What due diligence needs to be done when buying a restaurant?

Originally Published : October 9, 2013

Buying an existing restaurant or bar can be great for several reasons, but you need to make sure your interests are protected by performing the proper due diligence.  There are many issues which should be researched when buying a restaurant in New York; here are a few:  (1) the debts and liabilities of the seller; (2) the condition of the equipment and location; and (3) the liquor license, if applicable.

Even if you are only buying the assets of the business (as opposed to buying the actual company), the debts and liabilities of the seller can cause problems for you.  For example, any sales tax debts of the seller can be passed along to the buyer.  Also, debts to vendors or service providers may make it difficult to open your own accounts with the same providers.  It is important to perform lien and creditor searches on the seller, to make sure there are no outstanding issues.

The second issue to research is the condition of the equipment and the location itself.  First, we always recommend performing a thorough inspection of the equipment, to make sure it is in good working condition, and the location, to make sure there are no unexpected repairs and improvements that will need to be made.   Without performing a thorough inspection of both the equipment and the location, you run the risk of incurring huge, unexpected expenses, which can greatly harm your new business.

It is also important to perform due diligence on the liquor license, if a transfer of the license is a part of the purchase.  It is essential to understand what type of license the seller has, how long the license will be in effect, and whether or not there is any negative history with the license.  If the seller’s liquor license has a history of violations, it can complicate and potentially even jeopardize the application process.

If you have any questions about purchasing a New York restaurant, you should contact a New York restaurant attorney.  We are very familiar with these transactions, and are always happy to discuss such issues.