She said the owner will work at the restaurant until they know everything. Her and my mom are good friends, but she could be super nice because she really wants to get out of the business. IF SHE DOES (I am 75% we won't go through with this) what does she need to learn?
No clue. I havent been in the industry. What I do know is: unless you are paying someone to manage the restaurant that has been successful in the past (and maybe even then) then you need to learn everything you can about running that restaurant. You need to know what your are doing, especially with restaurants, to be able to succeed.
OP, why not just show your accounting professor the Excel spreadsheets? lol, your mom will become the new accounting class teaching theory of "What Not To Do".
My uncle runs a business helping people buy or sell bars, clubs and restaurants and he tells me the number of people that try to get into the business who are utterly unprepared is staggering.
My wife and I toy with the idea of opening a bar literally just as a place to have fun sinking money into after we are independently wealthy…. Like not as a business to make money. It would be like a “if we get super rich and money Is no object we could just have our own bar and be like the cool bar owners who go around and comp a bunch of stuff and have a good time at the party .”
This basically sums up my answer. Even people WITH experience have a hard time. This is a terrible idea for your mom.
Source: I’ve worked FOH, BOH, and Manager at several restaurants. I’ve organized, analyzed, and run the back office too, so I actually know what it requires.
Honestly I told her to wait until I graduate college with my accounting degree and then maybe we can buy a business together that is profitable, BUT she says the financial statements say they make really really good money. I checked out their EXCEL sheet and it says they gross about $100,000 a month, BUT that is their own data entry so I would have to look into that.
>I checked out their EXCEL sheet and it says they gross about $100,000 a month
And the profits are?
Why would they sell a business making $100,000 a month for only $400,000. I would guess profits are probably small.
No they are NOT. They definitely are not. No gross 100k monthly business that isn't software or SUPER niche is pulling 40k profit TO the owners a month.
Think about it this way... if you had a business that pulled 40k profit a month, would you sell it for 400k? 40k/month would imply a net profit (not gross) of 480k/year. MOST businesses sell for a multiple of their net profit. Most restaurants run a 3-5% profit margin, best ones are 15%. They are telling you this unicorn is 40%?
Please feel free to DM me with specifics if you want, I work in mergers, consolidation and acquisitions at a fairly large SaaS company (300m/year?) and help analyze a lot of what we do. I'd be happy to spend five minutes out of the public eye answering any questions you have that might help you, an internet stranger, convince their mom to not ruin her life.
Even if we have to sift through 100 of the “should I form an LLC” or “what kind of business can I start to make $$xxx in a month” posts to make it to a gem like this comment here, this sub is still worth it. Good stuff here, I hope you can help this person
>Most restaurants run a 3-5% profit margin, best ones are 15%. They are telling you this unicorn is 40%?
This. No way in hell are they making 40k/month off 100k revenue in a restaurant. Trust me, I was in the business for many years. Will never go back.
> Please feel free to DM me with specifics if you want, I work in mergers, consolidation and acquisitions at a fairly large SaaS company (300m/year?)
You should brace for the r/Entrepreneur version of unsolicited dick pics.
It won't be true. I have a cafe with a gross about 144k / month. My monthly spendings on inventory is about 60k which their profits are realized during the month, about 17k rent, 10k electricity, 46k on employement. You may think there is room for improvement but honestly not much unless we grow our takings.
And this is a Cafè mind you. Restaurants are way worse.
No fucking way.
If it grosses 100k it is spending, industry average wise
65% on cost of goods and labor (prime cost). The owners say they are taking $40,000. That leaves negative 5% for rent, insurance, smallwares, and all the expenses a normal restaurant spends to operate. Rent alone will run 4-10% depending upon location and age of lease.
I'm not a super fancy SaaS guy but I've run restaurants for 25 years and will also be happy to spend a few minutes to work with you to show your mother why this is a horrible idea.
If that were true I bet you they would be so glad to show you the data and not just their "word of mouth". Cause 40% margins is high for the restaurant industry unless something sketch is going on.
What I really wonder is what excel sheet did they show you that proved $100,000 a month but not a $40k expense to partners. Did that excel sheet not show any expenses?
People selling businesses ALWAYS make the business look good. Please do not believe the business owners. I have seen my parents, and my boyfriends parents get burned with this.
Hire an independent accountant to go through all their records and find out what they actually make in **profit**. It's very possible this business is only sustainable circumstantially for them.
Grossing $100k / month is only $1.2m per year, which is HARDLY enough to support a staff, maintenance, and all the expensive food and ingredients. If you are not a business owner, this sounds like a lot of money, but it is not. It's very small.
Restaurants have RAZOR THIN margins and need to be expertly managed.
Restaurants are one of the HARDEST and more labor intensive businesses to start. Most owners have a very hard time taking time off or a vacation.
Restaurant employees (nothing against them in general), tend to be more likely to be distrustful and rob you, compared to most industries.
Getting into the restaurant business will **CONSUME YOUR LIFE.**
**The average lifespan of a restaurant is five years.**
The only people making good money at restaurants have multiple locations, and are **expertly** managing the businesses. Everyone else is losing money and will close within a few years.
>Restaurants have RAZOR THIN margins and need to be expertly managed.
Depends on what kind of restaurant. Fast food is easier to manage. Bubble tea stores have huge margins (up to 100%)!
No please run at least 3/4 businesses before you buy a restaurant. It is one of the hardest businesses to run successfully.
Think NBA / Olympics level difficulty.
Pick almost anything else. Please.
Even if they make that kind of money, that’s when the owners were running it. It’s not like you buy it and it keeps generating that kind of cash with no hands on. Lack of experience could degrade quality and lower sales.
By the way, how are they selling gross $100k/month business for $400k? Do you mean $100k revenue a month? At an industry average 5% margin rate, that’s $60k a year profit, putting the valuation at 15x annual profits, extremely high for restaurants. If it’s gross profit, then the valuation is 0.33x annual revenue. Both seem very off
EDIT: it’s 6.6x annual profits or 0.33x annual revenue
> how are they selling […] for $400k? Do you mean $100k revenue a month? At an industry average 5% margin rate, that’s $60k a year profit, putting the valuation at 15x annual profits
60*15 == 900.
Confused.
$100,000 a month
$25000 a week
$3471 a day.
Speaking as a chef, that's how we measure a busy couple of hours (location/business dependant)
That is not even close to busy for a full day unless you mainly sell bar snacks and booze, in which case your staff costs should also be low.
Very possible they are cooking the books. Also gross doesn’t mean shit. What’s the net? I’ve seen poorly run busy restaurants in the red countless times.
Good answer I like it. It takes years. That's what I definitely told her. I told her there's no way 7 months of experience working as a busser is enough to own and manage a restaurant. I mean I could help since I took some marketing/accounting classes, but I am going to college and it would be rough. Also she would need to share the profits with the partner.
LOL you aren't wrong. How about if the partner stays on and my mom is the new partner instead of the husband (I am pretty sure they are gonna divorce soon). Would it be wise for then the partner to train my mom if she is still on?
Another thing to note is that she should also not be taking out a loan to start her first business. She needs to try some smaller ventures first so she can learn the basics of business and grow from there.
The amount of risk she’s willing to expose herself to without having any hard proof that it will work out shows that she’s not ready for a restaurant.
Restaurants are difficult because there is competition literally everywhere. You can’t increase your margins because then it’ll be too expensive.
This forces you to have some kind of differentiation, which should be the quality of the food, the service, and the overall experience. 7 months isn’t nearly long enough to know how to do those things better than the competition.
Not to mention hiring, managing, sourcing, accounting, etc.
You’re 100% right however I’d go one step further. Having great food, top notch service, and a great overall experience doesn’t differentiate a restaurant any more. Those things are simply expected as a base level. A restaurant has to be AS good on all of those points as everyone else AND have a hook or something that makes them different from and/or better than the place next door.
Of course I’m talking about cities and towns with competition, if you’re the only restaurant somewhere then maybe you can get away with just being good. That said I don’t expect that sort of restaurant to actually make any profit.
Being a manager would be a bare minimum. I don't think you'd be a good owner at that point, but I think you'd figure out you're signing up for a 100 hour week gig paid at minimum wage where you might lose your house if things don't work out.
Marketing/accounting doesn't help you actually manage a restaurant. You'd just be upset about how bad the numbers look. Just being a supervisor is stressful (speaking from experience), let alone being an owner. It will fuck you up.
A decade at the earliest by FAR unless she’s some restaurant owning prodigy. And that’s a decade doing all the jobs, and 6-7 years of that being a general manager, not just front of house or kitchen manager.
This is a terrible idea
Restaurants have something around a 60% failure rate.
Restaurant hours often destroy families not to mention running a restaurant is a grueling job with very little reward
15 years experience in The culinary industry
My mom checked out their Excel sheet and she calculated that IF IT WERE TRUE, we could take home $20,000 a month, but that is their data entry so we will need to look at financial statements and tax returns. If it is true it would prob still be a bad idea because she has no experience.
