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Buying an Existing Restaurant vs. Starting from Scratch

Buying an Existing Restaurant vs. Starting from Scratch

Once you know that the restaurant business is right for you, the first decision you will make is whether to buy an existing restaurant or start your business from scratch. Each option has its advantages and disadvantages.

When making such an important decision, you will need to consider your capital, the risks involved and your short and long-term business goals.

Risky Business

The restaurant industry is a risky business. Whether you start your own restaurant or buy one from someone else, you will probably face many obstacles before you reach profitability.

Risks of Starting From Scratch

While starting a restaurant from scratch, there are many unknown variables involved. The staff, the customer base, the food and the marketing plan will all be completely new. As you begin to plan and develop your new restaurant concept, you will inevitably run into at least a few problems, which could include the following:

  • Difficulty obtaining your licenses
  • Trouble attracting a customer base
    » More on Target Marketing for Restaurants
  • Running out of capital due to unexpected expenses or low sales
  • Problems with staffing and training

There are many measures you can take to increase your chances of success, but there is no easy formula for starting a successful restaurant. There will always be some risk involved.

Risks of Buying an Existing Restaurant

Before you can open the doors of your new restaurant, you must obtain a permit from your local health department. The permit verifies that your establishment is in compliance with local, state and federal health regulations. In order to obtain a operator’s permit from your county health department, you must:

  • A bad reputation or existing customer dissatisfaction
  • Liability for the previous owners bills, taxes, etc.
  • Poorly maintained or broken equipment
  • Dysfunctional management or problems with business structure
  • Existing health code violations
    » More on Health Inspection Basics
  • Any disadvantages natural to the location, such as limited parking
    » More on Choosing a Restaurant Location

While these risks may seem small compared to the risks of starting a new restaurant, the truth is, the last owner probably left the restaurant for a good reason. You need to make sure that you will fix any problems that caused the previous owner to fail.

Advantages to Starting from Scratch

Most restaurateurs want to start their own restaurant because they want to share their own concept and their own special dishes. There are several advantages to starting a restaurant from scratch, including the following:

  • Choice of concept.

    When you start your own restaurant from the ground up, you have complete control over what your restaurant will become and what it will offer to customers. You will also be able to choose the customer base you wish to attract with your concept.
    » More on Creating a Restaurant Concept
  • Flexibility in restaurant design.

    You can build every aspect of the kitchen, dining room and restaurant exterior to your own specifications. Furthermore, you can design the interior and exterior of your building to match your new brand.
    » More on Designing a Commercial Kitchen
  • New, fresh reputation.

    Since you are starting from scratch, you will not have to deal with the lingering reputation of the previous restaurant.
  • Control over menu.

    You do not have to work with existing kitchen and staff limitations when developing your menu. Instead, you can conceptualize the menu, and design the restaurant to accommodate it.

Advantages to Buying an Existing Restaurant

While taking over a pre-existing restaurant has its risks, there are several advantages that can save you time and money in the long run. These include the following:

  • Immediate cash flow.

    Very soon after you purchase the restaurant, you will be ready to serve customers, so your incoming cash flow is immediately there.
  • Established customer base.

    If you make a good purchase, the restaurant will already have a number of regular customers who will keep coming back, despite the change in ownership.
  • Existing brand awareness.

    If the restaurant you bought has a good reputation, you will benefit from the fact that it has been around for a while, and people already know about it. Of course, if the restaurant’s reputation is bad, brand awareness will only hurt you.
  • Less personal time required.

    Because the restaurant is already up and running, you will not need to pour your time into designing the restaurant, developing the menu, training servers, etc. Instead, you can focus your time on improving the restaurant’s existing operations.

Tips for Buying an Existing Restaurant

Purchasing an existing restaurant from the previous owner or owners can be very profitable. However, if you are not careful, you may end up getting more (or less) than you bargained for. To reduce the risks and improve your chances of profitability, follow our top ten tips.

» More on Tips for Buying an Existing Restaurant

Alternatives

If starting a new restaurant from scratch seems like too much to handle, but buying an existing restaurant is unappealing to you, there are several alternative options you could consider to reduce the amount of risk involved. Try one of the following:

  • Revamp an existing restaurant.

    This is a great way to save money. You can take an existing restaurant and keep the existing architecture, commercial kitchen equipment, kitchen supplies, furniture and even the staff, and redesign the menu, interior and exterior of the restaurant to suit a new concept. To assure that you have everything you need to produce your menu, you may need to buy a few more supplies and pieces of equipment.
  • Buy into a franchise.

    Studies show that there is slightly less risk involved in buying into a franchise than in starting an independent restaurant. If you do not want to take over an independent or chain restaurant already in existence, you can buy into a franchise that suits your style, and take advantage of their established marketing strategies and brand awareness.

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