7 Tips to Buying a Profitable Restaurant

7 Tips to Buying a Profitable Restaurant

Thinking about buying a restaurant? Ready to swap the chef’s apron for the boss’s chair? Or maybe you're a foodie with a knack for business, looking for your next venture.

Owning a restaurant isn’t just about cooking up great food, it takes hard work, skill, and determination to build a profitable business.

Buying an existing restaurant gives you a serious leg up over starting from scratch. The kitchen is already set up, the staff are trained, the customers know where to find you, and the lease is in place.

Instead of spending months (or years) setting everything up, you can hit the ground running and start making money from day one. Compare that to launching from scratch, where you’ll be outlaying tens (or even hundreds) of thousands on fit-outs, equipment, and branding before you even serve your first meal.

We’ve taken a look into the 2,000+ restaurants for sale on Bsale to bring you some insights into the market—and, more importantly, seven tips to help you buy a profitable restaurant, not a money pit!

 

First Off, How Much Does it Cost to Start a Restaurant vs Buy?

So, you want to open a restaurant? The first thought is usually “I’ll get a lease and build it from scratch” but is that the best (or cheapest) way?

Setting up a restaurant from the ground up costs serious cash.

Between fit-outs, kitchen equipment, permits, branding, and marketing, you’re looking at anywhere from $300,000 to over $1 million. According to Restaurant & Catering Australia, a full fit-out can cost $5,000 to $10,000 per square metre. That’s before you even fire up the grill.

On the flip side, buying an existing restaurant in Sydney NSW can be a cheaper and easier option. You can pick up a fully fitted-out restaurant for as little as $100,000, and the best part? It’s already set up and trading which means no waiting months for approvals, no unexpected reno blowouts, and no stress about whether your branding will actually attract customers.

How Much are Established Restaurants Making?

The best way to assess this is to look at current opportunities. On Bsale, the average price of a restaurant for sale is $378,988.

We pulled some details from current listings to give you a bit of a breakdown of turnover and profits.

• A small restaurant in Australia that has been established 60 years was on the market for $199,000 had a turnover of $11,550 Week, with a net profit of $3,138 Week. The sale price reflects a multiplier of 1.22. 
• A fish and chip shop in Brisbane, QLD, was on the market for $400,000, generating a weekly turnover of $38,000+. The business operates seven days a week, has a long-term lease, and includes a liquor license. Net profit details are available upon application.
• A restaurant in Perth, WA, was listed for $950,000, with a weekly turnover of $60,000+ and an annual net profit of $350,000+. The business operates under management, requiring minimal involvement from the owner, and comes with a secure lease. The sale price reflects a multiplier of 2.71.

The key takeaway? It’s all about assessing profitability and what you’re actually paying for. Some buyers want a thriving business they can walk into, while others prefer to buy a struggling restaurant and turn it around.
 

How Much Does It Cost to Buy a Restaurant?

The cost of buying a restaurant varies depending on location, size, and profitability. Here are some examples:

• Profitable Restaurant in Haymarket, NSW – $250,000
• Fully Under-Managed Restaurant in Everton Park, QLD – $600,000 + SAV
• Popular Restaurant in Coffs Harbour, NSW – $35,000 + SAV
• Profitable Italian Restaurant in VIC – $1,290,000 + SAV
• Portuguese Restaurant in Perth, WA – $600,000

The price of a restaurant depends on factors such as revenue, lease agreements, goodwill, and equipment included in the sale. The industry standard suggests restaurants typically sell for 1-3 times their annual earnings, so reviewing financials is crucial.

 

What is the Restaurant Scene Like in Australia?
 

Australians love their food. Whether it’s grabbing a quick bite on the go, brunching at a trendy cafe, or sitting down for a long dinner with mates, eating out is part of the culture. Around 54% of working Aussies eat out daily, meaning there’s always a strong demand for restaurants.

Back in 2022, the hospitality sector raked in over $58 billion in revenue. That’s a whole lot of smashed avo and flat whites.

One of the best things about the Aussie restaurant scene is the diversity. We’ve got everything from traditional Italian trattorias to buzzing Asian street food joints and homey outback steakhouses. If you’ve got a passion for food, this is the place to bring your ideas to life.

 

Here are the 7 Tips to Buying a Profitable Restaurant

 

1. Check the Location
 

If a restuarant is in a good location, it could be well worth the money!

Good locations can be hard to secure - think about Darling Harbour in Sydney - getting an available restaurant location there can be hard. 

So check the location of the restaurant - how many people are walking past?

Is it worth buying the restaurant just because of the location? You can always try to re-brand, change the menu, put your touch on the business, but it needs to be in the right location. 

So first tip, is it a good location? Would you pay extra to buy a restaurant just for its prime spot?

Also, make sure your aware of any upcoming changes. Check the council website for development applications. If you are in a major shopping centre such as a Westfeild - make sure you know the plans. 

