"A great chef doesn't necessarily know how to run a restaurant."
October 8, 2020 11:28 PM Subscribe
How can I find someone to hold my hand through learning how to buy a business? I am interested in buying a business. It is an existing, profitable business that's existed for a quarter of a century. I have a friendly rapport with the business owner, who is looking to retire. I am familiar with the costs of running similar businesses, but not as an owner. I know nothing of dealing with banks, lawyers, etc. The business is in Vermont.
Full disclosure:
I am a chef, but the shit I'm good at and love is keeping my food costs and labor hitting my targets, keeping my staff happy etc, the boring chef shit. I've read the horror stories of people who think because they're a good cook they'll run a great restaurant. I'm aware of that fantasy and that isn't me. I am pretty damn aware of what running this restaurant entails, just not as a Business Owner.
Also I have like a tiny fraction of the money the owner says his initial asking price is in the bank. Like he's asking $100 and I have $2. However, I am gainfully employed, have few expenses (no kids, not debt, no medical condition looming over my head) and have excellent credit.
I'm also at an excellent time in my life to do the whole "I poured most of my waking hours into this to make it work" thing.
Right now I have a bunch of tabs open researching women's business associations etc in VT but I'd love help finding the help I need.
SO is this stupid and if not, who can help.
Full disclosure:
I am a chef, but the shit I'm good at and love is keeping my food costs and labor hitting my targets, keeping my staff happy etc, the boring chef shit. I've read the horror stories of people who think because they're a good cook they'll run a great restaurant. I'm aware of that fantasy and that isn't me. I am pretty damn aware of what running this restaurant entails, just not as a Business Owner.
Also I have like a tiny fraction of the money the owner says his initial asking price is in the bank. Like he's asking $100 and I have $2. However, I am gainfully employed, have few expenses (no kids, not debt, no medical condition looming over my head) and have excellent credit.
I'm also at an excellent time in my life to do the whole "I poured most of my waking hours into this to make it work" thing.
Right now I have a bunch of tabs open researching women's business associations etc in VT but I'd love help finding the help I need.
SO is this stupid and if not, who can help.
Is there someone that you trust that you could partner with? Someone who has more cost management experience? I've had several bars and restaurants in NYC, some owned with a partner, some I did just on my own, and for me at least having one person in the business along with myself was exponentially better than just running the business on my own (I've never had investors having seen the investor/management experiences devolve into lawsuits way too many times).
I know you understand how much work it is to run a place, but one thing that can potentially happen when you're focused on putting out the daily fires along with making the place be the best experience possible for your customers is that some things that need to get done (I'm speaking mainly of bookkeeping here) tend to get put off endlessly and then you're looking at a pile of paperwork that you just don't want to deal with and things end up getting not done. For example, I think it's disability insurance that if you let it expire they can and will fine you at around $250 for each day that you're not covered. It gets expensive fast, and paperwork like dealing with insurances and taxes and keeping permits valid and etc does take up more time than you can imagine. Ask me how I know.
Obviously, this experience differs for everyone, and some very OCD types I know manage to stay on top of things, but I can assure you from talking to many others that my situation in this regard is not unique.
Having a partner involved also helps to make the hard decisions easier, whether it's letting some one go or making a major change in the business, or deciding how to deal with some other major issue that comes up. Having a sounding board that has the same interests as yourself is immeasurably valuable. And it reduces stress.
The one thing I would say about having a business partner, is that you have to KNOW that they would never cheat you or the business. There will be mistakes along the way, and any little hint of doubt when something goes wrong can be poison to the continuing relationship. I've been extremely lucky in this in that all three business partners I've had this trust went unbroken, even when there were times where we just weren't getting along for other reasons.
People say a partnership is like a marriage, and that's true but it's also harder because in a marriage people can agree to disagree, in a business a disagreement is usually about whether or how to do a certain thing. Someone will have to win that discussion. You have to be able to accept that sometimes the other persons plan will be the one you go with and you have to be okay with that. That is also where the trust comes in.
One comment I will make is that with any partnership, make sure they have some skin in the game along with you. You are taking a big risk if they don't have a financial interest in the business and can walk at any time without losing money. Even the most passionate about the business partner can get worn down by the trials of restaurant ownership, and you don't want to be stuck when they just decide to bail because things got hard for a while.
If you feel a partnership isn't right for you perhaps the current owner could remain on for a year or so to show you the things that you don't know about. It' would also provide a smooth transition for the current customer base.
