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Texas Restaurant Law

The Top 7 Things To Consider Before Buying A Restaurant

Posted in Acquisitions, Alcohol, Contracts, Corporate Entity, Employment, Intellectual Property, Liability, Litigation, Real Estate

There are so many things to consider when buying a restaurant that we decided to break that list down to just seven issues. If you only look at these issues, you should avoid most of the big hazards when you buy your next restaurant. Now, this assumes that you have some idea of the restaurant itself, what it serves, and its reputation.

With that in mind, the top seven things to consider include the following:

  1. Financials – Make sure that the owners have and can show at least a profit and loss statement and preferably certified financial statements. Show this information to your accountant, and make sure that it makes sense to you. Also, request that the Seller certify that these financial statements are true and correct.
  2. Prior Liens & Liabilities – Run a UCC lien search against the restaurant, the entity (like an LLC) and the owners. This should establish the liens that may need to be paid off when you complete the transaction. If you close the deal without paying off these liens, the prior lien holders may seek their payment from your new restaurant.
  3. Inventory - Make sure that the inventory on the day you take over is sufficient to cover your operations. Also, make sure that the Seller is incentivized to keep the inventory at a level that is healthy for the ongoing operations of the restaurant.
  4. Intellectual Property – The purchase agreement should deal with intellectual property. Who owns it after closing? Are you buying it? Who owns the name of the restaurant? Who decides when the next restaurant with the same name can open or where it opens?
  5. Employees – It is important to interview at least the key employees before you close the transaction. Also, request that the seller remain responsible for accrued but untaken vacation time and sick leave.
  6. Real Estate – Most restaurants operate on leased premises. As such, the landlord must sign off before you complete the sale. Has the seller talked to the landlord? Also, ensure that the “bricks and stick” will support your ongoing operations. As such, decide whether additional repairs or modifications are needed, and address those in the contract or with the landlord.
  7. Alcohol – Finally, have you identified the transition of the alcohol activities in your purchase agreement? Remember that the seller cannot transfer or sell you his or her alcohol permit. As such, you must ultimately obtain your own, new permit, but you can enter into a management agreement with the seller while you wait for your own permit. Be careful, though, because there are very strict requirements in the management agreement, and the Texas Alcohol and Beverage Commission must receive a copy of the agreement and approve it before you complete the transaction.

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.