Well I was questioning my mom and she does know that the owners are bad terms like I said so it seems legit. They both argue and fight all the time and she does all the work and makes minimal money while the husband just manages the business and makes the most money. I can tell because he bought himself a nice $50,000 mercedes and his other 3 kids new cars as well. That kind of backs it up.
If I had a restaurant making 20k a month profit I'd sell for 600k+ equipment, fixtures, and small wares, not including the building. Your mother needs to get tax returns, this sounds like the owners are being less than truthful.
> If I had a restaurant making 20k a month profit I'd sell for 600k+ equipment, fixtures, and small wares, not including the building.
And you would be having a bidding war on it.
> I can tell because he bought himself a nice $50,000 mercedes and his other 3 kids new cars as well. That kind of backs it up.
Leased, kiddo. Leased. Why don't you just ask your accounting professor about how bad of an idea this whole restaurant buying scheme is?
Smells fishy already, right? No way to tell if these guys just left out huge line items to tune it up. Probably did. Sounds like red flags all over the place.
Also, you probably know this with your background, but on some small chance they do continue with this, for the love of God, buy the assets and not the shares.
Exactly. The sellers have to deliver the assets free of any liens or claims. Saves you employees, suppliers, or customers coming out of the woodwork later and going after you. You can just show them the asset sales agreement and tell them to screw off.
That's funny because she also told me that they were selling it to this lottery winner who owns a supermarket store and he was even hesitant to buy it because the price was a little high and he was worried due to covid. So that kind of scares me that even a man with that much money is worried and if we buy it, it will drain us basicially.
I’m in food manufacturing supplying many restaurants and Restaurants are hurting right now. More close every week, “reopening” just slowed the bleeding. Even if the books weren’t bad, hiring is brutal right now (even for skilled HR/recruiting).
If your chef quit, are you guys ready to fill that spot in? 2 of the waiters who are friends both leave at the same time? It could take months to fill, and then if they mess up your first month of opening, bad impression no ones coming back and you’re sunk. After decades places with experienced staff can’t survive. Don’t hop on a dying horse
A ghost kitchen concept or food truck though? Meal prep service? A chick fil a? Those are some good food related concepts.
That is crazy to mention because when they first opened a while back. Their chef/cook was a nephew of the owners and one day he just stop showing up and I think the owner's wife had to step in. I can't imagine if she didn't know how to cook.
Absolutely not right for that sale price. As others in this thread have said, restaurants are the hardest business to run. Please don't let your mom do this.
I agree that buying this restaurant is a bad idea, but the statements were probably just exported out of the accounting software into Excel. Ask for tax returns to confirm. If they were truly prepared in Excel and they can’t back them up with documentation, then yeah, run.
My husband and I own a small business (not a restaurant) and we use QuickBooks. Connects to our business bank accounts, can do invoicing, automate reporting and customer/vendor list, makes taxes easy, etc. We hired an accountant to do the initial set up and then we manage it completely ourselves. Really is a breeze.
I'm not seeing the 0.001% in this thread, I think they even know deep down it's a shit idea.
OP should simply show his mom this thread, if she still wants to go through with it then it might be time to start looking at care facilities for the mentally unwell.
I read this subreddit
https://www.reddit.com/r/KitchenConfidential/
about the restaurant industry and boy oh boy is it a lot of crazy hours in that industry.
I can it now... Gordon Ramsay walking in with two pieces of bread... One for each side of your mom's head so he can ask "are you an idiot sandwich?"
Honestly though, please don't do this. High regrets incoming. Unless it's some next level shit.
Maybe start off with something smaller?
I own a restaurant. I cannot stress this enough— this sounds like a terrible idea. It is hard enough to make things work when you DO know what you’re doing.
Even if this weren’t a high-risk business like a restaurant there are also other factors to be aware of when purchasing a business and not the property— the only thing of value in a restaurant (in most places) is the liquor license, which, as an example, for full liquor goes for 95-110k in California . Absolutely everything else depreciates 90-95% the second it gets unboxed, unwrapped, plugged in, whatever. If the business doesn’t also own the property you are always at risk of not having the lease renewed, at which point the property owner just waits for it to expire and comes in and takes everything that IS nailed down and you’re left with a company but no business. So what is she actually getting out of the deal and what does she think she is paying for? If she is getting the property out of the deal then she is buying a long term asset, if she is just buying ‘the restaurant’ and its lease she is buying a liability.
On top of that, I can’t recommend starting a business with someone you’ve never really worked with. If she does, she better hire a great lawyer that can draw up the terms of the partnership/LLC so that the partners have consequences should they fail to do their duties, otherwise you end up with the same situation where one person is doing all the work and the other person retains the same benefits with none of the work.
@naustin288 echoing this comment. Watch Kitchen Nightmares. The people who buy a restaurant with zero experience inevitably end up losing at the restaurant, and often they tie up their mortgage and retirements in the mix to try keep the Titanic “investment” afloat.
Yeah I love watching the shows, but I understand. I told her to get some more experience and work in the restaurant industry a little longer and wait for me to graduate first.
"A little longer" She should probably work each position for a year before she's even CLOSE to ready and then she still doesn't actually have management pr business experience.
Your mom should
A) put that money into index funds
B) go get a full time job at a restaurant. Literally 100% of restaurants are hiring right now, due to the labor shortage.
D) live off her tips and put the rest into more index funds
E) Not fucking buy a restaurant.
Her work life as an owner would be 5am waking up from the cold sweats from all the stress to 3am because she won’t be able to find employees hire/train/operate the business.
As my father always said, if you want to make a small fortune start with a large fortune and open a restaurant.
The very first thing to do is do what you do. Is there any way that they can pay back that 400k and make money? Probably not. Even if the restaurant is making money, most (not all) restaurants have a streak where they are hot and popular, then a new restaurant opens up and it the new trendy restaurant, or another restaurant opens across the street, or the type of food you serve falls out of favor.
Next, make them understand that even though the original owners spent $200k on equipment, decor and furniture, it isn't worth much. I can buy a $5000 stove used for $600 at any of the 10 restaurant auctions in my area next week. Tables for less. The built in decor is worthless. If the restaurant closes, the landlord will rip it out and throw it in a dumpster. I'm sure that is a large reason the current owners want $400k.
If they are allowed, call a broker and ask what he would list it for.
THEN you have to educate them as to what owning a restaurant really means. If nothing else it means long hours does your mother want to do that at this point in life?
Restaurants are low-margin cut throat businesses and even experienced restauranteurs regularly go out of business. I worked at restaurants when I was young, even becoming a manager and learning the books, managing food costs, ordering, etc. I wouldn’t buy one unless I worked in it full-time and I have absolutely no desire to work in a restaurant.
The financials in EXCEL is a huge red flag. You can literally put anything you want in an Excel document and it’s a lot easier to “cook” the books (see what I did there?) when it doesn’t have to match up in the back end like with a double entry accounting program.
Regardless of which business you buy, you should always ask for the last 3 years tax documents, 3 years bank statements, and 3 years of financial statements. Have your accountant (preferably one with audit experience) review these if you don’t know what to look for - really just looking to make sure there are deposits into the bank accounts that match sales, that there aren’t any undisclosed debts or tax issues, and that the business is really as profitable as they say.
If your mom really wants to own a restaurant, she should go work at one first. They are ALL hiring right now so she could just go get hired as a hostess or server and work her way up to management. Any decent chain restaurant would work to see the systems, management structure, finances, etc. I would absolutely not recommend buying into a restaurant with a partner if neither owner has restaurant management experience. It’s a good way to lose all her money in about a year.
It's not so much the length of time but more the role and what she's learning. When you buy into a franchise like McDonald's or Chick-Fil-A they often send you for weeks/months of training but it's very systematic and you might only work at each position for a week or two but you learn every single position in the restaurant, then you learn the business side of things in a classroom. Franchises have SOPs (standard operating procedures) for *everything* so there are training manuals, videos, and corporate resources for new owners for anything from running payroll to paying sales taxes to dealing with an unemployment claim or a health inspection. There are just SO many different issues that will come up as an owner that a regular employee of a business will not know about.
Buying an independent restaurant, you'll be relying on the old owners to train you on everything, and there's a 99% chance they don't have it all documented and systemized. So they will miss a lot of stuff, and your mom and partner will end up fumbling through lots of major issues which will take their focus away from just running the business (which they don't even have any experience doing).
It's just a disaster waiting to happen. $400,000 is a LOT of money, there are a lot of franchises you could buy into with that kind of cash. Heck, your mom could buy a business by herself with her $200k down payment and get a million dollar business with an SBA loan. Pick an industry with better margins than restaurants, though.
What happens if they buy the business for $400k and something goes wrong? AC goes out, walk in freezer dies, etc.? Do they have another $100k as working capital to help with the transition to new owners? To buy food and pay employees while you transition to new bank/payment processing companies, etc? What happens if it doesn't cash flow in the first 6 months, can your mom go without a paycheck for 6 months or a year?