TIP: Ensure location is matching the price you are paying. 

 

2. Understand the Financials

Before making a purchase, you must thoroughly examine the restaurant's financials.

Don't be fooled by smoke and mirrors. Just because a restaurant looks good, how healthy are its books?

Its so important to review BAS, PAYG, and superannuation when buying a restaurant. Restuarants rely heavily on staff and you want to make sure they have been paid correctly and that everything is accounted for. 

You want to know what % of the expenses are going to wages, rent and cost of goods. These three areas will be your major expenses and can make or break a restaurant.

In Australia, industry guidelines suggest that rent should account for approximately 10% to 15% of total sales. This range ensures that the business can maintain profitability while covering other essential costs.

Here's a typical breakdown of restaurant expenses:

• Food Costs: 28% – 35% of total sales
• Labour Costs: 25% – 35% of total sales
• Overhead Costs (including rent, utilities, equipment leases, and insurance): 10% – 15% of total sales

Maintaining rent within the 10% to 15% range is crucial for financial health. Exceeding this percentage can strain the budget and impact profitability. For instance, if a restaurant generates $800,000 in annual sales, aiming for rent expenses between $80,000 and $120,000 per year aligns with these guidelines.

TIP: Ensure the cashflow of the business makes sense, and the key expenses such as rent, labour and COGS are inline with industry standards. 

 

3. Evaluate the Lease Agreement

 

A restaurant’s lease should be at the top of your list. You need to understand it, and have a solicitor read it. 

Ensure the lease terms are reasonable, with renewal options and manageable rental costs. Long-term leases with fair conditions provide security and stability for your business.

Some landlords impose restrictions on renovations or menu offerings, so it's crucial to review these terms before committing to a purchase.

TIP: Read the lease carefully so you know what your committing to. 

 

4. Inspect Equipment and Fit-Out

 

Acquiring a fully equipped restaurant can save you significant setup costs and time. However, it's crucial to assess the condition and ownership status of all equipment and the overall fit-out to ensure you're paying the right price. 

The cost of fitting out a restaurant in Australia varies based on quality and location, it can range from $1,800 per sqm for a basic fit-out to over $3,400 for a high end fit-out with quality finishes. 

Given these figures, a 150-square-metre restaurant could incur fit-out costs ranging from $270,000 for a basic setup to over $500,000 for a premium design. 

When your buying a restaurant you can get companies such as Slatterys to perform an assesment on the fitout to provide you a value. 

Its important to evaluate the state of all kitchen appliances, seating, point-of-sale (POS) systems, and other essential equipment. Well-maintained equipment ensures smooth operations and reduces the need for immediate replacements or repairs. If major upgrades are necessary, factor these costs into your budget.

It's vital to verify whether the equipment is owned by the seller which will typically transfer to you upon purchase, or if it leased, financed or owned by the landlord. 

Understanding these details is crucial, as they impact how much you pay for the restauarant and ongoing expenses.

TIP: Know the value of the equipment and what your paying for. 
 

5. Assess Reputation and Customer Base

 

A restaurant with a loyal customer base has a competitive edge.

Research online reviews, social media presence, and word-of-mouth reputation. A restaurant with strong branding and community engagement is more likely to sustain consistent sales.

Consider how customer trends are shifting. Are people demanding healthier food options? Is there an increasing interest in plant-based dining? Understanding these trends can help you position your restaurant for long-term success.

TIP: Review how the restaurant is viewed online. 

 

6. Analyze Staffing and Operations

 

Managing a restaurant requires a reliable team of chefs, waitstaff, and kitchen hands.

Many regional restaurants are family-run because they reduce wage costs and ensure operational consistency. However, if you’re not planning to run the business yourself, you need a strategy for hiring and retaining staff. This will require skill as a business owner to manage the large amount of casual and part-time staff often required to run the restaurant. 

Look at existing employee contracts, wages, and training programs to ensure smooth operations post-purchase. In many cases, existing staff will stay on, and it is up to you as the new owner to ensure a smooth transition of management. 

TIP: Make sure the staff will transition with you or you have plans to hire more staff. 

 

7. Identify Growth Potential

 

Look for restaurants with untapped potential. Whether it’s expanding catering services, extending operating hours, or offering takeaway and delivery, there are many ways to grow revenue.

For example, introducing a loyalty program, improving online ordering, or leveraging social media marketing can significantly boost sales.

TIP: Identify the businesses potential going forward. 

 

 

So are you ready?

 

Firstly determine, why you want to buy a restaurant?

Do you want a restaurant that is highly profitable and you can walk into and continue to reap the rewards, or do you want a 'fixer upper' you can change and make your own?

Before making a purchase, consider location, lease agreements, operational costs, and growth potential. With the right approach, buying a restaurant can be a rewarding venture. 

Tags: listicle buying small business 2023

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