How to buy a restaurant
What type of business arrangement should I adopt?
Once you have made the decision to buy a restaurant and have arranged the necessary finance, you should also consider the type of business arrangement that is best for your situation. It may be that you are to be in partnership with other owners, or a sole proprietor or a company. Different arrangements carry with them different types of liability (see realted article How to structure your business), and you should consider carefully the liability with which you are personally comfortable.
Obtaining a health licence
One of the most important considerations in starting a restaurant business is obtaining a health licence. This is a requirement before any food may be sold from the premises. Licences are issued and administered by your local council. They must be renewed each year.
When you apply for a licence, the council will carry out an initial inspection of the restaurant premises to ensure that they comply with health, hygiene and safety standards. Inspections are undertaken by the council periodically after the initial inspection at their discretion.
Licences can be transferred to new owners of the business for a nominal fee.
You will also be required to obtain a liquor licence if you are intending that alcohol will be sold or consumed on the premises: see How to obtain an "on-licence" to sell liquor.
Ongoing council inspections
If the council have any reason to suspect the premises may be breaching any of the relevant standards (for example, if there has been a complaint from a member of the public), health inspectors will keep a watchful eye on your business, and this would undoubtedly involve more frequent inspections.
Paying for "goodwill"
The purchase price for the restaurant business will generally include a component for "goodwill" â€“ that is, the restaurant's reputation and clientele. You should obtain legal and accounting advice as to what would be a reasonable figure to pay for the goodwill attaching to the business.
The reputation and goodwill that attaches to a particular restaurant can be heavily dependent on the restaurant's chef(s). It is therefore strongly recommended that before buying a restaurant you ascertain whether or not the chef(s) intend to stay on with new owners.
It may be that the restaurant you are contemplating buying is part of a chain or franchise. If so, there are specific considerations that you should take into account: see How to buy a franchise.
- The issuing, renewing and transferring of health and liquor licences are all subject to a fee. This may vary from council to council.
- It would be wise before buying the business to contact your local council and request the case history on the restaurant concerned.
- There are a number of potential pitfalls involved in buying a business, ranging from licensing to staffing issues. It is therefore strongly recommended that you seek legal and accounting advice before buying a restaurant.