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    15 Replies Latest reply on Jun 4, 2011 11:56 AM by DC_Retail

    Between buying an existing business and taking a new lease

    elisager Newbie
      Hi There,

      I want to start up a new business in the restaurant industry and am looking at either buying an existing business with its licenses, zoning permit etc...or take a new lease in a new space. What I'm trying to do now is to compare what the 2 options might cost as in the start up costs and would like to know what it might cost to take on a new lease in a free space. What should I count as a start up cost when taking a new lease before building up my costs with all the equipment/licenses...?

      Thanks!
        • Re: Between buying an existing business and taking a new lease
          LUCKIEST Guide
          buying an existing business

          Who r u?? Go to Members page and share some info.

          Have you developed a business plan??
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          • Re: Between buying an existing business and taking a new lease
            phanio Pioneer
            Here are a few suggestions:

            Talk with your local chamber of commerce and see what they know about your local lease fees and costs.

            Call around to local real estate brokers and have them show you peoperty for lease as well as pick their brains about the total costs.

            Call around to landlords or even other leasees in the area you are hoping to start your business in and pick their brains - they are the ones with the most klnowledge about your local area.

            Business Money Today
            www.BusinessMoneyToday.com
            • Re: Between buying an existing business and taking a new lease
              Rest.Lee Wayfarer
              Sometime it can be easier and cheaper to purchase an existing restaurant. No buildout cost, no zoning, opperating permit or license fees. And you most times you only have to upgrade some equipment and fixtures.

              With some new leases you will have to pay a few months upfront.

              For a list of startup cost you can Google it to get a general idea but get specifics from the locals.

              Hope this helps.

              Lee
              • Re: Between buying an existing business and taking a new lease
                Mailman1 Wayfarer

                It is definitely the least expensive to take over a failed restaurant. Build out, equipment, furniture, and fixtures will be at a greatly reduced cost compared to fitting out a new space or purchasing an existing restaurant. However, location is extremely important for retail & restaurants. If one restaurant failed, it is a red flag for the location.

                Buying an existing restaurant can be a very smooth and cost effective transition. There can be a lot of negotiation and you have a chance to review several years of performance. You may consider looking at a restaurant where the owner just wants to retire. The owner may agree to assist with the financing of the business. Many times the owner will stay on payroll and consult you through your first year. This can really help with the learning curve of the establishment.

                Leasing a blank slate and building from scratch can be VERY expensive. Unless you have a fair amount of restuarant management and/or ownership, this can be very daunting. Depending on the scope of your business plan, the build out and FF&E can easily top $100k. You can lease all the equipment to conserve capital but you will still need to be pretty liquid to pull it off.

                Good Luck!
                • Re: Between buying an existing business and taking a new lease
                  elisager Newbie
                  Hi Guys!

                  Thank you all for your answers! It's always helpful to get several advices and points of view. I'm currently looking at different locations either businesses for sale or empty spaces...As a few of you mentioned it might be cheaper and easier to start up with an existing business but location is key.

                  I'm currently looking at a specific business for sale which location is great. Nevertheless, the asking price is too high if I base my calculation upon the value of its licences, lease and equipment for really I would need to take down a lot of things and remodel pretty much everything which will leave me with spending probably around 80k of remodeling, equipment and fixture...in one hand I feel it is too expensive for the current business it is, in the other hand I realize it is the perfect location...if you have any advice about what I should consider the most important, please give me your thought!!

                  Thanks!
                    • Re: Between buying an existing business and taking a new lease
                      Rest.Lee Wayfarer
                      Elisager --

                      I have a couple of questions?

                      Are you changing the concept of the restaurant?

                      Have you looked over the books for the rest. and evaluated the income for the business?

                      Once you get your numbers for the existing business together to see your out of pocket cost, put them to the side.

                      Then tally the cost of starting a rest. from an empty space (lease, license, permits, FF&E, buildout, etc.)

                      Finally, compare the the 2 and you can make your decision from that.

