Buying a café or restaurant: 10 things you need to know

So you’re buying a café or restaurant! 

Congratulations! Many dream of buying a café or restaurant*.

Few do.

This article is for that lucky few…

Let’s begin. 

1. Business sale agreement

Your transaction hinges on 1 important document: the “business sale agreement”.

Here’s an super detailed legal business sale agreement from the NSW Law Society.

So if I can buy a standard business sale agreement template, then why hire a lawyer?

As a business lawyer, our job is delivering financial value. Business people hire lawyers for the same reason they’re in business… so they make money.

So, we save or make you money through:

  1. reducing your transaction costs;
  2. reducing your risk; and
  3. helping to achieve your goals.

2. What am I buying?

The restaurant or café buying is not just a restaurant and a café. It’s a bundle of different contracts, made up of rights and obligations.

The big one is the lease.

It’s so big that, that the price of your café or restaurant, isn’t really the price… If you’re buying a café or restaurant, then need your lease locked down.

You need to know:

  1. Weekly, monthly, annual, including CPI increases costs of your lease.
  2. That all the previous lease payments are paid; and
  3. The date your lease is due for renewal.

3. Transferring or signing a new lease

  • You need to have a lease transfer agreement (called an assignment); or
  • Have a “clean” lease with the property’s owner, as distinct from the vendor of the Café or Restaurant. 

Picture for a second, how bad your situation will get if in six (6) months your landlord outlines that:

  1. his property’s plans don’t include you; or
  2. the lease payments will increase 30%.

4. DA’s are important, ok!

This gets people every year

If your business premises used to be retail and now is a café, then Council must have approved of this change. 

If the previous Café or Restaurant owner didn’t have Development Application approval (DA)… then that will be YOUR problem.

Council don’t care who was responsible for getting that DA. Cafe’s can and do get shut down for not having them. Some never  trade again. 

Our example here is a DA, but it’s only an example. All necessary permits need to be in place.  Not having a liquor license is also common, and leads to big fines.

5. Leased goods

When you buy a café or restaurant, normally you’ll also lease goods. Important goods. Critical even. 

A lot of machines are too expensive to buy outright. 

Examples include

  • coffee machines
  • large fridges; and
  • cool rooms.

So when you buy a café or restaurant, you need to get clear about the terms of all these contracts.

Consider if there’s any “bullet” repayment related to any of these big ticket items. Paying $50,000 for a café may be a great price. Owing another $12,000 in three (3) months’ time isn’t as attractive.

6. Assign all relevant agreement

When you buy a café or restaurant make sure all agreements get assigned or transferred to you.

The value of your café or restaurant includes these overheads.

7. Stock – furnishings

When buying a café or restaurant, then it’s good if your place includes the tables & chairs!

Obvious, right? 

Well, the same goes for lights, fittings & wall hangings.

These all need to be described in your sale agreement. The consequence for not having them aren’t difficult to imagine.

People get blind, about what they assume is not being sold with the business. The cooler the items are, the more often a

As a rule, disputes correspond with how covetable or unique the particular piece in question is…

Seller: “Of course, that table wasn’t included in the sale of my café.”

Buyer: “Of course, I never would have bought the cafe, if I’d known it didn’t come with those amazing lights… (or wall hangings).” 

Buy what you think you’re buying.

8. Stock – perishables

Again, another item that adds up. Any reasonable sized restaurant will often carry $20,000 worth of food in it’s cool room.

The business seller can on-sell perishables easier than you might think.

Get the stock in the agreement.

9. What if I’m opening a different café or restaurant?

If you’re changing the menu, then why pay for the stock purchased for the old menu?

To pay for perishables that will literally perish, isn’t a great star. So here it makes sense to exclude stock from the sale agreement.

The same goes for everything said about furnishing, fittings etc.

Don’t buy materials, that you won’t use.

10. Supply relationships

Buying a café or restaurant always comes with regular suppliers. It’s an important ‘asset’. If the café you’re buying, uses particular beans. For a café, the strategic value of your barista and suppliers are hard to overstate. 

In closing

Many things need to considered, when buying a café or restaurant. Running your own café or restaurant can be incredibly rewarding. And not longer “working for the man” is more than hipster cool…

So, hire Karma Lawyers to help you buy your dream safely. Focus on what you’re bringing to your new business and leave the legal headache to us.

Hiring a good business lawyer should be like getting insurance for your biggest transaction. We’re in Sydney, but our clients right around Australia.

Contact us for a free phone consult! 

02 9188 7833

enquiries@karmalawyers.com

 *In this article we assumed you aren’t buying a franchise. Franchises are bought, sold or leased, using agreements tailored for the particular franchise. Think McDonalds, Dodo, Etc.