Restaurant for Sale in the USA: A Due Diligence Checklist

If you're looking at a restaurant for sale, due diligence comes down to four things: prove the sales are real, understand which staff will stay, confirm you can legally keep serving alcohol, and make sure the kitchen will pass its next inspection. Do all four before your earnest money becomes non-refundable, and write each one into your purchase agreement as a contingency. Your attorney and CPA should review the details, but the checklist below shows you what to ask for.

How to verify a restaurant's sales and food cost

Start with 12 to 36 months of point-of-sale (POS) reports showing covers, average check and sales by day and daypart. Then check whether the numbers agree with each other. Weekly covers multiplied by the average check, multiplied by 52, should land close to the annual sales on the P&L.

Next, compare the P&L against documents that are harder to adjust: federal tax returns, state sales tax filings and bank deposits. If a seller says there is extra cash that never made it onto the returns, you can't verify it, and lenders, including SBA lenders, generally work from tax returns.

Number	Where to get it	Check it against
Covers per week	POS reports	Seats, opening hours, your own counts on site
Average check	POS reports	Current menu prices
Food cost %	Supplier invoices and P&L	Food sales on the POS and sales tax filings
Annual sales	P&L	Tax returns, sales tax filings, bank deposits

For food cost, add up supplier invoices for a few sample months and divide by food sales for the same months. Many operators aim for roughly a quarter to a third of food sales, but it varies by concept. A figure far below normal can mean purchases are missing from the books. Finally, eat there on a busy night and a slow one, and count the tables yourself.

What happens to the staff when you buy a restaurant?

In most US restaurant sales, employees don't transfer automatically. In a typical asset purchase, the seller ends their employment and you decide whom to rehire. That gives you flexibility, but it also means your best people can walk.

Ask the seller for a staff roster that shows:

• Role, pay rate and whether the person is paid as a tipped employee
• Average weekly hours and start date
• Accrued vacation or PTO, and who pays it out at closing
• Any written agreements, such as a chef or general manager contract
• Whether any staff are covered by a union agreement

With the seller's permission, meet the chef and manager before closing. If the menu depends on one cook, find out whether they'll stay. Also ask your attorney about tip pooling, overtime and tip credit practices, because state rules differ and past wage problems can become your problem after you take over.

Will the liquor license transfer to me?

Alcohol is licensed at the state level, and often locally too, so the rules vary widely. In some states the number of licenses is limited, which can make an existing license valuable and sometimes priced separately. In others, getting a new license is more routine.

Either way, a transfer usually means an application, a background check on you and any partners, and sometimes a public notice period. It can take weeks or months. Ask the seller and your attorney:

• Can the license be transferred to a new owner, or must you apply for a new one?
• Are temporary or interim permits available while approval is pending?
• What conditions apply, such as service hours, food-to-alcohol sales ratios, outdoor seating or live music limits?
• Has the license had violations, suspensions or complaints?

Make closing conditional on approval. A restaurant that relies on bar sales is a very different business without them.

How to inspect the kitchen, hood and fire systems

Get an equipment list with make, age and condition, and note what's owned versus leased. Dish machines, ice machines and POS systems are often leased, and leased equipment isn't the seller's to sell.

Then request the paperwork:

• Fire suppression system service tags showing recent inspection
• Hood and duct cleaning records
• Grease trap pump-out records
• Recent health department inspection reports, which are often public
• Certificate of occupancy and any fire marshal reports

Pay a commercial kitchen or refrigeration technician to check the walk-in, compressors, cooking line and ventilation. A change of ownership can trigger a new health permit and inspection, and the inspector may require upgrades the previous owner was never asked to make.

Red flags when looking at a restaurant for sale

Walk away, or renegotiate, if you see any of these:

• The seller won't share tax returns or sales tax filings
• Few years left on the lease, or a landlord unwilling to approve an assignment
• Food cost that looks unusually low for the menu
• Repeated health violations or expired fire system tags
• The owner is also the chef, with no plan to hand over recipes or train you
• Pressure to skip conversations with staff or the landlord

To compare deals, browse restaurants for sale on BizMarketplace, or narrow it down by city, such as restaurants for sale in Chicago. Run every serious option through this checklist before you sign a letter of intent, and you'll know which questions to put to your attorney and CPA.