Regarding money, I've sold a few businesses and it's not uncommon for there to be a large downpayment and then the rest of the money owed to be paid at certain intervals. You may be able to work something like this out with the owner. You'll still need more than what it seems you currently have. A lot of people get their friends and family to loan them the money. I personally wouldn't feel comfortable about this for any significant amounts based on the tendency for restaurants to go out of business, but sometimes people have a ton of extra money and don't really care about the risk just so that they can say they own a restaurant.
Be very careful about who you accept money from, and always do a mental exercise before accepting their money about what their reaction would be if you have to tell them you're closing the place and their money is just gone.
posted by newpotato at 3:33 AM on October 9, 2020 [10 favorites]
I know you understand how much work it is to run a place, but one thing that can potentially happen when you're focused on putting out the daily fires along with making the place be the best experience possible for your customers is that some things that need to get done (I'm speaking mainly of bookkeeping here) tend to get put off endlessly and then you're looking at a pile of paperwork that you just don't want to deal with and things end up getting not done. For example, I think it's disability insurance that if you let it expire they can and will fine you at around $250 for each day that you're not covered. It gets expensive fast, and paperwork like dealing with insurances and taxes and keeping permits valid and etc does take up more time than you can imagine. Ask me how I know.
Obviously, this experience differs for everyone, and some very OCD types I know manage to stay on top of things, but I can assure you from talking to many others that my situation in this regard is not unique.
Having a partner involved also helps to make the hard decisions easier, whether it's letting some one go or making a major change in the business, or deciding how to deal with some other major issue that comes up. Having a sounding board that has the same interests as yourself is immeasurably valuable. And it reduces stress.
The one thing I would say about having a business partner, is that you have to KNOW that they would never cheat you or the business. There will be mistakes along the way, and any little hint of doubt when something goes wrong can be poison to the continuing relationship. I've been extremely lucky in this in that all three business partners I've had this trust went unbroken, even when there were times where we just weren't getting along for other reasons.
People say a partnership is like a marriage, and that's true but it's also harder because in a marriage people can agree to disagree, in a business a disagreement is usually about whether or how to do a certain thing. Someone will have to win that discussion. You have to be able to accept that sometimes the other persons plan will be the one you go with and you have to be okay with that. That is also where the trust comes in.
One comment I will make is that with any partnership, make sure they have some skin in the game along with you. You are taking a big risk if they don't have a financial interest in the business and can walk at any time without losing money. Even the most passionate about the business partner can get worn down by the trials of restaurant ownership, and you don't want to be stuck when they just decide to bail because things got hard for a while.
If you feel a partnership isn't right for you perhaps the current owner could remain on for a year or so to show you the things that you don't know about. It' would also provide a smooth transition for the current customer base.
Regarding money, I've sold a few businesses and it's not uncommon for there to be a large downpayment and then the rest of the money owed to be paid at certain intervals. You may be able to work something like this out with the owner. You'll still need more than what it seems you currently have. A lot of people get their friends and family to loan them the money. I personally wouldn't feel comfortable about this for any significant amounts based on the tendency for restaurants to go out of business, but sometimes people have a ton of extra money and don't really care about the risk just so that they can say they own a restaurant.
Be very careful about who you accept money from, and always do a mental exercise before accepting their money about what their reaction would be if you have to tell them you're closing the place and their money is just gone.
posted by newpotato at 3:33 AM on October 9, 2020 [10 favorites]
Also, you're likely aware that many restaurants fail when there is a change of ownership. The new owner comes in and makes changes that gets rid of the things that made the restaurant so successful over the years. Sometimes they do this because they were former customers and think how much better the place would be if they just changed this or that, they buy the place, make the changes, and boom, business goes down.
If you're buying this place with the intention of making any substantial changes, it would probably be better to just start smaller and start your own place from scratch. Very small (say 20-40 seats) places can usually be built much cheaper than an existing business can be bought for, and people love small hole in the wall places that have good food. They feel special for knowing about it and being a part of it.
Start out with a makeshift kitchen using used appliances (everything meeting health and safety codes of course) and upgrade once the money starts coming in. There is nothing better than to have to open on a strict budget to set your business up for success. You get smart and creative in how to make it work and that also trains you on how to keep your ongoing overhead low. For me personally, the lower the overhead, the lower the stress. It's great to know that your monthly nut can be covered in a good week and that a few weeks/months of bad weather won't make you shutter the place (weather plays a much larger role than I ever anticipated). Or, in say, a pandemic, you can shift on a dime and do less business with delivery or takeout only and still cover your overhead that way.
