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Tips For Restaurant Buyers: How Do You Change A Restaurant Concept?

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Comments & Replies: 3     Views: 5605     Posted By: Joe Ranieri  Joe Ranieri, Business Broker: LA, Orange County Areas

Joe Ranieri, (Orange County Business Broker) discusses how to convert restaurants: buy an existing inexpensive restaurant and then converting it to another concept. He discusses finding the right location, working with the landlord, notifying existing clients, and observing restaurant trends.

Topics: Buying A Business     Tags: buying a business, deal structures



A good way to buy a restaurant business with limited funds is to find a restaurant that is either mismanaged or suffers from too much competition. Doing a build out from a scratch can be quite expensive, and tough for the buyer to recoup their expenses when they eventually sell, but finding a running restaurant and changing the concept can turn into a successful endeavor. As a Business Broker, I will include in the advertisement what other food types a restaurant "can do" if it can "convert" if the business has low monthly gross sales. I've had many clients who have bought restaurant businesses and later changed the concept with successful results.

Tips for restaurant buyers:

1. Find the right location and gauge if your concept will work.

A buyer should look for a business that is visible, but is an oversaturated area for the type of food they serve. I remember taking a listing for a taqueria Mexican restaurant, which had decent food, but had low monthly gross sales, because there was so much competition from other Mexican restaurants, and the woman who bought it later turned it into a country style morning and lunch café, and it was a huge success. The woman had noticed that similar style restaurant had closed in the area, but the square footage was too much and rent too high, so her restaurant of 1,200 square feet and low rent took many of the customers from the previous establishment.

2. Notify the landlord of what you plan on doing before the close of escrow.

Usually if a business is successful enough to pay a high rent, a landlord will be less likely to letting a buyer changing the concept. If a business has low rent and low monthly gross sales, a landlord is more risk averse to a buyer doing their own food type. It’s important for the buyer to let the landlord know what they plan on doing, because if the business is in a strip center another business might have an exclusivity clause in their lease, which conflicts with the new buyer’s ideas. A buyer should create a business plan and menu of what the new concept will be and submit it to the landlord, and get approval in writing that they will be able to do their concept after close of escrow.

3. Notify customers of planned changes.

After the close of escrow and during the renovations, make sure to announce that the business is closed only temporary, if you need to close the business at all. Even though a buyer is changing the food style, they still have an opportunity to capture some of the previous foot traffic. A buyer can send out coupons or mailers within a 1-2-mile radius for the first couple months to get people in the routine of coming into their restaurant.

4. Observe restaurant trends.

About 10-15 years ago, I noticed that many of my buyers were interested in converting businesses to sushi restaurants, because it was popular and trendy and there was a shortage, but after a few years when many decided to sell there was a glut on the market, which lowered their sales price. If possible, a buyer should observe what is going on in the market, and observe food trends, of course if their food is really good, people will always find it.


Prospective restaurant buyers looking at viable, operating restaurants that have substantial value from an established cuisine, robust sales, good profits, loyal customers, great staff, and a solid reputation may find a great deal. But, if the buyer wants to change the restaurant's concept, there are several potential pitfalls.

When the buyer intends to close down the restaurant for 2, 3, 4 months while gutting the interior and redesigning the kitchen and dining room, changing the cuisine and the ambience, rebranding the name, and then hiring new staff, commencing marketing from scratch, and hoping for new customers to arrive, perhaps hundreds of thousands of dollars they spent for the intangible goodwill of the business may be totally wasted. The buyer may have been much better off leasing a vacant built-out restaurant. Or, even a vacant retail space they would build into a restaurant from scratch.

Simply, if the buyer is not going to actually use the tangible and intangible assets that he buys, then he must be particularly careful to determine that the location and the existing infrastucture are worth the price premium paid.


  Helpful Resources To Assist In Selling And Buying California Businesses
Ryan Clark, Business Broker, Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan at 310-652-8353.

Bob Baumgarten, Business Broker: Orange, LA Counties

National Business Brokerage is a full service brokerage company that has been serving buyers and sellers of Southern California businesses since 1994. We are dedicated to providing the highest standards of professional service for our clients. Phone Bob direct at 949-588-8727.

Mike Brewer: Liquor License Brokers, ABC Consulting Services

Liquor license brokerage and consulting services. We provide: Alcohol License Transfers Application Consulting & Processing, Liquor License Purchases & Sales, City Zoning Permits & Land Use Entitlements, Public Convenience or Necessity Findings and Letters. Phone Mike Brewer direct at 800-437-1100.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

Christina Lazuric, CBI, Business Broker - Orange County

California's Premier Brokerage for Selling Orange County Service Based Businesses since 2005! C.B.B. provides a step by step approach to Business Brokerage, Mergers & Acquisitions, Business Consulting and Valuations. We work on creating the best possible presentation for your business!

Lee Petsas, Business Broker - Orange, San Diego Counties, Inland Empire

UBI Business Brokers has been successfully selling businesses in Southern California since 1965. Our Agents have over 100 years of experience in selling small to medium size businesses throughout Southern California. We service Orange County, Inland Empire, San Diego. Phone Lee at 714-363-0440.

William Park, Business Broker - Southern California

Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.

Steve Zimmerman: Restaurant Broker Specialist

Steve founded Restaurant Realty in 1996. He has personally sold/leased over 900 restaurants, bars & clubs, & completed over 3000 valuations. The author of "Restaurant Dealmaker - An Insider's Trade Secrets For Buying a Restaurant, Bar or Club" available on Amazon. Reach Steve direct at 415-945-9701.


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