20 Questions to Ask Before Buying a Restaurant

Buying an existing restaurant can give you a functioning kitchen, trained employees, operating history, customers, equipment, and an established location. It can also leave you with weak cash flow, a short lease, aging equipment, tax exposure, employee issues, or permits that do not continue under your ownership.

The asking price does not tell you which situation you are looking at. The U.S. Small Business Administration recommends reviewing the full infrastructure of an existing business, including contracts, leases, licenses, permits, and zoning, and advises involving an attorney and accountant in the investigation (U.S. SBA: Buy an existing business or franchise). The 20 questions below are where that review starts.

Questions About the Business and Its Financial Performance

1. Why is the owner selling the restaurant?

The seller's reason provides context, but it is not proof the business is financially sound. Owners sell for retirement, health or family circumstances, relocation, partnership disagreements, burnout, capital limitations, staffing problems, lease concerns, declining performance, or a change in priorities. Ask when they decided to sell, whether the restaurant has been listed before, whether a prior deal failed to close, whether they would keep operating if it did not sell, and whether they will stay for a transition or finance part of the price. Then compare the explanation against recent sales, staffing, lease position, equipment condition, and outstanding obligations. A personal reason can be completely legitimate. It does not remove the need to investigate.

2. What exactly is included in the asking price?

Request a written list, and ask what is excluded. Some equipment may be leased, financed, owned by the landlord, supplied by a beverage distributor, owned by another business, or subject to a lien. The SBA distinguishes tangible assets, intangible assets, and intellectual property, and advises determining whether assets are owned or leased.

Do not let listing photographs define what you are purchasing. The letter of intent, asset list, and final purchase agreement should identify the included assets.

3. Is this an asset purchase or an ownership-interest purchase?

This is a legal and tax question for your attorney and accountant. In an asset transaction, the buyer generally purchases identified assets and assumes only the obligations listed in the agreement. In an ownership-interest transaction, the buyer acquires stock or membership interests in the existing entity, which may continue to hold its contracts, permits, debts, claims, and history.

The structure affects taxes, permits, contracts, financing, and risk, and should be decided before final documents are drafted. For qualifying asset acquisitions involving a trade or business, the IRS generally requires both buyer and seller to report the purchase-price allocation on Form 8594 when goodwill or going-concern value attaches or could attach.

4. How was the asking price calculated?

An asking price is not an independent valuation. Ask whether it rests on seller's discretionary earnings, EBITDA, gross revenue, equipment or asset value, replacement cost, comparable sales, franchise requirements, real estate value, or a mix. The SBA identifies income, market, and asset-based approaches as common valuation methods. If real estate is included, request separate values for the operating business, the furniture, fixtures and equipment, inventory, land and building, and goodwill. Ask to see the actual calculation, not just the resulting number.

5. Can the reported revenue be verified?

Request records that let you compare reported sales across independent sources: federal and state tax returns, profit-and-loss statements, bank statements, point-of-sale reports, merchant-processing statements, Connecticut sales-tax filings, delivery-platform reports, catering records, liquor-sales reports, daily summaries, and the general ledger.

Differences may have legitimate explanations, including timing, gratuities, refunds, gift cards, delivery commissions, or accounting methods. Material differences still need to be explained. Do not base the price on undocumented cash sales: income that cannot be supported may not be accepted by a lender, accountant, appraiser, or a future buyer.

6. How has the restaurant performed month by month?

Annual figures can hide seasonality or a recent decline. Request monthly reports for the most recent two or three years and look for seasonal peaks and slow periods, recent declines, changes in food or labor cost, rent increases, declining alcohol sales, delivery growth or decline, temporary closures, unusual repairs, large one-time events, and changes after the loss of a manager or chef. A restaurant that performed well last year may not be producing the same income today.

7. What work does the owner personally perform?

The seller's labor may be the restaurant's largest hidden expense. Ask how many hours the owner works, which shifts they cover, and who handles the kitchen, scheduling, purchasing, payroll and bookkeeping, catering, marketing, vendor relationships, and dealings with landlords and regulators. If the seller performs the work of a general manager, chef, bookkeeper, purchaser, and marketer, a buyer who plans to be passive must replace that labor, and its cost belongs in the projections. Also review family labor: unpaid or below-market family work does not stay free after the purchase.

8. Which expenses were added back to calculate adjusted earnings?

Request a line-by-line schedule of every adjustment. Common proposed add-backs include owner compensation, family payroll, personal vehicle costs, personal insurance, interest, depreciation, charitable expenses, one-time legal or accounting costs, nonrecurring repairs, and personal travel or meals. An expense is not removable simply because the seller labels it an add-back.