I've also seen endless times someones first small restaurant become very successful, and their second much larger restaurant (because investors were throwing money at them to open another location and they fell for it) not do well at all because too much money and not enough thought went into the process.
This is all dependent upon finding a location and having regulations in the area that allow for new restaurants to open, of course.
posted by newpotato at 3:57 AM on October 9, 2020 [6 favorites]
If you're buying this place with the intention of making any substantial changes, it would probably be better to just start smaller and start your own place from scratch. Very small (say 20-40 seats) places can usually be built much cheaper than an existing business can be bought for, and people love small hole in the wall places that have good food. They feel special for knowing about it and being a part of it.
Start out with a makeshift kitchen using used appliances (everything meeting health and safety codes of course) and upgrade once the money starts coming in. There is nothing better than to have to open on a strict budget to set your business up for success. You get smart and creative in how to make it work and that also trains you on how to keep your ongoing overhead low. For me personally, the lower the overhead, the lower the stress. It's great to know that your monthly nut can be covered in a good week and that a few weeks/months of bad weather won't make you shutter the place (weather plays a much larger role than I ever anticipated). Or, in say, a pandemic, you can shift on a dime and do less business with delivery or takeout only and still cover your overhead that way.
I've also seen endless times someones first small restaurant become very successful, and their second much larger restaurant (because investors were throwing money at them to open another location and they fell for it) not do well at all because too much money and not enough thought went into the process.
This is all dependent upon finding a location and having regulations in the area that allow for new restaurants to open, of course.
posted by newpotato at 3:57 AM on October 9, 2020 [6 favorites]
I would definitely look at having the business appraised. I've seen business owners who have a high, round number in their head of what their business is worth which has no relationship to the actual cash flow, assets and prospects of the business. I would also be very leery of using old financial data- pre COVID numbers are likely going to have little bearing on what the situation is NOW. You could be looking at propping up a business for a long time before things get back to normal. Good luck!
posted by Larry David Syndrome at 4:26 AM on October 9, 2020 [8 favorites]
posted by Larry David Syndrome at 4:26 AM on October 9, 2020 [8 favorites]
Reminder: 54% of restaurants fail within 3 years. 72% by year 7.
Let's focus on the first 3 and understand where the money comes from for those years.
Year 1: you put your money into it.
Year 2: you put the banks money into it.
Year 3: you put friends and relatives money into it.
At year 3 - if you haven't had to go through your capital, borrow from a bank, and then borrow from friends and family - you may survive to 7.
Have a low cost business plan that minimizes your risk for the first 3 years. Hire bare minimum staff. Hold on to staff that are talented. Measure everything. Remember: executive chef is also executive plumber, executive dishwasher, and should be prepared to play host. If you drink occasionally now, stop. If you smoke now, stop. You will need every cent to ensure your survival and you don't want the cost of a recreational activity to turn into a coping mechanism and cliché.
Oh. And remember: Pandemic!
posted by Nanukthedog at 4:56 AM on October 9, 2020 [3 favorites]
Let's focus on the first 3 and understand where the money comes from for those years.
Year 1: you put your money into it.
Year 2: you put the banks money into it.
Year 3: you put friends and relatives money into it.
At year 3 - if you haven't had to go through your capital, borrow from a bank, and then borrow from friends and family - you may survive to 7.
Have a low cost business plan that minimizes your risk for the first 3 years. Hire bare minimum staff. Hold on to staff that are talented. Measure everything. Remember: executive chef is also executive plumber, executive dishwasher, and should be prepared to play host. If you drink occasionally now, stop. If you smoke now, stop. You will need every cent to ensure your survival and you don't want the cost of a recreational activity to turn into a coping mechanism and cliché.
Oh. And remember: Pandemic!
posted by Nanukthedog at 4:56 AM on October 9, 2020 [3 favorites]
Since you're in Vermont (or at least the business is), a resource for you would be your Regional Development Corporation. They provide free assistance to people like you. Here is a page from one of them describing their business planning services and here is a page from a different one.
posted by Redstart at 7:02 AM on October 9, 2020 [2 favorites]
posted by Redstart at 7:02 AM on October 9, 2020 [2 favorites]
Some of these answers seem to have missed the "existing for almost 25 years, and profitable" part.
