This Guy….Mayhem. If you want mayhem walk into a business, any business that has run out of capital and was in desperate staights. That unfortunately is one of the common issues I run into daily; in particular in the restaurant space. Let’s talk about it.
In just the last couple of weeks, I ran into two pizza locations: The first was one that bought an existing location for $50,000, and second built one out for $350,000.
The first entrepreneur took a less-than-optimal location, with existing customers and revenue, and tweaked it to profitability. Now its downside is that it is limited in space and will not ever do a million in sales but it will be a solid take-out operation ad infinitum. The second…well this is where mayhem enters.
The owner leases a space, and gets a partner who is an expert because “he was in the industry”. They select a site, hire contractors, lease the space…and spend…the buildout was 350,000…floors, walls, hood system, plumbing, etc. All the while spending dollars on rent, insurance, and time in a location that is not producing any sales or profits.
By the time they open (3 months after the expected opening) they have drained reserves, not properly spent on ad spend for an effective start and the result is quite predictable…a call to a business broker.
The outcome will not be pretty. The seller will get maybe half the spend. The vultures will smell blood and see the opportunity for what it is…a wounded animal just waiting to be taken to the slaughter.
In my experience, it is always better to buy an existing location. Immediate cash flow and infrastructure is critical when stepping into a business and even more so in the restaurant space.
Buying an existing restaurant and doing a build-out both have their advantages and disadvantages. But what is often missed by restauranteur neophytes is the importance of cash flow. It is the blood of the body. Without it you die.
Benefits of Buying an Existing Restaurant:
- Established Brand and Reputation: An existing restaurant likely has an established brand, customer base, and reputation in the local community. This can save you significant time and effort in building up a customer base from scratch.
- Proven Concept: The restaurant’s menu, concept, and operational strategies have already been tested and refined. You can benefit from the lessons learned by the previous owner.
- Existing Infrastructure: An established restaurant comes with existing equipment, furnishings, and infrastructure. This reduces the upfront costs and time required to set up everything.
- Immediate Cash Flow: If the restaurant is already operating, you can start generating revenue almost immediately after taking over. This can help with cash flow management.
- Experienced Staff: Depending on the situation, you might inherit a trained staff that is familiar with the operations, menu, and customer expectations.
- Licensing and Permits: The restaurant likely has all the necessary licenses and permits in place, which can save you time and effort navigating regulatory requirements.
For more on buying and selling a business in Tampa Bay Contact Tampa Business Broker Michael Shea at 321-287-0349 or email mike@tworld.com .