Pros and Cons of Acquiring Existing Restaurant Business

Contact Neufeld Legal PC for corporate transactional and legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Purchasing an existing restaurant business presents own set of unique advantages and disadvantages, as compared to starting an entirely new restaurant business from scratch.

Potential Advantages of Buying an Existing Restaurant

• Established Brand and Customer Base: You don't have to build a brand or reputation from the ground up. The business likely has an existing customer base and brand recognition, which can lead to immediate revenue and a quicker return on investment.

• Ready-to-Go Operations: An existing restaurant often comes with a functional space, essential kitchen equipment, and furniture already in place. This can save you a significant amount of money and time that would otherwise be spent on construction, permits, and setting up the space.

• Immediate Cash Flow: Unlike a startup that has a long period of little-to-no income, a profitable existing business provides cash flow from day one, which can help with covering costs and making improvements.

• Easier to Secure Financing: Lenders are often more willing to finance the purchase of an existing business because it has a proven track record, financial history, and existing assets to use as collateral.

• Established Supply Chain and Staff: You inherit existing relationships with suppliers, which can be crucial for a smooth transition. Additionally, you may take on a trained staff, saving you time and money on recruiting and training new employees.

Potential Disadvantages of Buying an Existing Restaurant

• High Initial Investment: While you save on the costs of building a new space, the purchase price of an existing restaurant can be substantial. This is especially true if the business is successful and has a strong reputation.

• Inheriting Problems: The previous owner is selling for a reason. You could be inheriting a range of issues, from a poor reputation and outdated equipment to a declining customer base, employee morale problems, or even hidden liabilities and debts. Thorough due diligence is crucial to uncover these issues.

• Less Creative Freedom: If you have a specific vision, a pre-existing business may limit your creative freedom. You might find it challenging to change the menu, decor, or overall concept without alienating the existing customers who were loyal to the old model.

• Outdated Assets: The existing equipment and technology may be outdated, inefficient, or nearing the end of their lifespan, which could lead to unexpected and costly repairs or replacements shortly after the purchase.

• Staff and Culture Issues: While inheriting a trained staff can be a pro, it can also be a con. The existing staff may be resistant to new management and changes you want to implement. A negative work culture or low morale from the previous ownership can also be difficult to turn around.

Nevertheless, this merely scratches the surface as to those matters that need to considered and scrutinizing when looking to either acquire an existing restaurant business or start a new restaurant business. And even though our primary focus is on the legal aspects of the restaurant business, our work in this particular business sector enables us to provide important and distinct insights that go beyond the purely legal aspects and delve into the potential viability and challenges emanating from acquiring / launching a restaurant business.

When it comes to the legalities of restaurant business mergers & acquisitions, that is when the law firm of Neufeld Legal P.C. comes into play. Such that when your company is seeking knowledgeable and experienced legal representation in orchestrating and completing business mergers, acquisitions and divestitures, contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.