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Purchasing a Restaurant

Buying or selling a restaurant is unique adventure not to be taken lightly. There are several issues to consider: 1. Are you considering buying or selling an existing restaurant? [Note: Confidentiality agreements are very important and every seller should ensure that all potential buyers execute such an agreement before discussing proprietary information.] 2. If you are selling your restaurant, have you clearly identified each and every asset that will be included in the sale? [Note: General provisions including all equipment, furniture and supplies of the business are vague and often lead to disputes regarding what was intended to be included in the agreement.] 3. If you are buying a restaurant, have you been advised of those liabilities you will be assuming from the seller? 4. If you are buying the stock of a restaurant, is the agreement sufficient in detail as to all assets included in the sale? [Note: In a sale of stock, the buyer should do more than just review a seller's book and be certain that the agreement contains a list of the seller's assets and liabilities.] 5. By what method are you are valuing the business? [Note: There are three types of valuations (1) Market Based, (2) Asset Based, and (3) Earnings Based. Market based refers to the sale prices of similar business in your area. Asset based refers to the 'book' value of the business or the asset and liquidation value. Earnings based considers a business's past, present and projected income to debt streams.] 6. If you are selling a restaurant, have you considered the sales tax implications of selling your liquor inventory? [Note: Bulk asset purchase agreements are subject to sales tax because the sale involves tangible personal property. Typically, buyers try to purchase restaurant assets in bulk sales to avoid taking on the seller's liabilities.] 7. Have you broken down and allocated the purchase price to each aspect of the business, including the restaurant's good will? [Note: Equipment and fixtures can be depreciated over three and ten years while intangible assets have longer tax write-off periods. Good will cannot be amortized so buyers should avoid any allocation to good will unless a minimum amount is required to preserve the seller's trademark.] 8. In purchasing a restaurant, have you insisted that the seller agree not to compete with you within a negotiated radius of the purchased establishment? [Note: Unless there is a price allocation for the good will of the restaurant, a covenant not to compete cannot typically be upheld.] 9. Have you identified whether the seller will reimburse you for the existing restaurant's debts that you may become liable for? [Note: New York's Bulk Sales Law imposes liability on buyers for a seller's debt. Buyers may contract with a seller to recover these amounts from a seller at closing. Furthermore, buyers should always insist that a seller identify all creditors and debts, as well as those debts that will be satisfied prior to sale.] 10. If you plan to continue operating under the seller's trade name, have you inquired as to the existence or possibility of any product liability lawsuits for negligent food service? [Note: Successor liability refers to the liability imposed on the purchaser of a business. Ensure that your purchase agreement contains a clear and unambiguous defense and indemnification clause.] 11. If you are buying a restaurant, how important is the continuation of the restaurant's lease agreement to you? [Note: Many lease agreements do not require a landlord to agree to a sublet or assignment of a tenant's lease. Be sure that the seller has the authority to transfer the lease agreement to you, and insist on a provision which makes the closing contingent on the landlord's written approval of the lease transfer.] James D. DiPasquale, Esq DIPASQUALE LAW GROUP www.restaurantlawny.com Like us on Facebook: http://www.facebook.com/home.php#!/pages/DiPasquale-Law-Group-Restaurant-Attorneys/159290170793265 Connect with us on Linkedin: http://www.linkedin.com/pub/james-dipasquale/8/7b4/1ba

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