How to buy a restaurant (and check the numbers before you do)
Short answer
To buy a restaurant, verify sales from the POS system and card processor statements (not just the P&L), reconcile them to bank deposits and sales tax returns, and check food purchases against sales. Look hard at prime cost (food plus labor), rent as a share of sales, cash handling, and third-party delivery fees. Then the deal-breakers: the lease (term, rent, assignment), the liquor licence (transfer rules are state-specific), health inspection history, equipment condition, and whether the restaurant depends on the owner or chef.
Restaurants are one of the most common businesses for sale and one of the hardest to buy well. Thin margins mean small errors in the numbers matter a lot, and cash means the numbers may not be complete.
Cross-check sales five ways
Worked example: test sales against food purchases
Food purchases are the most useful independent check on restaurant sales, because suppliers' records are outside the seller's control and food cost moves with volume. Ask for twelve months of supplier statements (not just invoices the seller picks) and compare them with reported sales.
Illustrative example, not a real restaurant or industry benchmark
The P&L shows $1,100,000 in sales. Supplier statements show $330,000 of food and beverage purchases, so food cost is 30% ($330,000 ÷ $1,100,000). The seller says sales are really $1,300,000 because "a lot of cash doesn't go through the books". If that were true, food cost would be $330,000 ÷ $1,300,000 = 25.4%, which would mean the kitchen is suddenly much more efficient than the menu prices suggest. Or the extra sales don't exist. Either way, you pay for the $1,100,000 the tax return supports, and a lender will too.
Costs that make or break it
| Cost | What to look at |
|---|---|
| Food and beverage | Supplier invoices; trend as % of sales; menu price changes |
| Labor | Payroll by role; owner and family hours; tip handling |
| Rent and occupancy | Base rent, CAM, escalations, percentage rent |
| Delivery platforms | Commissions netted from payouts; share of sales |
| Repairs and equipment | Hood, walk-ins, fryers; three-year repair history |
Add-back traps
- Owner works the line or the floor for free. You'll pay a cook or manager.
- Family staff not on payroll, or paid in cash.
- Unreported cash sales. Don't pay for them. See buying a cash business.
- Meals and personal spending through the restaurant.
- Deferred maintenance on expensive kitchen equipment.
Lease, licences and inspections
- Lease: term including options (for an SBA loan, the term including options you control should be at least the loan term), rent, assignment, use clause, and who owns the hood, walk-ins and build-out at the end. See lease assignment.
- Liquor licence: transferability under your state's rules, timing, and what happens to sales while you wait. Some states allow interim permits; some don't. See transferring licenses.
- Health permit: usually issued to the operator, so you'll need your own. Health departments generally base their rules on the FDA Food Code. Read the last three years of inspection reports; many are public.
- Fire, hood suppression and grease trap compliance; service records for each.
- Tip reporting and payroll: how tips are handled and reported, and whether payroll taxes are current.
Restaurant valuation multiples: the factors that move them
Buyers often ask for "the multiple". The more useful question is which features of this restaurant put it at the top or bottom of whatever range applies. We don't publish ranges, because we couldn't verify reliable public figures that separate asking from sold prices and SDE from EBITDA; credentialed appraisers work from completed sales, and for an SBA loan the lender orders the valuation. The factors:
| Factor | Supports higher | Pulls lower |
|---|---|---|
| Lease | Long term, options, reasonable escalations, assignable | Short term, steep increases, landlord unwilling |
| Owner / chef dependence | Kitchen and floor run by managers | Owner-chef is the draw |
| Concept | Proven, consistent, not trend-dependent | Trendy, fading or unproven |
| Prime cost (food + labor) | Stable, controlled | Volatile or rising |
| Books | POS matches returns and deposits | Cash gaps, unreported sales claims |
| Liquor licence | Transferable, included | Not transferable or hard to obtain |
| Delivery mix | Healthy dine-in, delivery profitable | Heavy reliance on high-commission apps |
| Franchise | Strong brand, manageable remodel obligations | Required remodel soon after transfer |
What an SBA lender will check
Expect the lender to verify tax returns against IRS transcripts and to base the loan on reported earnings, not claimed cash. They'll test debt service coverage with a market wage for any work the owner does, look closely at the lease, and get an independent valuation. Equipment in a restaurant is rarely worth much as collateral, so the lender relies mainly on cash flow and your guarantee. See DSCR for buying a business.
