many different types of liquor licenses, and you should make sure that one is in place that will allow you to operate the business in the way you desire. Do you plan to sell only beer and wine, or will you have a full bar? Will you serve food, do you plan to have live entertainment and, if so, will you be charging at the door when you do? What is the zoning for the area, and is there a Conditional Use Permit (CUP) needed and in place? Further, is there a current business license with the city, has a fictitious business name (commonly known as a DBA) been registered with the county, and has the holding company been qualified to do business in the state? (If acquiring the actual company, rather than setting up your own business to run the establishment, there are many other aspects to research, which are outside the scope of this article.)

When looking at the tangible items, pay attention to fixed elements such as the walls, windows, roof, plumbing, electrical wiring, floors and signage, and look at the fixtures like the furniture, equipment, lighting, audio/visual, and computer and POS systems. What is the age and condition of each? Additionally, will you be keeping the name of the existing company or changing it to something else? If you plan to do something new, you will need to rebrand everything from the signs and advertising to the napkins and receipts. Considering the intangibles, research and analyze the goodwill and reputation of the place, and try to find out all you can about its clientele and competition.

Last, but not least, is the obvious and essential examination of the company’s financial information. Make sure that you obtain clean and complete documentation of the history and current condition of the business. This will help to give you a feel for the true value of the company.

Owning a restaurant, café, nightclub, bar, lounge or tavern is a dream that many people have at some point in their lives. However, while it can be fulfilling on a pecuniary and personal level when done correctly, it is a large undertaking, a huge investment, and a lot of work. Accordingly, be sure to perform the necessary due diligence and to hire the right people to assist and counsel you with the process.

Starting a restaurant or nightclub from scratch, and operating a successful one, entails a number of other considerations, in addition to the ones discussed above. Therefore, we will cover those in separate post.