One thing you should answer for yourself is why you are buying this. As an investment based on existing fundamentals (i.e. how many years of profit will it take to pay back your investment and start turning you a profit), assuming you continue to run it in the same way it has been, or is it because you're passionate about owning a restaurant, and want to improve or make it otherwise different? Case 1 is a lot more straightforward than case 2- ask to see the financials for the last few years, try to factor in the impact from COVID somehow, and think about how much you're willing to pay to get that amount of income.
Most small businesses sell for no more than 2-3x the amount the owner can take out each year. If he's asking for more than this, I would think very hard about it.
posted by Jobst at 8:27 AM on October 9, 2020 [1 favorite]
One thing you should answer for yourself is why you are buying this. As an investment based on existing fundamentals (i.e. how many years of profit will it take to pay back your investment and start turning you a profit), assuming you continue to run it in the same way it has been, or is it because you're passionate about owning a restaurant, and want to improve or make it otherwise different? Case 1 is a lot more straightforward than case 2- ask to see the financials for the last few years, try to factor in the impact from COVID somehow, and think about how much you're willing to pay to get that amount of income.
Most small businesses sell for no more than 2-3x the amount the owner can take out each year. If he's asking for more than this, I would think very hard about it.
posted by Jobst at 8:27 AM on October 9, 2020 [1 favorite]
A Vermont-oriented resource that you may not be aware of is the Food News section in the weekly Seven Days newspaper (sevendaysvt.com). There are articles about restaurant closings as well as openings and expansions. This would be a good way to learn the problems others have encountered running a business: high rents, hard to find staff, burnout etc.
posted by leaper at 9:09 AM on October 9, 2020
posted by leaper at 9:09 AM on October 9, 2020
A few years back my dad sold a family business (no-one in the family wanted to continue running it, and it was way past time to retire) He had a lot of trouble letting go of the business; it was making great money, he could run it remotely, they were doing good work and he really cared about the staff and customers. When he sold it, he included what was basically a full course in running the business - all the paperwork needed, where to get all supplies, how to do all the bookkeeping, everything. He did that because he wanted to feel like he could walk away, and know that the staff, some of whom had been working there for decades, would not have their lives upended. For the buyer, it was a pretty sweet deal! And then it went all to hell... The buyer didn't follow any of his guidance, got rid of staff, changed how things were done, and, most importantly, didn't comply with the city regulations that were key in maintaining a license to run the business. Without that license, the place was closed in half a year, which sucked.
It sounds like the owner of the business you'd like to buy is going to be the best resource you could possibly find, so make sure that part of your deal is to get trained by the current owner in running their business. It sounds like a lot to ask, but no doubt they have an emotional connection to the restaurant, and they would like to see their legacy continue after they retire. Get as many details as you can from them about how their business is run; spend some time working there to get a feel for how everything works, talk to the staff and establish a rapport. Then, once you take over, spend a year or two doing everything exactly the same. Once you have it running smoothly you can make changes, because by then you'll have a much better idea of what works and what doesn't. The people that know the best way to keep the business going as well as it has been are the people who are already doing it, listening to them will be key. good luck!
posted by 5_13_23_42_69_666 at 9:56 AM on October 9, 2020 [2 favorites]
It sounds like the owner of the business you'd like to buy is going to be the best resource you could possibly find, so make sure that part of your deal is to get trained by the current owner in running their business. It sounds like a lot to ask, but no doubt they have an emotional connection to the restaurant, and they would like to see their legacy continue after they retire. Get as many details as you can from them about how their business is run; spend some time working there to get a feel for how everything works, talk to the staff and establish a rapport. Then, once you take over, spend a year or two doing everything exactly the same. Once you have it running smoothly you can make changes, because by then you'll have a much better idea of what works and what doesn't. The people that know the best way to keep the business going as well as it has been are the people who are already doing it, listening to them will be key. good luck!
posted by 5_13_23_42_69_666 at 9:56 AM on October 9, 2020 [2 favorites]
If you are about to purchase this and they have been historically profitable, you need their P&L for the past few years, as well as their P&L for this year. Vermont has done well in their ability to prevent the spread of Covid, but that means a few things:
1. They've probably significantly depressed sales for restaurants. Where I am in MA, Topline for restaurants that are still open can be anywhere from 30-70% off of where they were in prior years. There is almost no way their margin is anywhere on track. Even if they held their margin rate, that is a significant drop in revenue - which if a loan is involved is something you want to be planning for.
