Best Questions To Ask When Buying A Hospitality Business

How to BUY a Hospitality Business and be a better Business Buyer

There are MANY bargain hospitality businesses urgently for sale for a variety of reasons including the 3 D’s – impending Death, Divorce and Disasters like a partnership split. If you could get a GREAT deal would you consider being a business buyer?

Over many years in the Hospitality Industry, as an Owner and Consultant, I have been involved in the purchase, growth and sale of many Businesses.

You want to be able to QUICKLY QUALIFY whether any business is suitable for you and whether it’s a dud or a great deal with lots of potential growth.

You can find potential businesses to buy by searching online or asking a good hospitality business broker.

TIPS FOR BEING A BETTER BUSINESS BUYER

Always Open In A Friendly Way – Introduce yourself and tell a little about your background and purpose.
Ask great questions and listen carefully – make notes, take pictures and write things down
Be systematic and organised – use a questions list and be prepared in advance
Do your due diligence and consult a lawyer before agreeing to anything

GREAT QUESTIONS FOR A BUSINESS BUYER to ASK when investigating a business to buy.

WHAT IS THE BUSINESS OFFERING?

What are you actually selling? / What is being sold – A Franchise, A Company or the Business Assets, the Brand Name, the Equipment, Stock, Goodwill, WIWO?,
How long has the business been on the site – History of operations?
What comes with purchase of the business?
Is stock/equipment included?
Are any equipment subject to finance or lease arrangements?
When are the busy/quiet, peak and off-peak periods?
Is it an existing lease, a new lease or a freehold?

TELL ME MORE ABOUT THE LEASE

What is the state of the leased on the property?
Terms of Lease?
Would landlord renegotiate lease / extend?
What does the landlord want?
Would you/they consider a rent-free period?
Has the landlord knocked back any changes to the building?
How much guarantee is required 3 months or 6 months?
Has the building being sold in last 2 years – This may give an indication that the new LL is a developer and at the end of the term may not extend lease.

TIMING OF THE SALE – URGENCY

What is your timeframe?
How much time do you have?
What are you trying to achieve?

REASON FOR SALE

Is there a particular reason you’re selling now?
Are there any disputes between partners, neighbours, residents or landlord?
How is Revenue? Traffic Flow? Any Building nearby?
How long has the business been for sale & how many other brokers have been involved

ANY SYSTEMS IN PLACE

What procedures and systems do you have in place?
Do you have standard recipes and food photos?

THE FINANCIALS

What is your actual revenue?
Food % Wage % Rent %?
Tell us about Previous Years P & L? – 3 years of P&L, debtors, ATO & Workcover records
Any Cash missing from accounts – If books are incorrect – then why?
How profitable is the business?
What addbacks (non-operational costs) is the current owner charging to the P&L
TIP: Get Copy of 2 years BAS statements.
TIP: If there is a POS system – Look at all key indicator reports for past 2 years, has there been a shift in different products being sold.
TIP – Ensure your accountant reviewed the financials and given you advise on what they see. If the business is a franchise has either your accountant or a lawyer reviewed the franchise agreement.

THE OWNER’S ROLE

What do the owners do in the business – duties and hours?

THE TEAM – HR & OPERATIONS

How many Staff are employed – Full-time, Part-time and Casual
Staff stability? How much staff turnover
How many managers and what are their duties?
Is it operating under management?
Are staff entitlements paid and up to date?
What award are the staff employed under or is it an EBA

LICENCES & PERMITS

What licences do you have?
What are the Licence conditions – food/liquor
Any restrictions relating to site, liquor licences or renovations?

LEGAL RISKS

Any lawsuits or Workcover claims – past or pending?
(see the blog on Due Diligence)

SUPPLIERS

Any agreements or contracts with suppliers?
Utility bills and contracts?
Any details of repairs, maintenance or refurbishments?

MARKETING

Who are your main competitors? & who are the new competitors that have entered the market in last 2 years?
What is your key Product/Theme/Setup?
What’s your Advertising Spend? As a % of sales
How is your Online reputation?
Do you have Access to your Customer Database / loyalty programs?

DESIRED OUTCOMES

Then deal really has to be an agreeable for the Business Buyer and Seller.

What are you looking for?
What’s in it for me?
Why should I buy it?

QUESTIONS TO ASK YOURSELF ABOUT FINANCING THE DEAL

As a Business Buyer it’s better NOT to be under-capitalised.

How are you planning to finance the business?
What investment are you planning to put in & how much finance are you planning to borrow
What are you planning to use as a guarantee – Your house or other investments
Do you have a finance broker & are they looking at different options?

Remember – Caveat Emptor – Always Let The Buyer Beware!

BIG Disclaimer – This is NOT an exhaustive list of everything that you need to ask before buying a business but just some of the many things that can be found out during hospitality business due diligence prior to a purchase.

Doing good due diligence during the buying process will help smooth your transition to hospitality business owner.

Good luck!

BUSINESS BUYER RESOURCES FOR CAFE or RESTAURANT BUYERS

Gina Ezard has written a great book about buying a cafe or restaurant called OPEN FOR BUSINESS

READ THE BEST BLOGS RECOMMENDED FOR VENUES & HOSPITALITY

ABOUT Kevin Kosky & BIG HAT – Wedding & Venue Sales Training

Big Hat Professional Services provides Hospitality Workshops, Webinars and Training on Sales, Service & Strategy using Certified Speakers and Trainers like David & Kevin.

Kevin Kosky is a skilled business communications trainer. He is a specialist on inbound phone skills, presentation skills and delivering sales presentations. Kevin is an expert teacher of face to face communication skills like sales, supervision and presentation skills.

BIG HAT offers ….

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