The restaurant location you choose represents the single largest, long-term, fixed-cost obligation of the business. Within the operating spectrum of your new restaurant you can make many choices involving your variable costs. Although once you’ve locked yourself into a location your choices become slim. You are betting everything on this single decision. You are fixing a position in the universe through which you believe customers will find and sustain your restaurant. It won’t move--unless you are planning on opening a food truck.
You will bind yourself legally to this facility and the costs related to operating it for years to come - very often with trailing liability if things don’t work out. Your business revenue may go up and down, but your cost of occupancy often remains fixed and your financial stability may be decided by your cost of occupancy.
The number of considerations involved in choosing your next restaurant location can be overwhelming. So to help you out, we’ve given some simple guidelines to help you in this very complex process.
Since deals are ﬂuid, and you never know what the outcome will be, it’s recommended to try and put together more than one deal at a time, since you may find insurmountable issues on one and you’ve kept your options open. You are not obligated to anyone until you place a binder with a signed oﬀer. Even then, if done right, you can walk away from a deal with your deposit and no penalty… keep reading, I’ll tell you how to do it.
Do a Comprehensive Projection/Pro Form
This will reﬂect realistic, best-case, worst-case and the most likely-numbers specifically designed for this location. Make sure that it reﬂects all occupancy costs and any direct operating costs that might be specific to this location. If you can’t sustain operations for an extended period of time under your worst-case scenario – negotiate further or move on.
Consider Hiring an Underwriter or Consultant
You should consider hiring an “underwriter” or consultant to do a comprehensive background check on the business in question. Have them look for encumbrances such as liens or judgments that could pose problems.
Visit the Town Hall
Make a visit to town hall or call regulatory agencies to determine if there are any issues that might arise. This could be something such as stringent local environmental regulations that limit the nature of business operations. Or needing to obtain a permit or license relating to adequacy of exits from the restaurant and related emergency issues.
Leave Yourself an Out
When presenting an oﬀer or letter of intent to a seller, landlord or developer – leave yourself an “out” in the form of a financing contingency or other provisions requiring your final acceptance or approval.
Prepare for Personal Financial Scrutiny
Be prepared for personal financial scrutiny. A seller, landlord or real estate developer will want to know that you have the financial ability to execute your plan and sustain the business.
Choosing the right restaurant location is the most important business decision you will make especially when you are looking for a new space or expanding with multiple units.
To help you further in this process here is the brand new e-guide “What to Consider When Scouting a New Restaurant Location.”