How can I get money to buy a restaurant without bank loan?

Question

How do I find investors for a restaurant without prior year tax returns.

Anthony Dooley · Answer

So, you are willing to take the seller's word about his revenue? How can you calculate the value of a business without knowing how much revenue they earned over the last 2 years? The bank is smart. Be like the bank.

Anthony Dooley · Answer

If a bank will not finance you, take it as a bad deal. They are smarter and more experienced than you about deals going bad. You are a bad risk,  meaning forget about it.

Aaron K. · Answer

Restaurants are much more difficult because unlike RE there is not really underlying value in the asset.  If this is your first restaurant it will be incredibly difficult given the high failure rate of restaurants.  It is unclear from your post if you want to run the restaurant or just own the building.

Joel Owens · Answer

Any businesses with under 100k gross profit for restaurant about 90% of those are OWNER OPERATORS. How do I know? I was in the restaurant business for over a decade before getting into commercial real estate about 16 years ago.

So you are WORKING for the return often times day and night, weekends, etc. It becomes your life. You can't pay for what you can't accurately verify is what I tell property owners.If business has one location and won't disclose sales the equipment is generally worth 10 cents on the dollar. That is it because the warehouses buy it for that 10 to 20 cents on the dollar from businesses closing and sell it for 40 to 50 cents on the dollar to new restaurants wanting to save money and buy used equipment to open up.

Restaurant can be a rough business. Everyone needs to eat but they do not need to eat at your restaurant. Price, food quality, customer service, time to have food ready to eat, ease of getting in and out of location, etc. all play a factor in how the consumer views a food business. There are lots of choices to eat at. Many restaurants fail, some do okay, and then the ones that get the magic formula working on all cylinders do REALLY WELL.

Most restaurants are 10% returns these days. I would not look at a restaurant unless it does over 100k profit ( really 200k ) where I am not owner operator and return is 18 to 20% or greater annually. At 10% it's just not worth it. You can have machines get old and need replacing, update to interior to make new again, labor costs go up, food costs go up, etc. At 20% you have margin for wiggle room so it down to 15 to 17% still respectable. If only 10% then a few bad things happen you are almost breaking even as margin is too small.

You also need to look at the lease obligation you would be assuming buying out the current business owner. They could say profit is off of sales at 15 a foot rent and rent is fixing to jump to 18 a foot. A goal would be to renegotiate a long term locked in rate or have a termination clause after you buy the restaurant that lets you out of the lease if you certain sales volume is not achieved.

There is a book on Amazon I think we sell restaurants that might be a good read for you. Now if I get a building with the land and business for cheap then if business fails it's not that big of a deal because I can have upside releasing the building at higher rent or redeveloping the parcel.

Leo McDonald · Answer

@Don Konipol thank you. These are things that were considered.

Don Konipol · Answer

@Leo McDonald

Running a business is WAY different that managing investment real estate.  Especially a small business where the owner wears many hats.  Evaluate your experience, knowledge, education, talent, skill set, capital, credit, and managerial ability before getting involved in something requiring a much bigger commitment than you understand.

Leo McDonald · Answer

@Anthony Dooley not willing to take his word on it and I appreciate your advice in the matter. Moving forward my partner and I will be researching other businesses for sale with your advice in mind.

Bob Langworthy · Answer

@Anthony Dooley is correct. The sellers are withholding information that is crucial to making an offer on the restaurant. Therefore, you can't make an informed offer.

Leo McDonald · Answer

@Anthony Dooley the only reason the bank would finance is the broker does not have access to the the last 2 years of tax returns. Otherwise the bank would have been on board.

How can I get money to buy a restaurant without bank loan?

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