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Red flags when buying a restaurant business

Restaurants fail in plain sight: the lease, the labor, the food cost, and the person in the kitchen. A busy Saturday and a tidy SDE do not mean the prime costs work, or that the liquor license and the landlord will come with you.

Common seller tricks in restaurant

Sellers often show a strong season, stay vague about cash, and talk as if a liquor license and a lease assignment were paperwork instead of the deal itself.

Which numbers to verify

Prime cost — food, beverage, and labor — is the first test. Look at weekly sales, not an annual number, and at a full year of seasonality. Reconcile deposits, card batches, and, if they insist on cash, a serious explanation. Recast the owner’s hours in the kitchen and at the door. Vendor aging, unpaid sales tax, and gift-card liability should be on a schedule, not discovered at close.

Licensing and key-person risk

Health permits are tied to the premises and the operator. A liquor license is often the longest pole in the tent and may require a new application, a hearing, or a transfer that can lag the asset close. Confirm with counsel and the issuing authority, not just the seller’s optimism. Sales-tax accounts and music or patio permits can also be required.

Equipment and condition

The line, refrigeration, dish machine, and HVAC in the kitchen have remaining life and health-code implications. A walk-in that is failing is both a capex item and a food-safety risk. Confirm what is owned versus leased (POS, coffee, dish, ice), and that the landlord will accept your equipment plan. A hood and fire-suppression inspection should be current.

Seasonality and the calendar

Tourist rooms, campus rooms, and even neighborhood rooms have a calendar. A December that pays for January should be in the weekly numbers. Do not annualize a patio season. Staffing follows the same curve; a buyer who closes after the holiday rush can inherit a thin crew.

Customer concentration

A lunch-only office crowd, a hotel contract, or a delivery platform can be a large share. If one office park emptied or a platform changed fees, would the room still work? Catering for one company is concentration too. Reviews and a regular bar crowd are assets only if they attach to the place, not just to the owner.

Questions to ask before you make an offer

  1. Please provide weekly sales for at least two years, with card batches and deposits to match, and a clear treatment of cash.
  2. What are food, beverage, and labor costs as a share of sales, and may I see prime-cost reports?
  3. What is the lease term, assignment language, rent schedule, and any personal guaranty?
  4. What is required to transfer or replace the liquor and health licenses, and how long has that taken for similar rooms?
  5. How many hours does the owner still work in the kitchen or at the door, and who would replace that work?
  6. What gift-card, deposit, and vendor liabilities exist today?
  7. Which equipment is leased, and what inspections are due on the hood, fire system, and refrigeration?
  8. What share of sales is dine-in, delivery platforms, and catering, and at what fees?
  9. Are there unpaid taxes, health-hold issues, or open claims?
  10. After an LOI, may I speak with your accountant and, with a plan, your landlord and key staff?

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Disclaimer. Deal Check is not financial, legal, or accounting advice. These pages and calculators are educational planning tools and can miss context. Verify every number with a CPA and a business broker, and do your own due diligence before making an offer.