Prime cost: a worked example
Illustrative example, not a real restaurant or industry benchmark
Sales are $1,100,000. Food and beverage cost $330,000. Payroll, including the kitchen, front of house, a manager and payroll taxes, is $350,000. Prime cost is $680,000, or 61.8% of sales. Rent and occupancy are $110,000 (10%), and everything else (utilities, card fees, repairs, insurance, marketing, delivery commissions) is $165,000 (15%). That leaves $1,100,000 − $680,000 − $110,000 − $165,000 = $145,000 before the owner. Now say the owner works 50 hours a week as kitchen manager without a salary. A kitchen manager at $60,000 plus 10% payroll costs takes $66,000 of that, leaving $79,000. A 2-point rise in food cost (to 32%) is another $22,000. That's how a busy restaurant ends up paying its owner less than the manager.
The first 90 days after you buy
Keep the menu, prices, hours and key staff the same at first. Regulars notice changes before they notice improvements. Make sure every permit, the liquor licence and the POS, payroll and supplier accounts are in your name on day one, and that you know who opens, who closes and who orders. Then learn the numbers week by week: food cost from invoices and inventory counts, labor from the schedule, and sales by daypart. Most early wins come from ordering and scheduling, not from new dishes.
Red flags specific to restaurants
- Food purchases that don't support the sales claimed.
- A chef or kitchen manager with no agreement who is the reason people come.
- Health inspection findings that recur, or a recent closure.
- A lease with little time left, steep escalations or a landlord who hasn't been asked.
- Delivery app sales counted at gross.
- Tips handled in cash outside payroll.
- Kitchen equipment near the end of its life: hood, walk-ins, fryers.
Questions to ask the seller
- Can I have POS reports by day for 24 months, and the processor and delivery platform statements to match?
- What are your food purchases by supplier each month?
- Which nights do you work, and in what role?
- Which staff are key (chef, kitchen manager, bar manager), and have they been told?
- When were the hood, walk-ins and major equipment last serviced or replaced?
- Has the landlord agreed to assign the lease, and on what terms?
For franchised restaurants, see buying a fast food restaurant.
Spend a shift before you sign
Ask to observe at least one busy service and one slow one before you close, with the seller's agreement on how you will be introduced to staff. Watch ticket times, how often the kitchen runs out of items, how comps and voids are handled, and who actually runs the floor. Compare the covers you count with the POS report for that shift. A gap between what you saw and what the system says is worth a direct question.
Frequently asked questions
How do I verify restaurant sales?
POS reports by day, card processor statements, third-party delivery platform payouts, sales tax returns and bank deposits should all agree. Food purchases from suppliers should scale with sales.
Does a liquor licence transfer with a restaurant?
It depends on the state. Some licences can be transferred with approval, some are tied to the location or owner, and some are limited in number. Start the process early with your state's alcohol beverage control agency.
What's prime cost?
Food and beverage cost plus total labor cost, usually viewed as a percentage of sales. It's the biggest controllable cost in a restaurant.
Should I buy a restaurant that depends on its chef?
Only if the chef is staying under a real agreement, or you can replace what customers come for. Chef-driven restaurants carry high owner-dependence risk.
What drives restaurant valuation multiples?
Mostly risk: the remaining lease and rent, dependence on the owner or chef, concept strength, prime cost stability, liquor licence transferability and how reliable the books are. We don't publish multiple ranges we can't verify; for an SBA deal the lender orders an independent valuation.
What should be in the purchase agreement for a restaurant?
The assets included (equipment list, recipes, name, phone number, website, social accounts), inventory at cost on closing day, the lease assignment and landlord consent, licence transfer conditions, a non-compete, gift card and deposit liabilities, and what happens if the liquor licence or health permit isn't approved in time. Have a restaurant-experienced attorney draft it.
Sources
- SBA SOP 50 10 8.1 (lease term vs loan term; transferable licences as collateral)
- TTB (federal alcohol regulation; state agencies handle retail licences)
- IRS: About Form 1099-K
- FDA Food Code 2022 (model code adopted by state and local health departments)
- IRS: Form 8300 and reporting cash payments over $10,000
- IRS: Employment taxes (tip reporting)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.