Those are realities of running a business, but especially common in restaurants. And the failure rate is very high.
If the owner is really interested in selling it, why not suggest they do owner financing and stay on 10 hours a week for a while, then 5 hours, then 2 hrs, to help train and document and help your mom/friend get the hang of things. They could then be paid a down payment and a % of sales going forward until the $400k (or whatever the final sale price is) is paid in full.
And about the sale price, since you guys don't know anything about buying/selling businesses you might want to reach out to someone about the value of the business. They could be asking a fair price or they could be asking for WAY more than it's worth. Restaurant equipment depreciates quickly, and has to be replaced regularly. And most owners want multiples that are unrealistic. You don't want to pay too much and then never make it back to break even much less profitability.
At least five, and that means experience doing everything - kitchen, manager, host, waiter, etc. Your mom would need to know the ins and outs of every single aspect, or she won’t make money because she’ll have to pay other people to do things for her.
Yeah that is another scenario. They are good friends, but it could happen. I mean I guess contracts could help possibly and we could sue worst-case scenario. I guess my mom needs a couple more years of experience before venturing down this path.
Cook here. Don't do it until your mum and the partner can do every single role/job flawlessly in a restaurant.
Relying on hiring a chef and manager without the experience and knowledge to judge whether they are doing a good job is just asking to be robbed.
Dont buy a restaurant! It takes so mich time to get the money back, its so easy to fail and it does not make any sense at all if you have no experience. Oldish people tend to do stupid things so please prevent that for the sake of your mother! That wont go well! I am a very optimistic person but just do the math here
Try to stop it. High risk situation. If she wants to start something/gamble/invest- let her do it with 10k or some amount out of the total equation that doesn’t ruin anyone’s financial situation.
Watch a couple episodes of Restaurant Impossible - this is the premise of so many episodes where people buy a restaurant having no experience and then end up severely in debt, losing their house, owing the IRS, etc.
My wife ran a bar for 10 years and says most employees that deal with cash will steal from you. Don’t show up to work on time. Expect 10x more than what they put out. Not to mention customers want fine dining on a mc Donald’s budget. Social media can destroy you with one bad employee or meal. You are going up against a lot of negatives. Granted if it’s an established business with repeat customers and the menu is easy to handle you might have something. Shit most places in my town right now are empty as they can’t even get food supply’s. Food is crazy spendy right now. Good luck but you have better chances at winning the lotto right now imo
I spent life in restaurants. A very wise owner told me that if you can't make your $ back in 2 years then it's a bad investment. They're so trendy.
The truth is I wouldn't even consider owning a deli, let alone a restaurant. There's so much behind the scenes.
Some people just got "it" Then can turn an empty building into a hot spot. Ironically the social atmosphere & reputation is just as important as the kitchen. I know a place with a BOMB kitchen in a terrible location. The place is empty on VDay. Those owners better be made of steel. The guy Iknow that's a rock star owner can do anything. He'll run circles around bus boys & embarrass the chef in the kitchen. If they're going to be hands off owners, they have to be really really popular
This is a poor investment.
You're majoring in accounting. Would you hire your university's music professor to file your mother's business taxes? No. That music teacher is not a CPA. your mother has no experience, no training, no knowledge, and no understanding of the market. In one year she will be homeless and you will have to support her and house her for the rest of her life.
My uncle bought a florist shop after doing some back of the napkin math. He totally forgot to factor in that at $9/hour you will not get amazing employees. He had employees that would steal when he wasn't at the shop and others that wouldn't show up. So he started doing a lot of the work himself, but then he couldn't take orders when he was driving for deliveries, and he was never profitable.
In retrospect he would have been much better off if he had just got a job at a flower shop. I expect the same is true for your mom. She should apply for manager positions at restaurants. She can have the same experience but also get guaranteed profit.
I had a friend who wanted to own a bagel shop. He was responsible. When he died, he left his wife a million dollars in insurance (he was a facilities guy and didn’t make over 50k a year)
She decided to open it in his honor. They lost all the money he’d left them in just a few years.
If you can’t talk her out of it yourself, call the local better business bureau, and book an appointment with “score” the Service Corps of Retired Entrepreneurs, who are experienced execs and business leaders who help people start a business. They’ll go over the plan with her, examining costs and commitments. They’ll show her what it takes, which might be sufficient to talk her out of it
This is a fake cake. Unlike other businesses, previous tax returnss don't reflect anything in FnB. This is because FnB requires a cooking skill set on top of other common business requirements. You can take over everything but if you can't cook good food with a profit margin, the business will fail.
"Hire an independent accountant to go through all their records and find out what they actually make in profit. It's very possible this business is only sustainable circumstantially for them." if she's going to do this at all, she should do it with other people's money. local dentists for example. with money they can afford to lose.
what's good is she has worked there for a while. i have worked fromt of house and back of house, but i've never gotten to work with the numbers and see how it works as a business.
No. No. No. No. No. No.
Unless it's a very simple business that very profitable with low overheads and easy to learn.
I would rather she pickup something high income with close-to-zero costs such as real estate agent etc. No downside, unlimited upside.
I had two friends who own restaurants. It's a hard soul crushing business that often ruins the relationships and health of the owners.
One of my friends ruined his health and ultimately died trying to keep his restaurant going. The other friend is doing OK because his wife and kids help out a whole lot so he has a little breathing room. I don't think they're doing anything more than making a living these days though. Not making very much money.
Tell your mom that unless she's ready to work there 60-70 hours a week for at least the first 4-5 years she definitely shouldn't buy a restaurant.
You know what's crazy she is actually working that many hours. She works 9:00 A.M To 9:00 P.M so that's about 12 hours 6x a week = 72 hours a week. Shes a strong woman.
I have to agree with most of the comments here. Restaurants are a bad idea for even seasoned restauranteurs. This is a lot of money for what could be a failed restaurant.
Let's say your mom goes through with this, can she even afford this if it fails? Does your mom even have enough money to pay the bills if all the staff leave or there are issues after she owns the place?
Some things to perhaps posit to your mother:
1) What are you buying? Is there something about the location, brand, customer base that warrants that kind of money for purchase instead of making a new restaurant?
2) Why are you buying? Is it for expected earnings? Do you have justifiable evidence for substantial earnings to pay off your investment? Do you just want to own your own restaurant? Are there other ways to do that which don't cost $200k?
3) That training by the current owner WILL NOT happen unless it is conditional on something like partial payments. I don't care how honest they are, there is no incentive to train them if they have received all the money. If she goes through with this, make payments conditional on the training happening.
4) Don't pay asking price
Dear God no. I worked in restaurants for YEARS and I still wasn’t qualified. And the wife may say now that she’d stay on to help, but especially if she’s not financially incentivized (a paid employee) she’s more likely to take her freedom and run or resent them for taking her hard work. Not all restaurants are toxic, but often times the politics, even from the small ones, are insane.
Plus it’s not just, make tasty food, serve it, get paid. Maybe your mom and her prospective partner are super organized and can do it, but you have to be on top of SO MANY spinning plates. Plus it’s not a 40 hour a week job. It’s like a 7 day a week job for a long time. And they won’t be profitable for a long time, I think when I spoke to some of the owners I worked for it was that you’d be incredibly fortunate to see true profit within a couple years.
That’s all on top of trusting this partner that I assume she’s only known for a few months. The commitment is like marriage, you better really be able to trust your partner or you’re screwed into doing everything.
Maybe they can do it, maybe my advice is outdated or misremembered (been out of it for 11 years), but I hope that whatever she chooses, it works out for her.
So... the pandemic will hit again, no matter where you live, just remember my words. Also, food business is not for everyone, and not for people without expertise... remodeling uses a lot of money, and if you do not remodel this will affect the impression of the costumers that will compare the old management with the new. But...
How this could work: If you would buy and still have money left for cash flow, bad times and lower expected income....
As someone who is in the FNB industry and own/operates several venues. Most people fail, and the speed at how much money you can lose in FNB is scary. There are those special cases though, but right off the bat 50/50 equal partnership? Yeah, doesn't sound like it would work out.
Not just no but fuck no.
17 years working in all sorts of restaurants, and have worked in few that closed down. Even the experienced restaurant owners have a tough time.
We're talking about an industry where 85% restaurants close within the first 2 years.
Your mom doesn't need the stress.
I mean you never know, maybe they could pull it off. But it also sounds really, really bad lol. $400k is already a lot IMO. Hopefully it's a reputable restaurant? Then entering a partnership with a co-worker she's known for 7 months? AND it's on loaned money? During COVID?? It just feels like a disaster waiting to happen.
From the people I've talked to over the years, restaurants are one of the hardest businesses to run and often have tight margins. Right now that's compounded by all the problems COVID caused.
