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Buying a Business (Restaurant) PROJECT Submitted to the College... By Name, surname Town, state 2005 Buying a Business (Restaurant) Name, surname Table of Contents: I. Abstract II. The Introduction III.
The Main Body: 1) Pro and contra of buying a business; 2) Ten Commandments of running a good business; 3) Investigating the business; 4) Determining the price or value of a restaurant; 5) The peculiarities of restaurant business. IV. Conclusions V. Recommendations VI. Bibliography VII. Appendix I.
Abstract In my project I have investigated the issue of buying a restaurant. I my introduction I have summarized the main aspects I have discussed in the Main Body, they are: advantages and disadvantages of buying a business, the necessity to investigate the business and research the areas that refer to it, the importance of determining the reasonable price of the restaurant and the factors that can influence on the purchasers final decision; the types of strategies with which the entrepreneur may operate the restaurant and the types of restaurant existing. I have listed the advantages and disadvantages of buying a business and made my supposition of possible features of character the entrepreneur needs to be ready to overcome the potential difficulties. I have also interpreted the Ten Commandments of a good business, which were cited from How to Buy A Good Business At A Great Price by Richard Parker and then I concluded the basics of success in buying a restaurant. I also argued whether the factor of price or the factor or returning the investments can be decisive in choosing a restaurant. Further I included the questions surrounding the main spheres of the future owners interest in a restaurant: sales, costs, profits, liabilities, and the purchase agreement.
These questions are needed to investigate the current operation of the restaurant and to find out the hidden things that may interfere with success of the business. While discussing the aspects I defined the economic terms, such as resale, franchiser, and explained seven types of restaurants. Then I summarized all the conclusions I have come to in my project and worked out recommendations for people who intend to buy a restaurant. II.
Introduction. Buying a business is a risky undertaking. It has a number of factors that may determine its success or failure. Thus, in order to avoid mistakes where possible, the entrepreneur must bear in mind some basics of this process. Before taking the certain steps in the direction of owning a restaurant, the person must consider all advantages and disadvantages he will face in this business and decide whether he is able to fight the potential difficulties, and if the final goal is worth all the efforts made. If the entrepreneur is determined to buy a restaurant, the first steps he must undertake are: to investigate the object of his purchase, to research the market and to find out the hidden things that may become the obstacles in his running the business.
Then, it is important to determine the price or value of the restaurant. For this purpose the purchaser may use a number of methods, such as asset value methods, earning value methods, and combined methods. And also, the right strategy and the type of a restaurant are crucial for the success of the business. There are three main strategies (buying a resale, buying a franchiser, setting a new restaurant) and seven types of restaurants (traditional, ethnic, specialty, coffee shop, self-service, fast food and cafeteria) that offer a good choice for the purchaser. The main thing in this process is to realize that the decision to buy a restaurant and the number of following choices are very individual and can not guarantee the success of the undertaking.
The entrepreneur should be purposeful, enthusiastic and devoted to his business in order to obtain great achievements in this career. III. The Main Body 1) Pro and contra of buying a business Before buying any business one may take into consideration the following pro and contras: Advantages: Service is already being sold, the product is being produced; Market is already established; Cash flow is being already generated; Relationships with suppliers and banks are established as well. Can be potential growth.
Disadvantages: Buildings and equipment may be obsolete; Location may not be proper for this business; There may be dead stock in inventory; Accounts may be too high or difficult to collect Hidden reasons: zoning changes, labor problems, deteriorating local conditions, lease expires and it can not be renewed etc. Relationships with suppliers and banks may be very poor, Can be no potential growth. Thus, as it may be seen above, the number of potential disadvantages prevails over the number of possible advantages. Thus, buying a business is a high-risk thing and also it is a great challenge to the entrepreneurs abilities and self-esteem.
There should be strong motifs and firmness of purpose in mind of the man who decides to buy a business of his own. 2) Ten Commandments of running a good business Also, there are Ten Commandments that are believed to be fundamental for a good business. These commandments are useful in the initial stage of the process of buying a business because they outline the general rules of a successful management of restaurant and help the purchaser to work out his attitude to the coming gains and losses of restaurant business. Ten Commandments are advised How to Buy A Good Business At A Great Price and originally they sound in the following way: Commandment # 1 Pay For The Past, Consider The Present, But Buy It For The Future. Commandment # 2 - Buy A Good Business and Make It Great! Commandment # 3 - Ingredients Are NOTHING Without A Recipe.
