Are you looking for a food business for sale? If so, you're in luck! This is the ultimate guide to buying a food business. Here, we will discuss everything you need to know before making your purchase. We'll cover the different types of food businesses for sale, the process of buying one, and what to look for when inspecting a food business. So, whether you're a first-time buyer or an experienced investor, this guide has everything you need to make an informed decision about purchasing a food business.
There are a few different types of food businesses for sale. The most common type is a restaurant business. Other food businesses include catering businesses, ghost kitchens, food trucks, and food carts. When considering which type of food business to buy, it's important to think about your budget, the location of the business, and the type of food you are most familiar with and interested in serving. What is important to remember is this. The traditional business model of the restaurant industry has changed. There are more opportunities than ever to be part of the industry with a different take on concepts like these food business for sale ventures.
The customer's appetite for takeout and delivery has led to several different food business for sale opportunities that differ from the traditional restaurant. Here are just a few examples that are currently trending across the United States because of the change in dining brought about by the pandemic of 2020.
What is a Ghost Kitchen Food Business for Sale? A ghost kitchen is a concept that is for food prep and cooking only for delivery to customers. There is no actual restaurant associated with the concept. These are also known as other names like a delivery-only restaurant, virtual kitchen, shadow kitchen, or commissary kitchen. With the advent of third-party delivery concepts like DoorDash, UberEats, and more, a Ghost kitchen food business for sale like the ones offered by We Sell Restaurants have grown tremendously in adoption by the consumer and the number of concepts operating. Traditional restaurants are also increasing food sales through delivery, a phenomenon that grew exponentially during the pandemic.
There are both pros and cons to operating a ghost kitchen. Some of the benefits or pros include lower rent levels since you don't need a strong retail location. This could include lower start-up costs overall since there is no dine-in seating or need for an expensive build-out. For more information on the ghost kitchen concept, read this article titled, “The Ultimate Guide to Ghost Kitchen Franchises.”
The cons can include higher costs to deliver and building a reputation since you have no traditional "brick and mortar" location.
Another non-traditional food business for sale opportunity are food trucks and food carts. The difference between the two is simply the engine. A food truck can be driven from location to location while a food cart is typically on a trailer and is hitched to a truck. These concepts are simple and offer the convenience to open and close at the buyer's choice. They are typically used for events like county fairs and festivals so you are not operating 52 weeks a year. Many owners choose to operate only at the most profiable events and venues.
The fixed cost for food trucks and food carts is lower than other restaurant concepts since you typically only have rental on a limited number of days when you are operating rather than a monthly rental expense year round.
The pros of operating a food truck or food cart is the low overhead cost, flexibility of operations and ability to operate anywhere you can attract a crowd. The cons are the limitations imposed by the model itself which is typically constrained by size and the number of orders that can be processed in a limited window of opportunity..
If you are interested in joining the industry, a food business for sale is a fantastic opportunity. There is a lower barrier to entry this highly competitive space since you are operating virtual restaurants, not actual restaurants.
The process of buying a food business for sale is not as complicated as you might think. The first step is to find a food business that meets your criteria. Visit a national website like the We Sell Restaurants website which will list hundreds of food businesses for sale. These are all represented by a Certified Restaurant Broker and full details including the size, lease, earnings, revenue, equipment list and historical performance are available to you as a qualified buyer. You may also visit online marketplaces like BizBuySell.com or Businessbroker.net. These are aggregator websites which have listings that could be for sale by owner or listed by a general business broker. Once you've found a few businesses that interest you, inquire with the restaurant broker (if We Sell Restaurants) or the general broker or owner if you found the business online.
You should anticipate that the seller will want to maintain confidentiality about the sale of his business. For that reason, expect that you will need to sign a confidentiality agreement, also called a non-disclosure agreement and in many cases, ask you to provide proof of funds to show that you qualify for the transaction. Many individuals question why a confidentiality agreement is needed, this article, “Why a Confidentiality Agreement is Needed to Buy a Restaurant” answers those questions in great detail.
Once this is in place, it's on to the next step which is to visit the food business for sale as a customer without asking any questions of the owner or staff. Experience the location the same way a customer views it to see if it aligns with your expectations. Order food and observe the operations for a brief period (approximately the time of a meal service). It is not a clever idea to stay at the business for an extended period of time (more than 45 minutes or so) as it becomes apparent to the staff that something is afoot.
If you like what you see and want to spend plenty of time at the business, contact the restaurant broker and schedule an appointment to view the business. During this meeting, be sure to ask the seller questions about the business, such as its financial history, the condition of the equipment, and the lease agreement. After you've inspected the food business and have decided that it is a good fit for you, the next step is to make an offer. If the seller accepts your offer, then congratulations! You are now the proud owner of a new business.
Once an offer is placed on the food business for sale, you enter a due diligence period. This is when you bring in an inspector to review the equipment, go through the underlying financial documents in detail, get your financing in order and work on an assignment of the lease, an important concept we'll cover next.
Most food business for sale opportunities are leased locations so spending time on the lease is important. There are a number of items you will want to review on the lease including:
Lease term: This is the number of years on the initial lease term and expiration date
Number of option years: These are options to extend the lease for an additional period (typically 5 years). It is important to note that these are typically the tenant's option to renew which means a lease stated as Expires 5/22 with two 5-year options is valid until 2032.
Rent escalations: This is the term for the amount the lease increases per year. The initial lease term and options should have an agreed upon rate of increase (as in, 3% per annum) or a flat amount built into the options by year.
Base rent: This is the amount of the lease payment every year and month but does not include the full rental amount due. In addition to the base rent, landlords charge CAMS or common area maintenance charges to each tenant on a pro rata basis. if you occupy ten percent of the total build, you pay ten percent of the common area maintenance which could include things like snow removal, trash pickup, common water bill or landscaping. They also charge the tenants a prorated portion for the taxes and insurance for the entire building.
Assignment and subletting: These are the lease sections determining whether the lease can be transferred or sublet to a new business owner. In food service, landlords typically assign the remaining term of the lease and any option years.
Now that you understand some of the key terms in a food business for sale lease, you can finalize due diligence and move to the closing table. At that point, the attorney in the transaction prepares a bill of sale that transfer title of the assets from the seller to the buyer. He or she will also do a lien search to be sure the assets you are acquiring don't have prior claims on them from any other parties. If anything is owed, the lienholder is paid at closing before the seller receives funds.
Buying a food business can be a wonderful way to jumpstart your career in the culinary industry. If you're interested in purchasing a food business, contact We Sell Restaurants today. Our team of experts will help you find the perfect business for sale and guide you through the buying process. With over 25 years of experience, we know everything there is to know about buying and selling food businesses. So don't hesitate any longer – contact us today to get started!
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