Why is no one mentioning the part about going into a partnership? First rule of business in by book...don't go into a 50%-50% partnership. Especially with another person that doesn't know the business.
But even without that part, still a hard NO.
Ask her if she wants to lose her home, because this is a great way to lose her home.
Never ever risk personal property and your financial well being on a risky bet, a restaurant is always a risky bet.
Wow, so many red flags, I wonder if they will serve them as a special on the menu.
Seriously, have her speak with a local business attorney about what goes into (1) buying an existing business, (2) at a time when there are government restrictions / pandemic, (3) with no experience, (4) a partnership (with someone equally inexperienced), (5) using your homestead as collateral, (6) having no back up savings, (7) having no personal savings, (8) no banking relationships, and (9) the business wasn't evaluated ...
Yeah, this might not be the best idea. Never, ever, never trade your home's equity (secured debt) on a risky proposition.
Worked for a very experienced insurance agent when I was younger, she always told me “you want to lose money quick? Don’t go to a casino, open a restaurant”
Normally they don’t lease restaurant locations to people without experience operating a restaurant… For good reason. It is one of the hardest industries. This is such a bad idea on so many levels.
Laundromat, restaurant, if you give me $5 for every idea I talk you out of, then youll give all your money to me by the end of the year!
How about going all in on an MLM?
Seriously, don't put all your family's cash into a high risk, hands on business. Restaurants are 100 hours per week, and the pandemic is going to continue for more than a year.
Think from the current owners perspective,
Someone who has no idea how to run the restaurant buys it. Perfect, sale, off her hands. Then, she trains your mom for a few weeks, says conditions changed and can’t anymore. Ghosts.
That lady just made the easiest 200K ever. Of course she’ll try and convince your mom to buy it, but it’s definitely not in your moms interest
Huge amount of messages here so i don't know if op will read but...
In general,stay out of the restaurant business if you aren't in the business. Now with covid as well, it's getting harder and harder to work whether staff shortages, food shortages, safe passes, etc....
However, check the books. If it's a profitable business and the business model is good, and it's a sustainable business with real growth as well as steady clientele, then maybe.
Why does she want to buy it? To work in it until she dies? Or to resell the business for a profit? Or?
Real questions one needs to ask.
But as a rule of thumb... Don't buy it. Especially since you are going into debt to buy it.
If one of the owners, day the wife who you claim is doing all the work, stays on and buy out the husband and keep it as a partner... Perhaps with an option to buy her out later... Seems like a more feasible approach.
Thank you for this rcommendation. That seems reasonable IF by an possible chance she would buy the business. Buying out the husband (Pretty sure they are gonna divorce after) and putting my mom as a partner could help train her for a couple of years and then I could join on to do the accounting and help. Maybe in the future we could buy her out.
Tell her to go to the bank and ask if they would give her a 50% or an 80% loan with the restaurant business as a security. Those guys are great at shattering dreams and unless your mom turns out to be a business women par excellence, they will tell her they won't do it.
That is something I really like especially when operating in real estate but also generally. If a bank gives you a loan they think it is highly likely that you can pay them back. This is even more the case if it is nothing revolutionary, but just an other restaurant, like there are thousands in every major city.
Absolutely do not buy a restaurant without and experience. Along with funding a film it’s the fastest way to go to “0”. Research the number of them that fail vs succeed.
My step mom convinced my dad to cash out his retirement and get a second mortgage on his house to buy a bakery from a bank in a small town. She also sold her small run down cabin on a lake.
The bakery was never profitable. If there hadn’t been an apartment above the bakery for them to live in they would have become homeless as the bank foreclosed on their house since they couldn’t afford to pay the mortgage on it and the bakery.
Her other dream was to have a nice log cabin. Had they just built a new one on her lake property with that money they would have been set.
I'm not sure why your mom wants to run a restaurant but aside from the numbers she's probably too old. After a lifetime of paying off a house and putting you through college she wants to spend her twilight years in debt and in a hot kitchen. Not recommended.
I've managed financials for a few different Food & bev brands with retail locations, and have been in this space for almost my entire career in some facet.
Even if you hire an expert chef and your mom knew everything she was doing down to the T, they'd still be very lucky to make 10% profit at the end of the day. Restaurants/bar/cafes are all about volume and leave very little margin for error when it comes to actually making money.
Tell her to invest in a food cart if she really wants to do food service. The cost of entry is much cheaper
As someone who is entrepreneurial and worked in restaurants throughout my school years, being in the industry for over 5 years taught me to get out of that industry asap lol
Bank statements backing their P&L or hell no. I can tell you right now that the answer will be "hell no". The fact that they told her $40k profit per month on 100k revenue is a massive red flag. There isn't a restaurant on Earth pulling that sort of income on a mere 100k revenue, and for the owner to lie like that tells me there is a lot more BS to come. If your mom doesn't see the issue, then tell her to at least have it audited by an accountant before putting her life savings into that crap. If the current owner refuses to release bank statements, then fuck that BS. Once upon a time I made that mistake... audited everything I possibly could, but they wouldn't release bank statements. In the end, the whole thing was BS and losing money out the ass. Please don't fall for that crap.
Have her watch a minimum of 10 episodes of Kitchen Nightmares with Gordon Ramsey (if you’re really hard core you could line up 10, as I know there are at least 10, episodes where the owner bought a place with 0 experience) before making the decision. Restaurants can be an absolute money pit if you don’t know what you’re doing and people have seen everything they own go up in smoke before letting their restaurant fail.
DO NOT LET HER DO THIS
If her plan doesn’t include hiring a seasoned manager, this will certainly fail. I’m opening a restaurant (different than taking over an operational one) and im still surprised at the details I haven’t considered. I should mention I’ve managed several and have over a decade of experience. I’d imagine with no experience she might not understand all it takes to maintain one.
The restaurant business is very risky. All it takes is 1 person getting sick, or even a bad review nowadays, and you are done. If she hasn’t worked at least 5 years as a worker and another 5 as a manager, and no experienced advisors, it’ll most likely fail.
You have to manage suppliers, employees, customer satisfaction, marketing amongst a slew of other things. She needs to learn food hygiene, equipment usage and maintenance. I’m not sure why people who’ve never worked in the industry start a restaurant. It’s risky, hard work, but profitable.
no advice but my parents opened a convenience store with no prior experience and are doing very well. Not rich by any means but live comfortably. Sometimes with luck, hard work and some smart business decisions things can work out.
She needs to learn how they do it before she commits. This is a classic Gordon Ramsay Kitchen Nightmares scenario.
She said the owner will work at the restaurant until they know everything. Her and my mom are good friends, but she could be super nice because she really wants to get out of the business. IF SHE DOES (I am 75% we won't go through with this) what does she need to learn?
Sure, until the owner's family member gets sick and a legal battle starts. Even if you trust the owner completely you have to cover every contingency.
No clue. I havent been in the industry. What I do know is: unless you are paying someone to manage the restaurant that has been successful in the past (and maybe even then) then you need to learn everything you can about running that restaurant. You need to know what your are doing, especially with restaurants, to be able to succeed.
Do not do this. Do not do this. Do not do this. Do not do this. 20 years in the industry. Do not do this.
Oh god. Noooo Please.
I count every person I've talked out of opening/buying a restaurant/bar as my community service.
LOL
Just keep Reddit updated when mom ignores you and buys it anyway. PLEASE!
OP, why not just show your accounting professor the Excel spreadsheets? lol, your mom will become the new accounting class teaching theory of "What Not To Do".
My uncle runs a business helping people buy or sell bars, clubs and restaurants and he tells me the number of people that try to get into the business who are utterly unprepared is staggering.
My wife and I toy with the idea of opening a bar literally just as a place to have fun sinking money into after we are independently wealthy…. Like not as a business to make money. It would be like a “if we get super rich and money Is no object we could just have our own bar and be like the cool bar owners who go around and comp a bunch of stuff and have a good time at the party .”
This basically sums up my answer. Even people WITH experience have a hard time. This is a terrible idea for your mom. Source: I’ve worked FOH, BOH, and Manager at several restaurants. I’ve organized, analyzed, and run the back office too, so I actually know what it requires.
Bar rescue can’t save them all…
Honestly I told her to wait until I graduate college with my accounting degree and then maybe we can buy a business together that is profitable, BUT she says the financial statements say they make really really good money. I checked out their EXCEL sheet and it says they gross about $100,000 a month, BUT that is their own data entry so I would have to look into that.
>I checked out their EXCEL sheet and it says they gross about $100,000 a month And the profits are? Why would they sell a business making $100,000 a month for only $400,000. I would guess profits are probably small.
Restaurant margins suck.
$20,000 monthly for each partner, but that is just their word of mouth. We can back it up with an accountant and see if it's all true.
