Could use some advice from Experienced business owners/landlords

Question

Hello everyone, I have a question in regards to a restaurant we are planning on opening. We are negotiating the lease with the Landlord for a space that was for a existing restaurant (already has equipment). The landlord is giving us two options after going back and forth many times.. The last offers are.. first, a 10k cash renovation credit and we can use the equipment for free or second, 3k cash and he said we can keep the equipment and put the equipment under our name as the owners (basically giving us free equipment. My question is which one is better ? The 10k cash would really help with the renovations and less out of our own pocket but, I guess my worry is when we try to sell the restaurant and if it isn't our equipment that will cause problems? Any advice would be greatly appreciated. Thank you so much.

James Hiddle · Answer

The thing about restaurants is that there is always one on every corner so the competition is fierce. You might have better luck in a small town than a larger metro or urban area but still it's very difficult in starting a restaurant business.

On top of that don't expect to see any profit anytime soon. It will take a while to see any cash from a restaurant making it more frustrating than it already is.

But whatever you decide good luck and I hope you succeed.

Will Barnard · Answer

NOt an attempt to discourage you from starting your business, but just the facts - the restaurant business has one of the highest failure rates in this country. I am a great cook and enjoy it. I wanted to start a restaraunt several years back and my accountant advised against it, stating the forementioned facts, not to mention you will be married to your restaurant. Very difficult business to operate without you being there.

As far as the equipment options, take the advice of Ingrid and Rich.

Ingrid Nagy · Answer

If it were my choice I would take the $10K credit and use the equipment for free.  Several things to consider are:
Does the landlord really own the equipment? possesses a bill of sale? or was it left behind by a former restaurant tenant?
Many leases require that when a tenant vacates they restore the premises to the original condition delivered.  The prior restaurant might have failed and even if they owned the equipment did not have the financial resources to remove and restore the premises.  The landlord might have paid for the fit up on behalf of a former tenant and perhaps because of their investment prefer to keep the space as a restaurant to minimize their fit up exposure in the future.  Yet another scenario is that some of the equipment may be leased.  Someone might knock on the door one day saying they haven't been paid for the equipment and want to repossess it.  I think you basically have to clear up who owns what and the what happens in the "what if" situations.  I would also investigate a little more into the prior tenants of the space if you haven't yet, the demographics etc.  The restaurant business is very hard to predict.

Rich Weese · Answer

Greg- I'd have to agree with Ingrid. You don't show where you are from, so I can't speak about area. I've seen so many restaurants fail(in better times than these) and I've loaned on four. Three of the four failed, and that was about the % nationwide at the time. Now, probably worse.
     Used equipment can be bought for a small % of retail. Especially, if you work the landlord. Check around for used equipment prices and see how it compares. If you find a great deal on the grill or griddle with venting, ducting etc, tell the landlord you're thinking of buying a different used one. He DOESN"T want his used piece of equipment if it isn't continued to be used in the restaurant. You think he wants the stuff in his garage?
     If you've already decided to get into the restaurant business, and buy that kind of job, good luck. I know 100's of people that have done well in real estate either as their business or not. I know almost none that have done well in the restaurant area. Just a thought. Rich in Texas