                      Lee
                        • Re: Between buying an existing business and taking a new lease
                          Rest.Lee Wayfarer
                          Also seek out a member name "thesologuide". He has a website that you can register with and get a free Start-up Cost spreadsheet to help you.
                            • Re: Between buying an existing business and taking a new lease
                              elisager Newbie
                              Hi Rest Lee,

                              To answer your question:
                              1) yes I would change the concept of the restaurant and anyone coming to this place should for it is the very reason why it is not working.
                              2) yes I got the financials of the place: P&L and balance sheets and it seems they are not making enough to make any money. Plus it really seems they are not claiming all their sales and payroll to the state. Otherwise how could they come up with a payroll of 35k?
                              I think the place is just not well managed for the owners are never there and have no experience in the restaurant industry.

                              I also did my calculation between buying an existing business and taking on a new lease based on SBA spreadsheets. With the price these owners are asking it would be actually more expensive to buy this place with all the remodeling that has to be done. I would need to make an offer 100K lower in order to make it not more expensive than taking on a new lease...but again the location is great and also I would be ready to start the activity faster if buying an existing business....
                              I'm currently trying to make a low offer but I know they are not going to accept it for they are not realistic for the time being...I'm hoping that they will get more realistic after some time maybe...nevertheless, do you think it might be worth putting another 50k down to get their approval, meaning that it would cost more than taking on a new lease?
                              Let me know your thoughts! And thank you for your help!
                        • Re: Between buying an existing business and taking a new lease
                          power_of_h2o Newbie

                          My advise: From personal experience i share with you that be very careful with existing restaurants. I have seen several owners so desperate to get out of it that often make deceptive reports about current sales, and the real reasons why they are selling. Many are not making any money, they will make a little as soon as you buy it. Also if you decide to start fresh be extremely careful about the location, concept (meaning the type of food you are going to sell), planning, lease agreement (ask for at least three months free rent, believe me you will need the cash flow), and your investment decisions don't invest your retirement funds, or mortgage your house to pay for this, way too risky, at least that my perspective. Don't underestimate the difficulty of the restaurant business. Good Luck.
                          • Re: Between buying an existing business and taking a new lease
                            TheBizSeller Newbie
                            Hello:

                            The problem with buying an existing restaurant and then trying to change the concept is that you are undoing all the things that make a buying a business more attractive than starting one - the existing customer base, the immediate cash flow, trained employees etc.

                            From what you have written, the seller seems to think that he has something of real value while you question the restaurant's concept and management. So that leads me to wonder why you want to buy this particular restaurant in order to develop your concept? Is the building itself or the location somehow uniquely tailored to your new concept? If I so I would try to meet him halfway. If there is nothing special about the facility or the location I would move on to some other restaurant that is for sale. One with a more motivated owner.

                            For a list of restaurants for sale by owner you can check out http://www.thebizseller.com/restaurants.htm

                            http://www.thebizseller.com/restaurants.htm
                            • Between buying an existing business and taking a new lease
                              BizOptimizer Adventurer

                              Often you can find an existing one that is close to what you would build for far less - as the last owners weren't able to make it work.  It is a balancing act - there is no one right answer.  You have to consider:

                              * is it in the right place

                              * are the assets close enough to what I want

                              * does my business model fit

                              If so, then:

                              * buying one that is not making money gets you cheap assets.

                              * buying one that is making money gives you a working model to start - improve your chance of success.

                              In business, you seldom get the "perfect" answer - you have to look at all the options and make your best choice.  There are pros and cons to each decision - weigh them - decide - move on...  Good luck!!!

                              • Between buying an existing business and taking a new lease
                                Newbie

                                Before making the financial commitment with a new lease, I would definitely do your research and see if there is an already existing restaurant business for sale in your desired location. If you search business for sale websites you will find hundreds of restaurants for sale which might be of value.

                                • Between buying an existing business and taking a new lease
                                  Newbie

                                  All good advice so far. I would highly recommend you find a SCORE (Service Corps of Retired Executives)  location near you and consult with them.  They will help you put your business plan together and direct you in your analysis. Restaurants are a tough business. Most fail in the first one or two years; so, you need to be sure of your concept and market. If you look at existing listings, be sure to check how many times that location has changed ownership. I've seen what look like good locations turn into constant losers for no apparent reason. The momentum to fail may be hard to overcome. Location, Location, Location.