What to Look for When Purchasing a Restaurant

Being a restaurateur has been the dream of many ambitious entrepreneurs, both new and experienced. While the allure and opportunities of owning a restaurant are vast, so too are the risks. Long before the deal begins, there are a lot of obstacles and liabilities that can emerge that will temporarily derail your latest venture at best, or saddle you with costly and legal consequences — at worst. No matter what kind of restaurant you hope to run, always consider the following:

Are There Any Existing Legal Liabilities?

Every business is at risk of being saddled by violations, liens, judgments, and other liabilities. The nature of the restaurant business — with its many regulations, health codes, licenses to sell alcohol, etc. — presents a greater likelihood of there being legal liabilities you may not know about. If you purchase a restaurant with any such issues on its record, you’re stuck with the responsibility — regardless of whether you knew or not.

It is imperative to practice due diligence and thoroughly review the legal and title history of the restaurant and/or property you are purchasing. Another workaround is to purchase only the restaurant’s assets — such as its physical location, equipment, and inventory — rather than the entire business itself. Doing this through a Limited Liability Company (LLC) significantly mitigates the risks and costs of such an endeavor.

Has the Sales Tax Been Paid?

Florida businesses are required to pay sales taxes. Any business that still owes taxes to the state will have that obligation transferred to the new owner. Restaurants are particularly prone to this problem, since they often try to reduce their sales tax bill by not reporting all their revenue. Don’t get stuck paying someone else’s debts: have the seller provide proof of payment of sales tax, preferably from an official “Sales Tax Clearance letter” provided by the Florida Department of Revenue.

What’s the Current Lease Agreement?

Many restaurants are tenants of a landlord under a lease agreement, which will be assigned to you upon purchasing the business. Commercial leases generally stipulate that the landlord must give their approval of the purchase and consent to the subsequent assignment of the lease to you. At the very least, this usually requires that you provide proof of your ability to pay rent, such as financial and bank statement. But every lease is different, and there may be other requirements and obligations to fulfill before you get approved. Ask for a copy of the existing lease agreement and have a legal professional carefully look it over for any errors or issues. Additionally, contact the landlord directly to get all the information you need, as well as to introduce yourself and start off with a good impression.

Do You Plan to Serve Alcohol?

Alcoholic beverages are a key source of revenue for any restaurant. Whether you need to transfer the seller’s existing license, or must apply for a new one yourself, the relevant application is Form ABT-6002, which must submitted to a local branch of the Florida Division of Alcoholic Beverages and Tobacco. The application can include fees and costs of up to $5,000 and many other requirements, such as fingerprinting and zoning approval.

What is the Restaurant’s Inventory?

Every working restaurant has inventory such as kitchen equipment, appliances, and food items. Most buyers will be keen on acquiring these assets as part of their restaurant purchase, but be diligent: inspect all the inventory listed in the purchase agreement right before the closing to make sure everything is accounted for and in working condition. Ask for proof that the equipment is legally owned by the restaurant and that nothing is owed to a creditor or manufacturer. Any inventory that is leased will require you to obtain a document assigning the lease to you.

This list only scratches the surface of what a successful restaurant purchase entails. All these matters are best handled by a professional business attorney with experience in commercial transactions. The attorneys of Jurado & Farshchian have an industry-leading track record of successfully closing deals in a timely and cost effective manner while safeguarding their clients from the above mentioned risks. As the leading Miami Business Law Firm, we’re equipped with the expertise and experience to handle all the fine and complex details, so you can focus on your restaurant business.