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00:00 - Intro
01:50 - Build out a new restaurant
03:44 - Owning a restaurant and working at a restaurant
05:25 - The restaurant is closed and it's an asset purchase
05:38 - The restaurant is for sale and currently operational
08:13 - Actual value
10:05 - You are purchasing assets but most of the asset may be leased
14:56 - The bare minimum you need after opening the restaurant
17:56 - Everything is negotiable
How to Open a Restaurant with No Money
Maybe you feel stuck working at a restaurant for years and you are researching online ways to open a restaurant with no money which is a question I received from Joseph.
Joseph sent us a message on our website. You can do the same, go to our website MakingDoughShow.com, scroll down and submit your question and I’ll be happy to cover it in a future show.
Joseph is passionate about cooking and he asked me how he can open a restaurant with no money.
Let’s talk about why you need money to open a restaurant!
We have 2 scenarios:
Build Out a new restaurant
Buy an existing restaurant
Building out a restaurant from scratch can cost anywhere between 50K to 70K..
It would involve a landlord giving you somewhere around 90 days after which the rent will start.
You have 90 days to BUILD the restaurant OUT. I mean, flooring, gas pipes, plumbing, makeline, walk in and other refrigeration, plates, forks, stove, AC unit, POS, bar, tables, chairs.. Everything. You get the idea!
I strongly not recommend a Build Out if you are new OWNING restaurant.
Owning vs working at a restaurant is very different.
I talk about this in the show. It requires a totally different sets of skills to OWN vs work (server, chef) at a restaurant.
A build out is very stressful and expensive. You need to make hundreds of decisions and if you are tight when it comes to money it’s not recommended.
For our 2nd location we wanted to go this route and did a long spreadsheet and it came around 500K. The initial Architect fee alone was $18K we had to pay the first month.
Thousands add up really fast.
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Ok. we narrowed down your options to 1: buy an existing restaurant.
You have a few options when it comes to buying an existing restaurant:
The restaurant is closed and it’s an asset purchase
The restaurant is operational and it is failing = at break even point or below break even point = you make 0 to negative amount of money at the end of the month in terms of PROFITS.
When we bought our first restaurant, it was making around $450K a year which is good bit of pizza if you consider and it was a few hundred thousands of $ BELOW breakeven as in, after making hundreds of thousands of $ you have 0 profit.
These are your 2 options and that is why the owner is selling!
Let’s talk about Asset purchase. Here there are also 2 options:
Asset purchase means you are purchasing the physical assets of the restaurant. Ovens, makelines, furniture, cooking appliances, tools and etc.
This amount varies depending on the asset you are purchasing
NINJA Tips:
You can hire an equipment appraisal person to come in and appraise the asset! As in, the owner and the broker say it’s 35K and maybe the actual value of the asset is $25K and you pay an equipment appraisal person $400 and that can save you a few thousands of dollars.
We bought a restaurant for 40K and the assets looked wonderful and we had to re-purchase and replace the makeline, the AC unit, 2 refrigeration units within the first MONTH. If I could go back, I would definitely hire a kitchen equipment appraiser.
Simple basic ways that you need to do your own due diligence for are:
Net profit times a factor of 3 to 5. So if a restaurant makes $100,000 in yearly profit, it's asking price should be between $300,000 to $500,000.
OR, the gross sales divided by 3 -if they use this formula, it’s because the restaurant is not that profitable!
The broker who usually wears a fancy suite and collects around 10% of the sales will tell you he has a formula for it.
If that’s the case, you ask to see exactly how they came up with the price.
The broker may give you records of the previous owners tax returns, or their P&L Profit and Loss statement.
This ALL can be cooked! YOU must do YOUR due diligence.
People lie on their taxes, on their P&L ALL the time. We didn’t know!
The broker didn’t know either.
If the restaurant is below breakeven at the time of purchase, you MUST have a very strong marketing plan in place friend or you will be decimated.
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