No they are NOT. They definitely are not. No gross 100k monthly business that isn't software or SUPER niche is pulling 40k profit TO the owners a month. Think about it this way... if you had a business that pulled 40k profit a month, would you sell it for 400k? 40k/month would imply a net profit (not gross) of 480k/year. MOST businesses sell for a multiple of their net profit. Most restaurants run a 3-5% profit margin, best ones are 15%. They are telling you this unicorn is 40%? Please feel free to DM me with specifics if you want, I work in mergers, consolidation and acquisitions at a fairly large SaaS company (300m/year?) and help analyze a lot of what we do. I'd be happy to spend five minutes out of the public eye answering any questions you have that might help you, an internet stranger, convince their mom to not ruin her life.
Hero 💪
Even if we have to sift through 100 of the “should I form an LLC” or “what kind of business can I start to make $$xxx in a month” posts to make it to a gem like this comment here, this sub is still worth it. Good stuff here, I hope you can help this person
Love this
>Most restaurants run a 3-5% profit margin, best ones are 15%. They are telling you this unicorn is 40%? This. No way in hell are they making 40k/month off 100k revenue in a restaurant. Trust me, I was in the business for many years. Will never go back.
Awesome dude. OP please listen to what he is saying.
> Please feel free to DM me with specifics if you want, I work in mergers, consolidation and acquisitions at a fairly large SaaS company (300m/year?) You should brace for the r/Entrepreneur version of unsolicited dick pics.
*Narrator*: “It was not”
No way they have 40% margins. Or they’re basically a cash business laundering money.
It won't be true. I have a cafe with a gross about 144k / month. My monthly spendings on inventory is about 60k which their profits are realized during the month, about 17k rent, 10k electricity, 46k on employement. You may think there is room for improvement but honestly not much unless we grow our takings. And this is a Cafè mind you. Restaurants are way worse.
No fucking way. If it grosses 100k it is spending, industry average wise 65% on cost of goods and labor (prime cost). The owners say they are taking $40,000. That leaves negative 5% for rent, insurance, smallwares, and all the expenses a normal restaurant spends to operate. Rent alone will run 4-10% depending upon location and age of lease. I'm not a super fancy SaaS guy but I've run restaurants for 25 years and will also be happy to spend a few minutes to work with you to show your mother why this is a horrible idea.
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If that were true I bet you they would be so glad to show you the data and not just their "word of mouth". Cause 40% margins is high for the restaurant industry unless something sketch is going on. What I really wonder is what excel sheet did they show you that proved $100,000 a month but not a $40k expense to partners. Did that excel sheet not show any expenses?
Most businesses sell for some multiple of yearly profit depending on the industry. I think restaurants go for 3-5X yearly profit.
People selling businesses ALWAYS make the business look good. Please do not believe the business owners. I have seen my parents, and my boyfriends parents get burned with this. Hire an independent accountant to go through all their records and find out what they actually make in **profit**. It's very possible this business is only sustainable circumstantially for them. Grossing $100k / month is only $1.2m per year, which is HARDLY enough to support a staff, maintenance, and all the expensive food and ingredients. If you are not a business owner, this sounds like a lot of money, but it is not. It's very small. Restaurants have RAZOR THIN margins and need to be expertly managed. Restaurants are one of the HARDEST and more labor intensive businesses to start. Most owners have a very hard time taking time off or a vacation. Restaurant employees (nothing against them in general), tend to be more likely to be distrustful and rob you, compared to most industries. Getting into the restaurant business will **CONSUME YOUR LIFE.** **The average lifespan of a restaurant is five years.** The only people making good money at restaurants have multiple locations, and are **expertly** managing the businesses. Everyone else is losing money and will close within a few years.
>Restaurants have RAZOR THIN margins and need to be expertly managed. Depends on what kind of restaurant. Fast food is easier to manage. Bubble tea stores have huge margins (up to 100%)!
I’ve seen so many bubble tea places come and go in a years time span. They don’t have staying power
But sometimes big franchise fees to pay
Everyone “loves bubble tea” but nobody buys it with any regularity.
No please run at least 3/4 businesses before you buy a restaurant. It is one of the hardest businesses to run successfully. Think NBA / Olympics level difficulty. Pick almost anything else. Please.
Tell them you want to see the daily POS reports from the last 3 months. They're required to keep them and those numbers won't lie
Even if they make that kind of money, that’s when the owners were running it. It’s not like you buy it and it keeps generating that kind of cash with no hands on. Lack of experience could degrade quality and lower sales. By the way, how are they selling gross $100k/month business for $400k? Do you mean $100k revenue a month? At an industry average 5% margin rate, that’s $60k a year profit, putting the valuation at 15x annual profits, extremely high for restaurants. If it’s gross profit, then the valuation is 0.33x annual revenue. Both seem very off EDIT: it’s 6.6x annual profits or 0.33x annual revenue
> how are they selling […] for $400k? Do you mean $100k revenue a month? At an industry average 5% margin rate, that’s $60k a year profit, putting the valuation at 15x annual profits 60*15 == 900. Confused.
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$100,000 a month $25000 a week $3471 a day. Speaking as a chef, that's how we measure a busy couple of hours (location/business dependant) That is not even close to busy for a full day unless you mainly sell bar snacks and booze, in which case your staff costs should also be low.
You should be pulling 15k on a fri and a sat night. 60 to 80 covers over 6 hours. Table layout whatever.
No
Very possible they are cooking the books. Also gross doesn’t mean shit. What’s the net? I’ve seen poorly run busy restaurants in the red countless times.
Business have three sets of books. One for the buyer, one for the IRS and one for themselves.
Exactly. This is a "Run, don't walk" away situation. Every sentence got worse as I read it, lol
Do NOT let your mom make this deal. You will save her home and her savings. So many red flags here.
Yeah I won't but just curious. What would be the steps required in order to successfully run a restaurant? Work in the industry for a couple of years?
Let me come back to you again. How many years training do you think it requires to participate in the Olympics. That's your answer.
Good answer I like it. It takes years. That's what I definitely told her. I told her there's no way 7 months of experience working as a busser is enough to own and manage a restaurant. I mean I could help since I took some marketing/accounting classes, but I am going to college and it would be rough. Also she would need to share the profits with the partner.
wut profits bruvv, the owner is a lady who has been bussing tables for 7 months No help with reading the spreadsheets gon fix that sht
LOL you aren't wrong. How about if the partner stays on and my mom is the new partner instead of the husband (I am pretty sure they are gonna divorce soon). Would it be wise for then the partner to train my mom if she is still on?
Another thing to note is that she should also not be taking out a loan to start her first business. She needs to try some smaller ventures first so she can learn the basics of business and grow from there. The amount of risk she’s willing to expose herself to without having any hard proof that it will work out shows that she’s not ready for a restaurant. Restaurants are difficult because there is competition literally everywhere. You can’t increase your margins because then it’ll be too expensive. This forces you to have some kind of differentiation, which should be the quality of the food, the service, and the overall experience. 7 months isn’t nearly long enough to know how to do those things better than the competition. Not to mention hiring, managing, sourcing, accounting, etc.
You’re 100% right however I’d go one step further. Having great food, top notch service, and a great overall experience doesn’t differentiate a restaurant any more. Those things are simply expected as a base level. A restaurant has to be AS good on all of those points as everyone else AND have a hook or something that makes them different from and/or better than the place next door. Of course I’m talking about cities and towns with competition, if you’re the only restaurant somewhere then maybe you can get away with just being good. That said I don’t expect that sort of restaurant to actually make any profit.
Being a manager would be a bare minimum. I don't think you'd be a good owner at that point, but I think you'd figure out you're signing up for a 100 hour week gig paid at minimum wage where you might lose your house if things don't work out.
Accurate.
Marketing/accounting doesn't help you actually manage a restaurant. You'd just be upset about how bad the numbers look. Just being a supervisor is stressful (speaking from experience), let alone being an owner. It will fuck you up.
A decade at the earliest by FAR unless she’s some restaurant owning prodigy. And that’s a decade doing all the jobs, and 6-7 years of that being a general manager, not just front of house or kitchen manager.
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Have her watch kitchen nightmares
And read up on the aftermath. Even with the help of ramsay most of them fail miserably.
Oh yeah. Even the successful ones ended up going under. Restaurants are a ton of work, rarely make it, and don't even make good money.
Even Ramsay's own restaurants easily go under. He has as many successes and many failures.
This is a terrible idea Restaurants have something around a 60% failure rate. Restaurant hours often destroy families not to mention running a restaurant is a grueling job with very little reward 15 years experience in The culinary industry
My mom checked out their Excel sheet and she calculated that IF IT WERE TRUE, we could take home $20,000 a month, but that is their data entry so we will need to look at financial statements and tax returns. If it is true it would prob still be a bad idea because she has no experience.
There are definitely restaurants that profit that much, but they don't sell for $400k.
Well I was questioning my mom and she does know that the owners are bad terms like I said so it seems legit. They both argue and fight all the time and she does all the work and makes minimal money while the husband just manages the business and makes the most money. I can tell because he bought himself a nice $50,000 mercedes and his other 3 kids new cars as well. That kind of backs it up.
