1) OLD LIABILITIES

Many times the bills which a previous owner has not paid to suppliers, tax agencies of the government, contractors, etc. can be "passed on" to the new owner without the new owner realizing. Always contact all past creditors of the current owner as to the status of the account. Review the check registers to get a list of suppliers and repair and maintenance companies who have done business with the current owner. Even if you are successful in separating yourself from the bills of the previous owner, a supplier may hesitate to do business with you based on not having been paid in the past. Always have an attorney research any liens or Uniform Commercial Code Filings on the business. Always fight for at least some owner financing to protect yourself against any liability and have the seller sign a statement allowing you to deduct any past debts directly from your payments to the seller.

2) HEALTH DEPARTMENT

Always have a contingency in your offer for purchase which states that the review of the health department must be to your satisfaction. Many times the Health Department will use the fact that a sale has occurred to bring the restaurant up to current codes. The health department certificate must be in the name of the owner of the business or they can pull your license. Tens of thousands of dollars can be lost in unexpected repairs because the Health Department was not contacted prior to the sale.

3) SALES AND EXPENSES

Always verify sales by checking the sales tax reports, the check registers to verify deposits, the accounting statements to compare the accountants or bookkeepers record of sales, and the tax returns, again as a comparison. Always verify expenses by checking the accounting statements, the tax returns, and even the returned checks for utility, repair and maintenance, and supplier bills.

4) NON-COMPETE

Always insist on a radius from the restaurant in which the previous owner will not open a competitive restaurant for a specific period of time. Even if the previous owner is retiring to Australia, he may decide he's bored in two years and come home to go in competition with you, the new owner.

5) REASON FOR SALE

Always check out any impending changes in the area or market which could cause the business sales to drop dramatically. Call the state and local departments of transportation to look into any road changes. Will your new restaurant be made much more inconvenient because of access or has the stale a plan to build a highway across your dining room? Always check with site plan submissions which a new competitor has filed to build a competing restaurant right down the street. Keep your ear to the ground and talk to anyone and everyone who knows the market.

6) EQUIPMENT REPAIR

Always have a knowledgeable serviceman check out the equipment for length of expected service. Have the heating, ventilating, and air conditioning units been serviced? What about the plumbing and electrical systems? Always check the structural integrity of the building. ALWAYS use a professional team of an attorney, an accountant or CPA, and a professional real estate and business broker, all having specialized experience in your area of investment.

7) ABC VIOLATIONS

If a business has had lots of ABC violations in the past, it may be next to impossible to get your ABC license.

8) IMMINENT DOMAIN

If you are purchasing the real estate or making a substantial investment in the build out of the restaurant, be very careful that the parcel is not part of any imminent domain actions.  Imminent Domain Laws allow the government to authorize the destruction and/or "fair market value purchase" of any parcels they need to accomplish some task for the greater good.   IDLs can hurt you because the "fair market value purchase" goes to the PROPERTY OWNER and not necessarily YOU.   Also, the government decides what is "fair market value".   It usually runs 15% - 50% UNDER what a real estate agent could sell the parcel for - and there is no way to fight back unless you've got mega-bucks to tie things up in court.  Example IDL projects: (1) Widening a road, (2) Building a new industrial park that brings jobs to the area and (3) Removing a blighted area.   BTW - the term "blighted area" is the term politicians use when they want to restructure land.  In other words, it means "if we re-structure this land, we can make more tax collections."

9) LANDLORD'S CREDIT

Before you invest $100K into building out a space, pull a credit report on the landlord.  Many landlords get into trouble when variable interest rates rise.

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