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Texas Restaurant Law

When To Terminate A Restaurant Transaction

Posted in Acquisitions, Commentary, Competition, Contracts, Franchises, Franchising, Liability, Litigation, Negotiation

Restaurant transactions are similar to the old Kenny Rogers song, The Gambler – “You’ve got to know when to walk away, and know when to run!” Perspective is so important in general, and in restaurant transactions, you must know when to move forward on deals and when to kill them. But how do you determine that point?

Well, in typical lawyer fashion, my answer is that it depends. There is no set point in time when all deals should terminate. It is situation specific. Still, there are a number of factors that go into this decision. This post shows a few of my favorites.

In the style of Jeff Foxworthy, this will be:

It Might Be Time To Kill The Deal If:

  1. You No Longer Trust Your Business Partner. Whether it is your source of capital or a true, roll-up-their sleeves partner, a lack of trust kills deals.
  2. The Numbers Don’t Add Up. If you are looking into a new deal, the numbers should make sense. If the purchase price is too high or even too low, there may be an issue. If you cannot track where the money goes, there may be a problem.
  3. You Find New, Detrimental Information. No deal is ever done until it is closed. Similarly, you must constantly reevaluate new information each and every day of a deal. Similarly, you cannot fall in love with a deal until it’s done because you must be on the lookout for new information that might cause you to rethink it.
  4. A New Law Makes The Deal A Dud. Whether that new law is a new zoning issue or health code issue or even a smoking issue, always consider what laws may play into your business model of the transaction. If things change or might be changing, consider killing the deal.
  5. A Competitor Moves In. Are you watching the competitors in the area of the restaurant? Do you know who they are? Have you negotiated an exclusivity provision in the deal to keep competitors out? If the answers to these questions are in the negative, that might be a cause for concern.
  6. You’re Not Getting Information. Anytime that you transact business in restaurants (or in any industry), you need as much information as possible. It is one thing if the information is not available. However, if someone is actually preventing you from getting information or if they make excuses about why they are not providing it, that is a major red flag.

From the above list, it should be apparent why there is never a single point of no return. Still, if a number of these factors start to arise or one big one comes up, it may be time to move on to the next, better deal.

About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.