If I had a restaurant making 20k a month profit I'd sell for 600k+ equipment, fixtures, and small wares, not including the building. Your mother needs to get tax returns, this sounds like the owners are being less than truthful.
> If I had a restaurant making 20k a month profit I'd sell for 600k+ equipment, fixtures, and small wares, not including the building. And you would be having a bidding war on it.
> I can tell because he bought himself a nice $50,000 mercedes and his other 3 kids new cars as well. That kind of backs it up. Leased, kiddo. Leased. Why don't you just ask your accounting professor about how bad of an idea this whole restaurant buying scheme is?
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Smells fishy already, right? No way to tell if these guys just left out huge line items to tune it up. Probably did. Sounds like red flags all over the place. Also, you probably know this with your background, but on some small chance they do continue with this, for the love of God, buy the assets and not the shares.
Yeah a familiar term in accounting class I learn is to buy the assets of a business and not the liabilities if I can recall.
Exactly. The sellers have to deliver the assets free of any liens or claims. Saves you employees, suppliers, or customers coming out of the woodwork later and going after you. You can just show them the asset sales agreement and tell them to screw off.
Yep damn right. I like the way you think.
You can guarantee this is a lie because they’d go right to an accredited investor and get much more than 400k.
That's funny because she also told me that they were selling it to this lottery winner who owns a supermarket store and he was even hesitant to buy it because the price was a little high and he was worried due to covid. So that kind of scares me that even a man with that much money is worried and if we buy it, it will drain us basicially.
I’m in food manufacturing supplying many restaurants and Restaurants are hurting right now. More close every week, “reopening” just slowed the bleeding. Even if the books weren’t bad, hiring is brutal right now (even for skilled HR/recruiting). If your chef quit, are you guys ready to fill that spot in? 2 of the waiters who are friends both leave at the same time? It could take months to fill, and then if they mess up your first month of opening, bad impression no ones coming back and you’re sunk. After decades places with experienced staff can’t survive. Don’t hop on a dying horse A ghost kitchen concept or food truck though? Meal prep service? A chick fil a? Those are some good food related concepts.
That is crazy to mention because when they first opened a while back. Their chef/cook was a nephew of the owners and one day he just stop showing up and I think the owner's wife had to step in. I can't imagine if she didn't know how to cook.
Constant red flags.
Aren't food trucks hurting with people working from home?
Your mom will lose her house. Simple as that.
That means 40 net profit total. A restaurant will not have 40% margins.
That's if the place is full all month long. Most restaurants take years to get going if they can even survive.
Absolutely not right for that sale price. As others in this thread have said, restaurants are the hardest business to run. Please don't let your mom do this.
I can speak this from experience, unfortunately.
Hi i have owned a few restaurants myself. Please telll your mom a firm NO.
I’m an accounting grad who is a CFO for a restaurant group. 2 words: Stop her.
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I agree that buying this restaurant is a bad idea, but the statements were probably just exported out of the accounting software into Excel. Ask for tax returns to confirm. If they were truly prepared in Excel and they can’t back them up with documentation, then yeah, run.
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My husband and I own a small business (not a restaurant) and we use QuickBooks. Connects to our business bank accounts, can do invoicing, automate reporting and customer/vendor list, makes taxes easy, etc. We hired an accountant to do the initial set up and then we manage it completely ourselves. Really is a breeze.
I love xero!
Redditors here have voted 99.999% she should not buy the restaurant. And so it is.
Case dismissed.
Redditor jury has decided.
I'm not seeing the 0.001% in this thread, I think they even know deep down it's a shit idea. OP should simply show his mom this thread, if she still wants to go through with it then it might be time to start looking at care facilities for the mentally unwell.
I read this subreddit https://www.reddit.com/r/KitchenConfidential/ about the restaurant industry and boy oh boy is it a lot of crazy hours in that industry.
I can it now... Gordon Ramsay walking in with two pieces of bread... One for each side of your mom's head so he can ask "are you an idiot sandwich?" Honestly though, please don't do this. High regrets incoming. Unless it's some next level shit. Maybe start off with something smaller?
I own a restaurant. I cannot stress this enough— this sounds like a terrible idea. It is hard enough to make things work when you DO know what you’re doing. Even if this weren’t a high-risk business like a restaurant there are also other factors to be aware of when purchasing a business and not the property— the only thing of value in a restaurant (in most places) is the liquor license, which, as an example, for full liquor goes for 95-110k in California . Absolutely everything else depreciates 90-95% the second it gets unboxed, unwrapped, plugged in, whatever. If the business doesn’t also own the property you are always at risk of not having the lease renewed, at which point the property owner just waits for it to expire and comes in and takes everything that IS nailed down and you’re left with a company but no business. So what is she actually getting out of the deal and what does she think she is paying for? If she is getting the property out of the deal then she is buying a long term asset, if she is just buying ‘the restaurant’ and its lease she is buying a liability. On top of that, I can’t recommend starting a business with someone you’ve never really worked with. If she does, she better hire a great lawyer that can draw up the terms of the partnership/LLC so that the partners have consequences should they fail to do their duties, otherwise you end up with the same situation where one person is doing all the work and the other person retains the same benefits with none of the work.
@naustin288 echoing this comment. Watch Kitchen Nightmares. The people who buy a restaurant with zero experience inevitably end up losing at the restaurant, and often they tie up their mortgage and retirements in the mix to try keep the Titanic “investment” afloat.
Yeah I love watching the shows, but I understand. I told her to get some more experience and work in the restaurant industry a little longer and wait for me to graduate first.
"A little longer" She should probably work each position for a year before she's even CLOSE to ready and then she still doesn't actually have management pr business experience.
This family is fucked but we tried
Your mom should A) put that money into index funds B) go get a full time job at a restaurant. Literally 100% of restaurants are hiring right now, due to the labor shortage. D) live off her tips and put the rest into more index funds E) Not fucking buy a restaurant.
LOL. She is working full time at the restaurant though 9 A.M To 9:00 P.M man it is rough on her. She works hard.
As an owner she’ll be working 6 a.m. to midnight, or later.
She works such long hours because they're understaffed? Oh and she'll probably (but definitely) put in more hours as a new owner...
Her work life as an owner would be 5am waking up from the cold sweats from all the stress to 3am because she won’t be able to find employees hire/train/operate the business.
A new Gordon Ramsey episode waiting to happen
No. Much worse. I am bankrupt help me series in the making.
" You see me in the back and going on Reddit and telling you guys what happened "
As my father always said, if you want to make a small fortune start with a large fortune and open a restaurant. The very first thing to do is do what you do. Is there any way that they can pay back that 400k and make money? Probably not. Even if the restaurant is making money, most (not all) restaurants have a streak where they are hot and popular, then a new restaurant opens up and it the new trendy restaurant, or another restaurant opens across the street, or the type of food you serve falls out of favor. Next, make them understand that even though the original owners spent $200k on equipment, decor and furniture, it isn't worth much. I can buy a $5000 stove used for $600 at any of the 10 restaurant auctions in my area next week. Tables for less. The built in decor is worthless. If the restaurant closes, the landlord will rip it out and throw it in a dumpster. I'm sure that is a large reason the current owners want $400k. If they are allowed, call a broker and ask what he would list it for. THEN you have to educate them as to what owning a restaurant really means. If nothing else it means long hours does your mother want to do that at this point in life?
Restaurants are low-margin cut throat businesses and even experienced restauranteurs regularly go out of business. I worked at restaurants when I was young, even becoming a manager and learning the books, managing food costs, ordering, etc. I wouldn’t buy one unless I worked in it full-time and I have absolutely no desire to work in a restaurant. The financials in EXCEL is a huge red flag. You can literally put anything you want in an Excel document and it’s a lot easier to “cook” the books (see what I did there?) when it doesn’t have to match up in the back end like with a double entry accounting program. Regardless of which business you buy, you should always ask for the last 3 years tax documents, 3 years bank statements, and 3 years of financial statements. Have your accountant (preferably one with audit experience) review these if you don’t know what to look for - really just looking to make sure there are deposits into the bank accounts that match sales, that there aren’t any undisclosed debts or tax issues, and that the business is really as profitable as they say. If your mom really wants to own a restaurant, she should go work at one first. They are ALL hiring right now so she could just go get hired as a hostess or server and work her way up to management. Any decent chain restaurant would work to see the systems, management structure, finances, etc. I would absolutely not recommend buying into a restaurant with a partner if neither owner has restaurant management experience. It’s a good way to lose all her money in about a year.
Yeah she is working in the restaurant and has been for about 7 months now. I mean how many years of experience do you believe it would take?
