If you are a people person drawn to the hospitality industry, owning your own restaurant is likely an appealing prospect. Going out for a good meal in a pleasant environment never goes out of fashion, and a well run restaurant can be a lucrative investment. Running a restaurant can however be physically and mentally demanding and you want to be sure that your efforts will bring good returns. We’ve put together ten essential points to consider before buying a restaurant in Dubai.
1. Pinpoint your market
Deciding on the kind of eatery you’d like to run is an essential first step. Will it be a quick lunch spot appealing to professionals, a romantic dinner restaurant or a casual, family friendly diner? You want to ensure that your establishment appeals to the right clientele in terms of location and meets income levels in the neighbourhood.
2. Analyse the location
Good foot traffic, sufficient parking and a pleasant neighbourhood are all plus points in your favour.
3. Competitor analysis
Evaluate the popularity of other restaurants in the vicinity, and the atmosphere and entertainment they offer to ensure that your restaurant still fills a niche.
4. Investigate the restaurant’s reputation
Before buying an existing restaurant in Dubai, take the time to ask around as to it’s reputation. If it has a good reputation, you can probably safely go ahead without having to make any substantial changes. If the reputation is a little less than sterling, you will need to put in some extra effort. Changing the name and the menu is a good place to start. Once word gets out that it’s under new ownership, clientele are likely to give it a another chance.
5. Financial and employee records
Ask the owner for documentation that reflects all financial history. One of the most important measures of a restaurant’s profitability is real cash flow, a figure adjusted for inflation. Employee records also need to be examined to get a clear picture of salaries, schedules and benefit plans, and to ensure that staff have the necessary skills and experience . Employee contracts should comply with the law.
6. Find out why the owner is selling
Is the seller retiring, relocating or wanting to scale up or down? Most importantly, you’ll want to know about cash flow and profitability. If the business is not doing that well, you’ll need to crunch the numbers and calculate whether there is still potential to make a profit.
7. What assets will be included?
In addition to furniture and fixtures, you’ll need to find out what equipment will be included, how old it is and when it was last serviced. Are there any repairs or replacements needed? You’ll also need to determine what intellectual property will be included, especially if you are going to keep the restaurant name and menu. The name may be trademarked and recipes might be protected, so you’ll need to ensure that intellectual property will be transferred to you..
8. Will the sellers lease be transferred to you?
Getting the lease assigned to you will require the approval of the landlord. An existing liquor license is another item you’ll want transferred if possible, as getting a new one will take some time and cost extra.
9. What about liabilities?
Any leases or outstanding bills the restaurant has may be transferred to you when you buy the restaurant. More importantly, look for unpaid taxes, any pending lawsuits or health code violations. In the event of serious liabilities being uncovered, you should probably cancel the purchase.
10. Draw up a due diligence check-list
This will provide an accurate reflection of the financial, legal, structural and operational health of the business. A thorough inspection of the physical building, plumbing, and equipment is essential to ensure that proper maintenance has been done. Ask the seller to fix anything that is faulty.
A commercial real estate lawyer can assist in the valuation process, negotiating a contract as well as with due diligence. Your lawyer will draft the purchase agreement, which is a formal legal document stating your legal rights and responsibilities. It should also contain a non-compete clause, to ensure the seller can’t compete with your business for a certain period of time.
Xcel accounting have over 15 years of experience in finance and accounting, and extensive experience in consultancy.We offer comprehensive accounting and finance outsource services to small and mid-sized companies and we’re committed to helping Dubai businesses take the reins on their financial strategy.
Book a consultation session with us and let us help you make an informed decision before buying a restaurant in Dubai.