2. While VT has largely held Covid at bay, the northeast is now primed for a second spike - which *will* coincide with the period between the election and thanksgiving. If a second shutdown is going to occur, its going to happen largely across the holidays. I, for one, hope that VT maintains their commitment to safety for the second spike, but you will have a fair degree of uncertainty in whether people respect it, as well as greater percentage of bodies that have not been exposed to it.
3. Make sure you understand the functionality of any local stimulus aids both current and planned. When we took over the larger 'studio' that my wife used to rent from back in January, we inherited about 5 independent contractors and two other subleases. When we went to apply for PPP in May, we didn't qualify for most of the programs because we had no tax returns to reference for pre-Covid losses - even though we had 3 years of P&L statements from the prior owners. Let's just say - my wife currently works for free and we've leveraged my income to make sure that her people are taken care of and we've got proper protective equipment and safety protocols in place.
As an aside, this does sound like an amazing opportunity, and if the finances *do* work out with the negatives considered - fantastic! Like you - I have experience keeping a restaurant cash functional, but not in conditions like this.
posted by Nanukthedog at 5:28 PM on October 9, 2020
1. They've probably significantly depressed sales for restaurants. Where I am in MA, Topline for restaurants that are still open can be anywhere from 30-70% off of where they were in prior years. There is almost no way their margin is anywhere on track. Even if they held their margin rate, that is a significant drop in revenue - which if a loan is involved is something you want to be planning for.
2. While VT has largely held Covid at bay, the northeast is now primed for a second spike - which *will* coincide with the period between the election and thanksgiving. If a second shutdown is going to occur, its going to happen largely across the holidays. I, for one, hope that VT maintains their commitment to safety for the second spike, but you will have a fair degree of uncertainty in whether people respect it, as well as greater percentage of bodies that have not been exposed to it.
3. Make sure you understand the functionality of any local stimulus aids both current and planned. When we took over the larger 'studio' that my wife used to rent from back in January, we inherited about 5 independent contractors and two other subleases. When we went to apply for PPP in May, we didn't qualify for most of the programs because we had no tax returns to reference for pre-Covid losses - even though we had 3 years of P&L statements from the prior owners. Let's just say - my wife currently works for free and we've leveraged my income to make sure that her people are taken care of and we've got proper protective equipment and safety protocols in place.
As an aside, this does sound like an amazing opportunity, and if the finances *do* work out with the negatives considered - fantastic! Like you - I have experience keeping a restaurant cash functional, but not in conditions like this.
posted by Nanukthedog at 5:28 PM on October 9, 2020
Some of these answers seem to have missed the "existing for almost 25 years, and profitable" part.
All the “X% restaurants only make it to year 3” comments still apply.
posted by sideshow at 6:54 PM on October 9, 2020
All the “X% restaurants only make it to year 3” comments still apply.
posted by sideshow at 6:54 PM on October 9, 2020
Accountant/former lawyer - consider using an "earnout" approach - 10-20% deposit - balance payable by instalments if the business makes its targets in 1/2/3 years eg. 20-20-30-30.
Check what it is that you are buying - leases/premises/website/legal structure etc. Consider whether you want to buy it all. Eg. if the seller owns the restaurant building, you could have a lease with an option to buy, rather than buying it all upfront. This can apply to even the equipment - the seller leases it to you initially and you buy it down the track.
Partner is one approach - but if the existing business is basically being run by one person, my bet would be that there is not enough profit to support two well paid partners. So consider developing an ownership pipeline - the existing owner phases ownership across to you and you in turn look to phasing ownership to the next person.
posted by Barbara Spitzer at 4:10 AM on October 10, 2020
Check what it is that you are buying - leases/premises/website/legal structure etc. Consider whether you want to buy it all. Eg. if the seller owns the restaurant building, you could have a lease with an option to buy, rather than buying it all upfront. This can apply to even the equipment - the seller leases it to you initially and you buy it down the track.
Partner is one approach - but if the existing business is basically being run by one person, my bet would be that there is not enough profit to support two well paid partners. So consider developing an ownership pipeline - the existing owner phases ownership across to you and you in turn look to phasing ownership to the next person.
posted by Barbara Spitzer at 4:10 AM on October 10, 2020
This thread is closed to new comments.
posted by shoesietart at 11:53 PM on October 8, 2020 [3 favorites]