Flipping Restaurants

Over and Over and Over?

Everyone has wanted to own a restaurant, or a bar, or a coffee shop at some point.

If you’re the least bit social, and especially if you’ve ever worked in one of these fine establishments, or have been a beloved regular, then I’m willing to bet you’ve at least toyed with the idea of owning one.

Of course, the reality of being a bar proprietor is much different from the day-to-day slog of it all. The margins are tight, the labor is transient, and food costs these days… Youch!

There was the cook we fired because he clocked in drunk, not buzzed, but drunk. Then he clocked in again the next day because he was so drunk the night before, he had no idea he had been fired. Or the chic that wanted to fight me because we kicked her out for yelling “Rape!” as a joke on the patio. Not funny! But I digress into fond memories of the good ol' days.

Is there another way to approach this fantasy of restaurant ownership? Is there some way to make it work AND still stay sane? I have two alternative scenarios to present, food for thought so to speak. One of the key factors here is that, at least in my experience, there is always an active market for bars, cafes and dining establishments. Everyone wants to own one until they do, and once they’ve bought one, they are always looking for a way out. It’s that ready market that makes this first one work.

Think of buying a restaurant as if it were rental real estate, an apartment. You know you’re going to collect a deposit, rent it to someone for the next year or two or whatever, but you don’t expect them to stay forever. They will move out and move on and you will slap on a coat of paint, maybe change the carpet, and happily take another deposit and rent to the next young chap for another year or so. And this continues indefinitely because that’s how a rental property works.

Why can’t we apply that same mentality to a small pizza pub for example, or a vintage tearoom? A friend reached out to me recently and asked me this question:

She goes on to say she doesn’t want to run it but is thinking of doing what we did with our pub, “Find someone who wants to own it but can’t afford to buy it” and of course she wants to make a little cash at the same time. Her initial thought was to have the new owners work in the business for 12 months, for a salary, and a promise to increase the profits. At the end of the 12 months, she would take the majority of the profit and then sell it to them on deferred consideration, or a seller’s note.

This was my reply: I would try to incentivize them right off the bat, either with a profit share or small piece of ownership. The goal for you, I would think, would be to create a steady stream of income for a relatively long period of time.

If you put your 60K in the bank, how much interest income would you make? A few hundred a month? So anything more than that would be a bonus? With a tiny restaurant business, you may expect some churn in owners. You may get it back and start all over again, but that would also be the beauty of it, a constant income stream.

If you truly want to flip the business for a small but meaningful capital event, a restaurant may not be the right type of business. In my opinion, the ideal candidate for my friend to sell this tearoom to is someone who doesn’t have, and can’t get, the money to buy it themselves. My friend becomes the hero, because she is going to “give” the buyers what they always wanted but can’t afford.

You may be reading this and rolling your eyes…This is way too small, what about the legal headaches, and what if they steal all the restaurant equipment in the night? These are all justified concerns, but my friend is an experienced business buyer so she’s up to the challenge and mostly, I want you to--

1. Think outside the box when you’re considering a deal??

2. Realize you don’t have to be married to a business you buy.

Here is the second crazy idea for who she could resell or lease this business to: A husband and wife team, or boyfriend/girlfriend or whatever ever other kind of couple, where one of them really wants the restaurant, and the other person is a solo type of practitioner, maybe an accountant or an insurance agent or an attorney. That private practice person can use the café as an office. They could actually help run the café during peak service times, but also meet clients in the back booth that has a bit of privacy. Of course, they could have an actual office on site too, but either way, they would be “working together” every day and making both their dreams come true. You may be surprised at how many tax clients I picked up while serving sausage rolls and Crown n Cokes. Would you like fries with that deductible IRA contribution?