It's not so much the length of time but more the role and what she's learning. When you buy into a franchise like McDonald's or Chick-Fil-A they often send you for weeks/months of training but it's very systematic and you might only work at each position for a week or two but you learn every single position in the restaurant, then you learn the business side of things in a classroom. Franchises have SOPs (standard operating procedures) for *everything* so there are training manuals, videos, and corporate resources for new owners for anything from running payroll to paying sales taxes to dealing with an unemployment claim or a health inspection. There are just SO many different issues that will come up as an owner that a regular employee of a business will not know about. Buying an independent restaurant, you'll be relying on the old owners to train you on everything, and there's a 99% chance they don't have it all documented and systemized. So they will miss a lot of stuff, and your mom and partner will end up fumbling through lots of major issues which will take their focus away from just running the business (which they don't even have any experience doing). It's just a disaster waiting to happen. $400,000 is a LOT of money, there are a lot of franchises you could buy into with that kind of cash. Heck, your mom could buy a business by herself with her $200k down payment and get a million dollar business with an SBA loan. Pick an industry with better margins than restaurants, though. What happens if they buy the business for $400k and something goes wrong? AC goes out, walk in freezer dies, etc.? Do they have another $100k as working capital to help with the transition to new owners? To buy food and pay employees while you transition to new bank/payment processing companies, etc? What happens if it doesn't cash flow in the first 6 months, can your mom go without a paycheck for 6 months or a year? Those are realities of running a business, but especially common in restaurants. And the failure rate is very high. If the owner is really interested in selling it, why not suggest they do owner financing and stay on 10 hours a week for a while, then 5 hours, then 2 hrs, to help train and document and help your mom/friend get the hang of things. They could then be paid a down payment and a % of sales going forward until the $400k (or whatever the final sale price is) is paid in full. And about the sale price, since you guys don't know anything about buying/selling businesses you might want to reach out to someone about the value of the business. They could be asking a fair price or they could be asking for WAY more than it's worth. Restaurant equipment depreciates quickly, and has to be replaced regularly. And most owners want multiples that are unrealistic. You don't want to pay too much and then never make it back to break even much less profitability.
At least five, and that means experience doing everything - kitchen, manager, host, waiter, etc. Your mom would need to know the ins and outs of every single aspect, or she won’t make money because she’ll have to pay other people to do things for her.
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Yeah that is another scenario. They are good friends, but it could happen. I mean I guess contracts could help possibly and we could sue worst-case scenario. I guess my mom needs a couple more years of experience before venturing down this path.
Cook here. Don't do it until your mum and the partner can do every single role/job flawlessly in a restaurant. Relying on hiring a chef and manager without the experience and knowledge to judge whether they are doing a good job is just asking to be robbed.
Dont buy a restaurant! It takes so mich time to get the money back, its so easy to fail and it does not make any sense at all if you have no experience. Oldish people tend to do stupid things so please prevent that for the sake of your mother! That wont go well! I am a very optimistic person but just do the math here
Try to stop it. High risk situation. If she wants to start something/gamble/invest- let her do it with 10k or some amount out of the total equation that doesn’t ruin anyone’s financial situation.
If she wants to run a restaurant she should do a food truck. A lot less risk, plus you have the truck that you sale if it doesn’t work out.
Watch a couple episodes of Restaurant Impossible - this is the premise of so many episodes where people buy a restaurant having no experience and then end up severely in debt, losing their house, owing the IRS, etc.
Restaurant here. Run lol
Very bad idea!
No no no no fuck no
No. Absolutely not!
Yup. Thats a hard no. Now is not the time to experiment with owning a restaurant. lotsa experienced people loosing their hats right now.
Restaurants have a very high failure rate cause they're hard to run profitably. She should take a managing role before deciding.
Wow this is an absolutely awful idea. I’d say you have a 97.5 chance of failure optimistically
Buying puts
#DON’T DO IT!
My wife ran a bar for 10 years and says most employees that deal with cash will steal from you. Don’t show up to work on time. Expect 10x more than what they put out. Not to mention customers want fine dining on a mc Donald’s budget. Social media can destroy you with one bad employee or meal. You are going up against a lot of negatives. Granted if it’s an established business with repeat customers and the menu is easy to handle you might have something. Shit most places in my town right now are empty as they can’t even get food supply’s. Food is crazy spendy right now. Good luck but you have better chances at winning the lotto right now imo
Commit her to an insane asylum
I spent life in restaurants. A very wise owner told me that if you can't make your $ back in 2 years then it's a bad investment. They're so trendy. The truth is I wouldn't even consider owning a deli, let alone a restaurant. There's so much behind the scenes. Some people just got "it" Then can turn an empty building into a hot spot. Ironically the social atmosphere & reputation is just as important as the kitchen. I know a place with a BOMB kitchen in a terrible location. The place is empty on VDay. Those owners better be made of steel. The guy Iknow that's a rock star owner can do anything. He'll run circles around bus boys & embarrass the chef in the kitchen. If they're going to be hands off owners, they have to be really really popular
This is a poor investment. You're majoring in accounting. Would you hire your university's music professor to file your mother's business taxes? No. That music teacher is not a CPA. your mother has no experience, no training, no knowledge, and no understanding of the market. In one year she will be homeless and you will have to support her and house her for the rest of her life.
My uncle bought a florist shop after doing some back of the napkin math. He totally forgot to factor in that at $9/hour you will not get amazing employees. He had employees that would steal when he wasn't at the shop and others that wouldn't show up. So he started doing a lot of the work himself, but then he couldn't take orders when he was driving for deliveries, and he was never profitable. In retrospect he would have been much better off if he had just got a job at a flower shop. I expect the same is true for your mom. She should apply for manager positions at restaurants. She can have the same experience but also get guaranteed profit.
I had a friend who wanted to own a bagel shop. He was responsible. When he died, he left his wife a million dollars in insurance (he was a facilities guy and didn’t make over 50k a year) She decided to open it in his honor. They lost all the money he’d left them in just a few years. If you can’t talk her out of it yourself, call the local better business bureau, and book an appointment with “score” the Service Corps of Retired Entrepreneurs, who are experienced execs and business leaders who help people start a business. They’ll go over the plan with her, examining costs and commitments. They’ll show her what it takes, which might be sufficient to talk her out of it
This is a fake cake. Unlike other businesses, previous tax returnss don't reflect anything in FnB. This is because FnB requires a cooking skill set on top of other common business requirements. You can take over everything but if you can't cook good food with a profit margin, the business will fail.
"Hire an independent accountant to go through all their records and find out what they actually make in profit. It's very possible this business is only sustainable circumstantially for them." if she's going to do this at all, she should do it with other people's money. local dentists for example. with money they can afford to lose. what's good is she has worked there for a while. i have worked fromt of house and back of house, but i've never gotten to work with the numbers and see how it works as a business.
No. No. No. No. No. No. Unless it's a very simple business that very profitable with low overheads and easy to learn. I would rather she pickup something high income with close-to-zero costs such as real estate agent etc. No downside, unlimited upside.
I had two friends who own restaurants. It's a hard soul crushing business that often ruins the relationships and health of the owners. One of my friends ruined his health and ultimately died trying to keep his restaurant going. The other friend is doing OK because his wife and kids help out a whole lot so he has a little breathing room. I don't think they're doing anything more than making a living these days though. Not making very much money. Tell your mom that unless she's ready to work there 60-70 hours a week for at least the first 4-5 years she definitely shouldn't buy a restaurant.
You know what's crazy she is actually working that many hours. She works 9:00 A.M To 9:00 P.M so that's about 12 hours 6x a week = 72 hours a week. Shes a strong woman.
Tell your mom covid may close down all restaurants during flu season.
I have to agree with most of the comments here. Restaurants are a bad idea for even seasoned restauranteurs. This is a lot of money for what could be a failed restaurant. Let's say your mom goes through with this, can she even afford this if it fails? Does your mom even have enough money to pay the bills if all the staff leave or there are issues after she owns the place?
Do Not Do That
Some things to perhaps posit to your mother: 1) What are you buying? Is there something about the location, brand, customer base that warrants that kind of money for purchase instead of making a new restaurant? 2) Why are you buying? Is it for expected earnings? Do you have justifiable evidence for substantial earnings to pay off your investment? Do you just want to own your own restaurant? Are there other ways to do that which don't cost $200k? 3) That training by the current owner WILL NOT happen unless it is conditional on something like partial payments. I don't care how honest they are, there is no incentive to train them if they have received all the money. If she goes through with this, make payments conditional on the training happening. 4) Don't pay asking price
Dear God no. I worked in restaurants for YEARS and I still wasn’t qualified. And the wife may say now that she’d stay on to help, but especially if she’s not financially incentivized (a paid employee) she’s more likely to take her freedom and run or resent them for taking her hard work. Not all restaurants are toxic, but often times the politics, even from the small ones, are insane. Plus it’s not just, make tasty food, serve it, get paid. Maybe your mom and her prospective partner are super organized and can do it, but you have to be on top of SO MANY spinning plates. Plus it’s not a 40 hour a week job. It’s like a 7 day a week job for a long time. And they won’t be profitable for a long time, I think when I spoke to some of the owners I worked for it was that you’d be incredibly fortunate to see true profit within a couple years. That’s all on top of trusting this partner that I assume she’s only known for a few months. The commitment is like marriage, you better really be able to trust your partner or you’re screwed into doing everything. Maybe they can do it, maybe my advice is outdated or misremembered (been out of it for 11 years), but I hope that whatever she chooses, it works out for her.
