Full-service restaurant due diligence

A full-service restaurant under a signed letter of intent moves from a sales pitch to a stack of documents that either confirm the pitch or contradict it. The financial review is only one part of that work — a buyer also has to independently verify the liquor licence’s standing, confirm whether the kitchen equipment is owned or encumbered, and work through the lease and the staffing picture on their own terms, because each carries a risk the seller’s income statement alone will not show. None of these checks substitutes for the others — a clean set of recast financials does not confirm the liquor licence is free of a compliance flag, and a well-maintained kitchen does not confirm the recipes survive the sale.

Verify food and labour cost percentages independently

Request the actual point-of-sale and payroll data behind the reported food cost and labour cost percentages, rather than accepting the summarized figures in the offering package. A gap between what was represented and what the underlying data actually shows is one of the most common, and most serious, findings in restaurant due diligence, and it can point to either a genuine operating problem or numbers that were never accurate to begin with.

The liquor licence file

Confirm the liquor licence is in good standing with no outstanding compliance orders, and understand the transfer mechanics that will actually apply before assuming a timeline. In Ontario, the AGCO’s process for transferring a liquor sales licence sets out what the incoming operator needs to file; other provinces run entirely separate regulators and processes, so a buyer should confirm the specific requirement for the province the restaurant sits in rather than assume a national rule applies.

Kitchen equipment and the lease

Request an inventory of kitchen equipment noting what is owned outright versus held under a lease or finance agreement, since anything encumbered is something the buyer will need to assume or the seller will need to pay out before closing. Alongside the equipment inventory, confirm the lease terms directly with the landlord where possible, including whether the landlord’s consent to assignment has actually been obtained rather than merely assumed to be forthcoming. Where a landlord estoppel certificate is available, request it directly, since it confirms the lease terms and any arrears from the landlord’s own records rather than the seller’s summary.

Food premises inspection history

Request the restaurant’s inspection history from the local public health unit, which regulates food premises under the applicable provincial food premises rules, alongside confirmation the current food premises licence or permit is in good standing and free of unresolved orders. A pattern of repeated critical findings says more about how the kitchen is actually run day to day than a single clean inspection does, and it is a record worth reviewing directly with the health unit rather than relying solely on what the seller reports. Where the province the restaurant sits in runs inspection results through a public disclosure system, checking that record independently before closing costs little and can surface a pattern the financial statements would never show.

Recipes, supplier agreements and the staffing picture

Confirm that recipes, standard operating procedures and supplier agreements are documented somewhere other than the owner-chef’s memory, and ask directly whether key kitchen staff intend to stay through the transition. Staff are generally not automatically transferred on a sale and are typically re-engaged by the buyer under new agreements, so understanding who is likely to accept re-engagement, and who is not, before closing avoids discovering the gap on day one of new ownership. The same applies to supplier agreements — confirm directly with key suppliers, where the seller permits it, that terms and pricing will actually carry over to a new owner rather than resetting on day one, since a favourable supplier price that quietly resets on a change of ownership can move the food cost percentage more than anything else in the file.

Confirm the seller’s corporate and lien position

Beyond the restaurant-specific files, run the standard searches every business purchase calls for: an execution and judgment search against the selling entity and any personal guarantors, and a corporate status search confirming the seller is in good standing and has the authority to sell. A lien or judgment surfacing late, after financing is committed, can delay or unwind a closing that was otherwise ready to proceed.

What specific findings actually kill a full-service restaurant deal

Certain findings during due diligence are more likely than others to end a full-service restaurant deal outright:

• The landlord withholds consent to assignment, or will only offer a new lease at materially higher rent
• The liquor licence application is delayed, conditioned or flagged for a prior compliance issue past the closing timeline
• A key kitchen staff member the concept depends on leaves and the menu cannot be executed to the same standard
• Verified food cost and labour cost percentages do not match what was represented in the financials