Ask these 5 Questions Before Buying a Fast Food Business for Sale

Ask these 5 Questions Before Buying a Fast Food Business for Sale

If there is one trend that is on the rise in Australia, it has got to be the foodie movement! Always on the lookout for new cuisines and culinary experiences to tickle the palate, this growing tribe is good news for everyone in the food and hospitality business.

The last few years have seen a sustained increase in restaurant profits across Australia, and this trend only seems to be getting stronger post the pandemic. This makes it a great time to be a part of this high growth, high profits industry, and one of the ways to do that is by buying an existing fast food business for sale.

There is no denying that purchasing an existing business is a quicker way to get started as compared to setting one up from scratch. And there are innumerable other advantages such as having an existing customer base to start off with and no down time lost in setting up whilst rent is amounting every week that goes by in fit out time. In a time where staff shortages are a prominent challenge for most business owners, buying an existing fast food set up can also ensure a team of trained and experienced staff are inherited, taking the stress of hiring and training staff from scratch out of the equation.

1.      What is the reason for sale?

There could be many reasons why the fast food business might be for sale. The owners might want to relocate or retire, or even want to start other businesses. While all of these are valid, there could be other reasons for the business being on sale, such as not being profitable enough, not being able to cover the basic expenses or being embroiled in some financial issues. As a prospective buyer, you should be prudent and investigate the reason of sale to ensure you understand the pitfalls of the previous owners and consider how you may overcome these potential challenges. In many cases, post covid, the debts amounted for many owners were due to the result of closures and the pandemic, these are unfortunate costs that you aren’t likely to face post pandemic. Be sure to look through the financials with your accountant to calculate costs and ensure debts are not transferred with the sale of the business and remain the liability and onus of the previous owner. Just because a business was not successful for the previous owner, doesn’t necessarily mean it won’t be for you. That is why it is important to understand their circumstances that lead to downfall or debt and determine whether it was isolated incidents that aren’t likely to occur with you at the helm.

2.      Read over the lease?

The lease and disclosure statement is one of the most crucial documents that must be reviewed when considering a fast food business for sale. You must ensure you understand all costs, including rent, GST and outgoings as well as what areas are under your lease for example parking, common area, attached dwelling. You need to consider what the terms of the lease are, how many years options are left on the lease and whether there are any clauses such as a demolition clause that you need to discuss. It is important to invest in appointing a solicitor to read over a lease so that they can advise if there are any red flags or clauses you should be aware of.

3.      What is included as part of the sale?

You should be clear about what other assets are included as part of the sale. Will you be continuing with the same brand, menu and staff, or will you be rebranding it? If you plan to revamp the space, it makes sense to check whether you can alter the existing design to suit your purpose.

However, if you do not plan to make any big changes, things like furniture, kitchen equipment, serving cutlery etc could come in useful if you plan to continue running the existing business in a similar fashion.

And while you are checking on this, it would also be good to check on any existing lease for all these assets, as well as recurring costs for labour, rent and other utilities to minimize the chances of a surprise later on.

4.      How good is the location?

Needless to say, the location of a fast food joint is key to its success. It needs to be in the right neighbourhood, where there is ample opportunity for walk-ins, space for parking and the possibility of sustained business. It doesn’t help if the location seems perfect, but there aren’t many customers coming by, or if there is a new restaurant in the vicinity that is posing a stiff challenge to the existing business. In all these cases, it is recommended to tread with caution – not because competition is bad, but because you don’t want to invest in a failing business. You might also want to do a rent check on the property, to see whether the location has a fair rent.

5.      What is the current reputation of the business?

This can have a huge bearing on the success of the business. The best way to find out about the reputation is to do a little groundwork – ask the locals around, or check online reviews and ratings from sites like Google, Zomato and social media platforms. This will give a much better sense about how customers actually feel about the business, and will highlight any reputation issues that could pose a problem later on. Of course, it is always possible to overturn the reputation, or even rebrand the fast food business for sale if it has a less than ideal image, but that will entail a lot of work on your behalf which can be factored in when making an offer and negotiating for the sale of the business.

At Absolute Business Brokers, we assist you all through the way from finding the best deals on fast food businesses for sale, to making the final sale after due diligence. To know more, please browse through the existing listings on our site or speak to our expert business brokers.