What to Consider Before Buying a Restaurant
Many people dream of owning their own restaurant. It can be a rewarding and enjoyable occupation. However, in many cases, purchasing a restaurant leads to unexpected expenses, necessary upgrades and repairs to the existing facility.
There are several things you can do to help avoid these complications. The following information may not eliminate all the complications, but should help you avoid some of the major pitfalls. The information provided is not intended as legal advice nor is it an all inclusive summary of what can potentially impact your restaurant purchase.
- Grandfather clauses. There are no “grandfather clauses.” In Clark County, a facility must be brought up to current code with a change of ownership or major remodel. Additionally, equipment is often brought in after a facility was approved and may not meet current code requirements.
For a fee, the Southern Nevada Health District’s Plan Review Section will survey a facility you want to buy. The survey will identify required repairs and upgrades. Written permission of the current owner is required before the survey can be done. We recommend you have the property surveyed before signing any legally binding documents.
- Contracts. Rather than buying a restaurant “as is,” consider inserting a clause into the contract requiring the restaurant to pass all inspections and establish remedies if repairs or upgrades exceed a certain amount. Sub-leasing also carries risks. We recommend that you consult an attorney to discuss contract options.
- Previous inspection reports. All food establishment inspection reports are public information. Before purchasing a restaurant, complete the online Public Records Request to get a copy of the inspection report. Read the entire report and look for the following:
- Frequent citations for temperature violations. These may indicate problems with refrigeration.
- Frequent changes of ownership. There may be underlying reasons that a change in menu will not remedy.
- Compliance schedules. If the facility requires major upgrades, the owner may decide to sell it, rather than pay for costly repairs.
- Ventilation systems. Not every restaurant is equipped to cook every type of food. Foods that produce grease-laden vapors require a specific type of ventilation system. These ventilation systems may also require fire suppression systems. If the equipment isn’t present, it’s costly to install. If it is present, it’s possible that the system is old and may need to be replaced. Check with local fire, building and sanitation departments for more information.
Also, look at the tag on the ANSUL system; if there is a red tag or a tag with notes on the back, get more information. If it hasn’t been tested in the past year, consider requiring the current owner have it tested before a contract is signed.
- Refrigeration. Not every refrigerator is approved for every use. The general requirement is that any refrigerator must meet the standards of the National Sanitation Foundation (NSF) or equivalent. Before purchasing a restaurant make sure that the refrigerators meet these requirements.
For example, a beverage cooler (merchandiser) may not be approved for open foods. Also keep in mind that companies that install, but do not build, walk-in coolers are not required to be certified.
- Worn Equipment. Restaurant equipment takes a lot of abuse; especially walk-in coolers. Panel gaskets break down, surface coatings wear off and the floors, walls and doors are often seriously damaged or rusted.
Repairs to these units can be expensive and must be done to NSF standards. This work can only be done by people and companies certified by NSF. Also, old equipment tends to use a great deal of power and higher power bills can significantly impact the bottom line. Note: outside walk-in coolers can only be used for pre-packaged foods.
- Modified Equipment. Equipment that was changed from its original configuration may not have been done to NSF standards. Pay close attention to any suspect equipment. Contact the health district for more information.
- Structural Issues. These can run the gamut from floor, wall and ceiling issues to insufficient lighting or improper finishes on cabinets and countertops. In many cases, the repairs can be done quickly and easily. In other cases, remedies to these problems can be extremely expensive. Issues to consider are:
- Who will repair any leaks and/or roofing problems?
- Who maintains the grease interceptor? Is one even present? What about other plumbing issues?
- Are there adequate floor sinks in the necessary locations?
- Are there any problems with the air conditioning? If the kitchen isn’t adequately cooled, refrigeration is likely to fail. The certified equipment needed to run at high temperatures is expensive.
- Grease interceptors. A grease interceptor may be required, depending on the menu. A grease interceptor is different from a “Big Dipper” type of grease machine. Do not assume that the facility is equipped to meet the needs of the intended menu. Discuss this with the Sanitation District’s Pre-treatment program.
- Utilities. It is not unusual for a previous owner to leave without paying the establishment’s utility bills. If this occurs, the new owner is obligated to pay past due bills before power, gas or water service can be turned on. Before your purchase, contact the utility companies about any issues that may affect having the services turned on.
- Insurance. Check with your insurance company for a quote to insure the establishment. Premiums will be higher if the establishment is located in a high crime area or if the building has a history of structural or electrical problems.
- Zoning. Zoning may impact any major changes you have planned for the operation. Verify the zoning status if you plan to renovate, and make sure there is adequate parking for what you have planned.
- Neighborhood. Visit the facility at various times during the week and weekend. It is surprising how much a neighborhood can change after dark. You may find that there are no customers in your area after 5 p.m. Be sure to contact the local police department for area crime statistics.
- Closures of surrounding facilities. Research the financial stability of properties surrounding the establishment. The future of your restaurant may be impacted if the supermarket that serves as the location centerpiece closes.
- Restrooms. If your establishment has seating, you must provide public restrooms. If you want to purchase a restaurant that has no restrooms, contact the health district’s plan review section before signing a contract. The cost of providing restrooms can be prohibitive.
- Remodeling a restaurant. If you have already purchased a restaurant and wish to change fixtures, equipment, structure, cabinets or other areas, contact the health district’s plan review section before beginning construction. After the fact, remodeling fees cost twice as much as those with prior approval. Other considerations include:
- Equipment installed without approval may be taken out of service until approved.
- If the wrong equipment or materials are used, they may need to be replaced.
- There may be issues preventing you from using the establishment for any other purpose than what was initially approved.
Telephone: (702) 759-0588
Updated on: October 10, 2018