What red flags should I watch for when buying a restaurant?

Restaurants show their problems in the room before they show them in the books. Visit more than once, at different times, and keep your eyes open as much as your questions. A warning sign is a prompt to investigate; walking away is your call after you check the answers. It is a reason to ask, and to see whether the answer holds up against the records you are given.

What you can see on a visit

Look at the kitchen and the dining room as a guest and as an operator. Are surfaces clean, equipment working and the walk-in organized? Do staff seem settled or rushed? Is the room busy when the seller says it should be? Notice who is cooking, who is serving and who seems to hold everything together. If the answer is always the owner, ask what happens after they leave.

What the papers can show

Ask how sales are recorded and whether the point-of-sale reports match the books your accountant reviews. Be careful if a seller says much of the income is not in the records. Read the lease for how long it runs and what the landlord must approve. Ask about supplier accounts, outstanding gift cards and any open staff matters. Your lawyer and accountant can read these documents far better than a visit can.

Questions that test the answers

• Why is the owner selling, and does the story match what you see?
• How many cooks and servers have been there a long time?
• Is the lease long enough for you to recover what you spend?
• What would regulars say has changed in the past year?

Our page on the red flags in any business for sale covers the general signs, and restaurant due diligence lists what to request.