Anyone here who's ever owned a restaurant in a small town? If so, I could use

[Redstone]

whatever wisdom you have to impart.

We have a chance to buy the building, business, fixtures & furniture (including the bar on the second floor) for significantly less than $200k, in partnership with a couple we know BOTH have lots of restaurant-running experience.

It's a diner-type (as far as menu goes) place in a small town that used to have a diner (which burned down some time ago). There's a bar upstairs, which I think doesn't make much money, though I believe the restaurant does.

It's in a HEAVY tourist area. I'm familiar with the town, and would estimate 2,000-plus tourist cars and motorcycles go right by it every day during the summer (and at 20 miles per hour; it's not anywhere near an interstate highway). Autumn has even more tourists, because of the leaf-peepers. Winter business depends on the locals and snowmobilers.

I should mention that it's the ONLY place (except for Dunkin Doughnuts and MacDonalds) within a ten mile radius that serves breakfast.

The current owner does NOTHING in the way of advertising or promotion, even though there are hundreds of medial outlets (tourist guides & websites), etc that can be used, and that don't cost a lot to participate in.

And the food is damn good. It really does seem to be the kind of place that makes OK money, though not a lot, just by being there. Seems that with a bit of savvy ownership, it could do MUCH better.

Thoughts? Advice? Warnings?

I'd be happy to hear any of them. And I thank you in advance.

Redstone

[pitohui]

1. my friend's investment advice

when somebody who has a lot of experience in a particular business wants YOU to put up money instead of putting up their own money, then you need to find out why because there's a problem somewhere -- if they are bringing all the experience and yet don't have the money or ability to get their own loan and instead want to bring in someone who doesn't know the business just to get at your money or ability to get a loan -- well, it's a flag -- maybe not a deal killer -- but it's a flag that there's a problem you'll need to ferret out

probably in this case simply that the business doesn't have the potential to produce enough profit to support this couple, but they could live off the cash flow if they bring in somebody else

having worked as an employee in some diners i would never ever ever advise anyone to start a restaurant who has never worked as an employee in that industry and seen it from the inside out

honestly i couldn't figure out how the diners i worked in ever made a dime, and i guess they didn't, as they're all out of business now except one that's part of a national chain


so that's my two cents for what it is worth

restaurants have some of the highest failure rates of any new businesses

also if the old diner burned down, find out if it was arson, another clue that it might not be a profitable location

i realize that someone has to open and manage restaurants, but it is not a choice i would make for myself, unlimited risk, because you can lose everything you invest, and very limited gain in a lot of circumstances

how many small town diners support four people, honestly? many struggle to support one couple or one extended family

that is the problem i see here but obviously i know nothing about the financials

my first instinct is that this might just be a welfare program for the other couple, but no doubt i'm too suspicious

[Redstone]

3. Thanks very much for the advice. However I should add, and anticipate your

further reply, because you do seem to know what you're talking about:

1) Startup costs would be shared by the two couples, NOT just US bankrolling it. I should have made that more clear.

2) I do indeed suspect that the old diner was torched for arson / insurance; the town is too small to support both a diner and this restaurant. The (selling) owner owned both when the diner burned.

3) Diners do NOT make money off breakfast; that I know. But there are many, MANY ways in which the current owner is not maximizing his profits...NO advertising, NO tie-ins (like serving a hotdog with a local relish, and selling that relish in pint jars next to the cash register...and so many more).

I do very much appreciate your reply, and would further appreciate any comments you might have about my reply here.

Redstone

[CaliforniaPeggy]

2. My dear Redstone!

No advice, or warnings....

You're a very smart guy....

Just wanted to stick my head in here, and say hi! :pals:

Really nice to see you tonight...

I hope your trip was good...

[Redstone]

4. Good trip, with the usual mind-bending conversations about business opportunities

(not including the restaurant).

But five days away anyway, and that's something.

Redstone

[Lethe]

5. $200k is a lot of cash

I wouldnt do it unless you have the capital to spend and not be hurt by losing some significant cash

edit: the thing that scares me is the "diner" type of restaurant, which cannot charge much for food. People who go to a diner are expecting the food to be relatively cheap.

[Redstone]

6. Thanks for your input. Actually (according to what I've seen) "Diner" type places tend

to lose money on the breakfast trade, then make it back later in the day.

The difference here is that the price includes the property, the liquor licence, and the bar upstairs. I have my doubts about the ability of the bar to contribute to the cash flow; I'd have to study the books really closely on that aspect.

Again, thanks for replying. I'm REALLY looking for opinions/experiences here, and your reply has been valuable.

Redstoen

[Lethe]

7. I would definitely seek out a bar manager in you area

and have a frank conversation with him/her.

They will be able to tell you about what they spend vs. what they make, etc.

Good luck man

edit: i guess where i'm coming from is that my parents owned 2 restaurants in a small town and they worked their ass off to maintain the books. They virtually made no profit but (broke even) and spent all their time managing the restaurants

[Redstone]

8. Well, all of the current (but soon to be ex) employees / managers are still around;

it's a small town after all, and we'd plan to meet with every one of them before making a decision.

You make good points. Anything that comes to mind, I'd be happy to hear from you.

Redstone