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Articles from The Insider’s Report archives go back over several years. Some articles may include date-sensitive information or other information that has changed over time.
Please consult with your advisor or Kallas Company for updated information or if you have any questions.

Before committing to purchasing a restaurant or bar it is advisable to take the proper steps to avoid unpleasant surprises later.  A due diligence investigation should be performed which includes seeking professional advice on how to proceed.  Even if you are an experienced buyer, the laws change and if you don’t make the right moves, costly problems could emerge.

If you are interested in purchasing a restaurant or bar and you have your eye on a specific location, that is the time to start talking to your accountant and lawyer.

The attorney will draft a Preliminary Purchase Agreement with contingencies.  Contingencies will allow you to renegotiate or back out of the contract altogether if your due diligence turns up serious problems.

The attorney will also search for liens and security interests which will need to be resolved for you to obtain clear title.

Part of your due diligence should include obtaining the professional opinion of a building inspector and an equipment expert who will check the age and condition of the equipment you are purchasing.

The experienced accountants at Kallas Restaurant Accounting should also be consulted.  There are many tax considerations that have to be discussed and preliminary steps that should be taken prior to the final purchase.  Here is a checklist:

How the business is purchased.  Do you buy the stock of an existing company or create a new entity and buy certain assets?  Each option has different tax consequences which should be discussed with your tax advisor.  Buying the real estate also involves tax considerations.

What type of entity should be used and creating that entity.  Each situation is different.  Creating and deciding to operate as an LLC versus an S Corporation or a C Corporation involves many considerations with differing tax ramifications.

Allocation of the sale price.  The IRS requires you and the seller to come to an agreement about the value of the assets you are purchasing.  This is an important step with long-lasting tax consequences and should be made in consultation with your tax accountant.

Filing Registrations including federal ID #.  This should be done by your accountant in the proper sequence and is the next step in the process.  DO NOT ATTEMPT TO DO THIS YOURSELF.  Many costly mistakes are made by new owners who file their own registrations.

Opening bank accounts and pre-opening expenses. A bank account in the name of your new entity should be opened.  It is important to start documenting your expenses relating to the purchase in the proper way to pass IRS rules.

Unemployment considerations.  An increasingly important step in any purchase of a restaurant or bar is to obtain the unemployment history of the location.  In most cases, a purchaser inherits the rate of the seller.  Some steps can be taken to mitigate or reduce problems in this area but you must know if a problem exists and that takes research and knowledge.

External and in-house accounting procedures.  These procedures should be discussed in the context of the resources available and the results expected.

Management agreement in the case of liquor license transfers.  If a liquor license is involved in the purchase, you will have to begin the process of transferring the license.  For you to operate the business while the license is being transferred will require a management agreement.   Management agreements involve considerable risk to both the seller and the buyer.  Before entering into a management agreement these risks should be discussed.

Inventory all food, liquor , kitchen wares, furniture, fixtures and equipment.  A preliminary inventory should be done prior to closing.  Hardware, equipment and other items have a tendency to disappear between the Preliminary Purchase Agreement and the closing.

For referrals of experienced restaurant and bar attorneys go to, click the down arrow on Restaurant Pros and click on attorneys.


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