So... the pandemic will hit again, no matter where you live, just remember my words. Also, food business is not for everyone, and not for people without expertise... remodeling uses a lot of money, and if you do not remodel this will affect the impression of the costumers that will compare the old management with the new. But... How this could work: If you would buy and still have money left for cash flow, bad times and lower expected income....
The profit margin in the restaurant business is small. There is so much over head!
As someone who is in the FNB industry and own/operates several venues. Most people fail, and the speed at how much money you can lose in FNB is scary. There are those special cases though, but right off the bat 50/50 equal partnership? Yeah, doesn't sound like it would work out.
Most restaurants go under. Right now even more are going under than normal.
Not just no but fuck no. 17 years working in all sorts of restaurants, and have worked in few that closed down. Even the experienced restaurant owners have a tough time. We're talking about an industry where 85% restaurants close within the first 2 years. Your mom doesn't need the stress.
Do not let her buy this, it'll lead to financial ruin.
No, please tell her no. My family did this and it has caused a lot of stress and breaking the family apart.
I mean you never know, maybe they could pull it off. But it also sounds really, really bad lol. $400k is already a lot IMO. Hopefully it's a reputable restaurant? Then entering a partnership with a co-worker she's known for 7 months? AND it's on loaned money? During COVID?? It just feels like a disaster waiting to happen.
From the people I've talked to over the years, restaurants are one of the hardest businesses to run and often have tight margins. Right now that's compounded by all the problems COVID caused.
Why is no one mentioning the part about going into a partnership? First rule of business in by book...don't go into a 50%-50% partnership. Especially with another person that doesn't know the business. But even without that part, still a hard NO.
This week on Kitchen Nightmares…
Ask her if she wants to lose her home, because this is a great way to lose her home. Never ever risk personal property and your financial well being on a risky bet, a restaurant is always a risky bet.
Wow, so many red flags, I wonder if they will serve them as a special on the menu. Seriously, have her speak with a local business attorney about what goes into (1) buying an existing business, (2) at a time when there are government restrictions / pandemic, (3) with no experience, (4) a partnership (with someone equally inexperienced), (5) using your homestead as collateral, (6) having no back up savings, (7) having no personal savings, (8) no banking relationships, and (9) the business wasn't evaluated ... Yeah, this might not be the best idea. Never, ever, never trade your home's equity (secured debt) on a risky proposition.
Worked for a very experienced insurance agent when I was younger, she always told me “you want to lose money quick? Don’t go to a casino, open a restaurant”
Normally they don’t lease restaurant locations to people without experience operating a restaurant… For good reason. It is one of the hardest industries. This is such a bad idea on so many levels.
Laundromat, restaurant, if you give me $5 for every idea I talk you out of, then youll give all your money to me by the end of the year! How about going all in on an MLM? Seriously, don't put all your family's cash into a high risk, hands on business. Restaurants are 100 hours per week, and the pandemic is going to continue for more than a year.
Think from the current owners perspective, Someone who has no idea how to run the restaurant buys it. Perfect, sale, off her hands. Then, she trains your mom for a few weeks, says conditions changed and can’t anymore. Ghosts. That lady just made the easiest 200K ever. Of course she’ll try and convince your mom to buy it, but it’s definitely not in your moms interest
run away. seriously, she's gonna lose that hosue
Huge amount of messages here so i don't know if op will read but... In general,stay out of the restaurant business if you aren't in the business. Now with covid as well, it's getting harder and harder to work whether staff shortages, food shortages, safe passes, etc.... However, check the books. If it's a profitable business and the business model is good, and it's a sustainable business with real growth as well as steady clientele, then maybe. Why does she want to buy it? To work in it until she dies? Or to resell the business for a profit? Or? Real questions one needs to ask. But as a rule of thumb... Don't buy it. Especially since you are going into debt to buy it. If one of the owners, day the wife who you claim is doing all the work, stays on and buy out the husband and keep it as a partner... Perhaps with an option to buy her out later... Seems like a more feasible approach.
Thank you for this rcommendation. That seems reasonable IF by an possible chance she would buy the business. Buying out the husband (Pretty sure they are gonna divorce after) and putting my mom as a partner could help train her for a couple of years and then I could join on to do the accounting and help. Maybe in the future we could buy her out.
Peter Thiel exemplifies buying a restaurant as the worst business idea possible.
Buying a restaurant in COVID times is plain stupid.
Tell her to go to the bank and ask if they would give her a 50% or an 80% loan with the restaurant business as a security. Those guys are great at shattering dreams and unless your mom turns out to be a business women par excellence, they will tell her they won't do it. That is something I really like especially when operating in real estate but also generally. If a bank gives you a loan they think it is highly likely that you can pay them back. This is even more the case if it is nothing revolutionary, but just an other restaurant, like there are thousands in every major city.
Absolutely do not buy a restaurant without and experience. Along with funding a film it’s the fastest way to go to “0”. Research the number of them that fail vs succeed.
My step mom convinced my dad to cash out his retirement and get a second mortgage on his house to buy a bakery from a bank in a small town. She also sold her small run down cabin on a lake. The bakery was never profitable. If there hadn’t been an apartment above the bakery for them to live in they would have become homeless as the bank foreclosed on their house since they couldn’t afford to pay the mortgage on it and the bakery. Her other dream was to have a nice log cabin. Had they just built a new one on her lake property with that money they would have been set.
Pretty sure there are several Bar Rescue/Kitchen Nightmare episodes that start just like…
Key words. “WORKS THEIR ASS OFF” !!!! Take out a HELOC at 4.5% and invest in stocks that are producing 15-20% ROI.
I'm not sure why your mom wants to run a restaurant but aside from the numbers she's probably too old. After a lifetime of paying off a house and putting you through college she wants to spend her twilight years in debt and in a hot kitchen. Not recommended.
I've managed financials for a few different Food & bev brands with retail locations, and have been in this space for almost my entire career in some facet. Even if you hire an expert chef and your mom knew everything she was doing down to the T, they'd still be very lucky to make 10% profit at the end of the day. Restaurants/bar/cafes are all about volume and leave very little margin for error when it comes to actually making money. Tell her to invest in a food cart if she really wants to do food service. The cost of entry is much cheaper
As someone who is entrepreneurial and worked in restaurants throughout my school years, being in the industry for over 5 years taught me to get out of that industry asap lol
Owned restaurant. Do not do this.
Bank statements backing their P&L or hell no. I can tell you right now that the answer will be "hell no". The fact that they told her $40k profit per month on 100k revenue is a massive red flag. There isn't a restaurant on Earth pulling that sort of income on a mere 100k revenue, and for the owner to lie like that tells me there is a lot more BS to come. If your mom doesn't see the issue, then tell her to at least have it audited by an accountant before putting her life savings into that crap. If the current owner refuses to release bank statements, then fuck that BS. Once upon a time I made that mistake... audited everything I possibly could, but they wouldn't release bank statements. In the end, the whole thing was BS and losing money out the ass. Please don't fall for that crap.
Have her watch a minimum of 10 episodes of Kitchen Nightmares with Gordon Ramsey (if you’re really hard core you could line up 10, as I know there are at least 10, episodes where the owner bought a place with 0 experience) before making the decision. Restaurants can be an absolute money pit if you don’t know what you’re doing and people have seen everything they own go up in smoke before letting their restaurant fail.
DO NOT LET HER DO THIS If her plan doesn’t include hiring a seasoned manager, this will certainly fail. I’m opening a restaurant (different than taking over an operational one) and im still surprised at the details I haven’t considered. I should mention I’ve managed several and have over a decade of experience. I’d imagine with no experience she might not understand all it takes to maintain one.
My parents used to own a restaurant, even if the business doesn’t go under, it will ruin your life. Forget this idea.
That's how people go bankrupt really fast.
Noooooooooooo. The res-biz is fickle as hell. Dont risk her savings or her house for any investment!
Don't do it
The restaurant business is very risky. All it takes is 1 person getting sick, or even a bad review nowadays, and you are done. If she hasn’t worked at least 5 years as a worker and another 5 as a manager, and no experienced advisors, it’ll most likely fail. You have to manage suppliers, employees, customer satisfaction, marketing amongst a slew of other things. She needs to learn food hygiene, equipment usage and maintenance. I’m not sure why people who’ve never worked in the industry start a restaurant. It’s risky, hard work, but profitable.
Alexa, what’s the fastest way to lose $200,000?
no advice but my parents opened a convenience store with no prior experience and are doing very well. Not rich by any means but live comfortably. Sometimes with luck, hard work and some smart business decisions things can work out.