Pop quiz: What’s the first step to opening a new store?
If you read Volume 1 in this series, you know it’s all about securing the right deal for the new location. You’ll also know the first two components to this are finding a restaurant owner who has a pain point (therefore, looking to sell quickly) and a location that was once popular with the community (but not now). And if you’re going for extra credit, you know there’s one more piece to getting the right deal: owner financing.
When it comes to the financial side of the deal, I’m not traditional — or maybe I’m too traditional. I don’t believe in using banks unless you have to, nor do I believe in a business plan because too many obstacles get in the way. I believe in a good old-fashioned handshake between the buyer and seller.
Owner financing, or when the property’s seller finances the purchase directly with the buyer, is how I paid for five of my six restaurants. Remember, when buying the property, as excited as you are, the seller should want to sell even worse than you want to buy. That makes owner financing a more viable option.
Now, negotiations start. I buy all the equipment in the building, full liquor licenses (which can have staggering values) and any goodwill the former company may have. I also prefer to buy a place that is still open, because it makes obtaining permits easier and customers are used to visiting the location. However, while these pieces are significant, the actual financing terms are most important — even more than the price. The price matters, of course, but even if it’s a little high, you can consider it a premium for the seller holding the note.
My first restaurant is a great example.
The owner wanted $180,000 for all the items described above. It was a fair price, so I told the seller I would be happy to pay full price and take over right away. He was ecstatic, but there was a catch — I had no money. I mean, zip, zilch, zero.
As he got past his shock, it was time to deal. We settled on this: For nine months, I would run the restaurant, giving him all the money I was able to save as the down payment. He would finance the rest over five years at an interest rate I negotiated (six percent). So, by bootstrapping and watching every penny, I was able to save $80,000 over those nine months. We then drew up paperwork, and I paid the remaining balance over the next 60 months.
With minor adjustments, I’ve used that formula for nearly all my restaurants. Few consider the idea to buy a restaurant with little or no money down, but I’ve tried it and perfected it. You can, too.
And once the deal’s in place, we move on to the next big question: “Now what?”
Here’s a hint: “Eat the elephant one bite at a time.”
NICK BOGACZ is the founder and president of Caliente Pizza & Draft House in Pittsburgh. Instagram: @caliente_pizza