Commandment # 4 - Fall In Love With the Profit NOT the Product! Commandment # 5 - Do What You Do Best and You " ll Manage The Rest Commandment # 6 - Autopilot- (can the business be put on "cruise control"? ) Commandment # 7 - Determining What Holds "The Gold" Commandment # 9 - Evaluating and Identifying What's Not Perfect Yet Commandment # 10 - What's It Worth To YOU? In short, before buying a new business, the person should study and evaluate all existing advantages and disadvantages of it, then decide, if it is worth the efforts the person is going to undertake. Also very important is performing the process step by step according to the purchasers plans. In addition, the factor of returning the investments should be valued more than the factor of low price of the restaurant.
On the other hand, high price of the business is not yet the evidence of its profitability, and the purchaser should not forget to leave his cash money for the further development of his business. These are the major rules I have found out due to the Ten Commandments. 3) Investigating the business The next step in the process of buying a business (a restaurant in particular) is to investigate the real state of things referring to the object of the possible purchase. The main spheres of this investigation concern the following: sales, costs, profits, liabilities, and the purchase agreement. The purchaser may arrange the meeting with the seller of the restaurant and ask the questions that clear out the aspects in all the mentioned spheres. First, speaking about sales, it is important to find out whether the restaurant is properly located, if all the sales reliably recorded, if the debts are shown as receivables or deducted from the sales, whether the sales pattern is consistent or dependant to any cycles, is sales fluctuations are due to one-shot promotions, whether there is any worker (a manager, or a cook, or a waiter) in the restaurant who is significant to its success, if the person of the seller himself is critical to success, whether the existing suppliers will remain available after the owner is changed, is the sales can increase with the current resources. Second, the questions about costs while the meeting with the seller should surround the following main points: Expenses: are they all inclusive?
Have any of them been delayed? What are annual expenses? What expenses should be anticipated? What expenses do the other similar restaurants have? Are there any prepaid ones? Wages: Are they provided for working owners?
Lease: Has it been checked out by the solicitor? Cost: How will it be affected by the sales fluctuations? Third, the discussion of the profits should touch the following aspects: the ranges of the minimum and the maximum sales; the effect of inflation of sales and costs; the book value, replacement value and market value of the fixed assets; future profitability and cash flow; accounts receivable, the state of equipment. Fourth, speaking about liabilities, the purchaser should find out these aspects: Are the assets free and clear of any liens and debts? Are there any guaranteed debts or warranties or accounts? Is there any risk of liability for the actions of the seller?
What prepayments or advances should be turned over to the purchaser? Will debts be covered with the cash flow? Why is this restaurant for sale? And finally, the conversation on the purchase agreement should comprise the following: Are all the liabilities to be assumed and assets to be purchased covered by the contract? Is the seller ready to negotiate the price of the restaurant?
Are all the escape clauses (i. e. receiving licenses, obtaining financing, rights and other transfers, inspecting records, ) included in the proposed contract? Summing up, I would like to say, that it is indispensable for the purchaser to investigate and find all the aspects in the business he wants to buy, and find out the hidden things that may become the huge obstacles in his successful running the restaurant afterwards.
The proposed questions concern the first step in investigation of the business that should be conducted by the purchaser himself. The parallel research may be ordered by the purchaser and performed by any of the organizations specializing on this type of activity. This research may aim at finding out the demands of the area the restaurant is located in (food preparation and personnel administration, service, marketing, management, purchasing, meeting people; inventory control) and government regulations concerning running a restaurant (federal, municipal provincial and laws). The next step will be to determine the price and the value of the business the purchaser is interested to buy. 4) Determining the price or value of a restaurant; The goal of determining the price or value of the restaurant is to find out the following: how much is the business worth; is the price asked by the seller reasonable.
To obtain this goal, the purchaser may use several methods of calculating the price of the restaurant. These methods also may help to set a range of prices the purchaser may operate with while negotiating the final price of the restaurant with the seller. There are tree types of methods used for the purpose of determining the price of a business. They are: asset value methods, earning value methods, combined methods. In the essay I will explain the first type asset value methods, the rest two types will be given in Appendix. According to the article Buying a Business, asset value methods divide into the following subtypes: Book Value it lists the business net balance sheet value of its assets minus the value of its liabilities.
This method usually understates the value as listed assets are often depreciated more than...
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Research essay sample on Buying A Business Restaurant Part 1
