Taking over a restaurant can be a quick path to entrepreneurship, but without thorough due diligence you run major financial risks. Many acquisitions fail because buyers haven't properly investigated what they're actually buying. In this article you'll learn step-by-step how to examine a restaurant before you sign.
Why due diligence is crucial
When you take over a restaurant, you're not just buying tables and chairs. You're taking over an entire operation, including all the problems the previous owner may have left behind. Without thorough inspection, you can face surprises that cost you thousands of euros.
⚠️ Watch out:
Many sellers only present the good numbers. Always demand access to at least 3 years of complete administration, including VAT returns and annual accounts.
Financial due diligence
The numbers tell the real story. Check not just revenue, but also costs, margins and cashflow. Many restaurants generate turnover but don't make a profit.
💡 Example financial check:
Restaurant with €500,000 annual revenue:
- Food cost: €175,000 (35% - on the high side)
- Personnel costs: €200,000 (40% - normal)
- Rent + other costs: €100,000 (20%)
- Profit before tax: €25,000 (5%)
Conclusion: Little margin for errors or investments
Key financial checks:
- Revenue per month (watch for seasonal fluctuations)
- Food cost percentage (normal: 28-35%)
- Personnel costs percentage (normal: 30-40%)
- EBITDA (profit before interest, tax, depreciation)
- Cashflow: when income comes in vs. when expenses go out
Operational due diligence
Look beyond the numbers. How does the business really run? Are there systems and processes, or does everything depend on the current owner?
💡 Example operational risks:
Restaurant where everything goes through the owner:
- No written recipes (chef works from memory)
- Supplier information only known to owner
- No HACCP records
- Staff only knows their own task
Risk: After takeover, everything falls apart
Operational checkpoints:
- Are recipes and cost prices documented?
- What systems are used (POS, accounting)?
- How is HACCP administration organized?
- Are there fixed suppliers with contracts?
- How experienced is the staff?
Legal and compliance checks
A restaurant has many permits and must comply with many regulations. Check that everything is in order, because as the new owner you're responsible.
⚠️ Watch out:
A hospitality operating permit is tied to the person, not the property. You'll need to apply for a new one yourself, which can take weeks.
Legal documents to check:
- Lease agreement: term, notice period, rent increases
- Hospitality operating permit (APV)
- Alcohol and hospitality license
- Building permits (especially for renovations)
- NVWA reports (food safety)
- Employment contracts for staff
Market and location analysis
Even if the business is doing well now, what does the future look like? Is the neighborhood changing? Are competitors moving in?
💡 Example location analysis:
Restaurant in shopping street:
- 3 empty storefronts on the same street
- Municipality planning roadworks (6 months no parking)
- Major competitor opening 200m away
- Rent increasing 15% next year
Conclusion: Location becoming less attractive
Valuation and negotiation points
Use your findings to determine a realistic price. Many restaurants are offered too expensively because sellers base it on revenue instead of profit.
Valuation methods:
- Asset-based: Value of inventory + goodwill
- Cashflow-based: 2-4x annual profit
- Revenue-based: 0.3-0.8x annual revenue (depending on profit margin)
With low profit margins (<5%), the revenue method is often too optimistic. Focus instead on the actual cashflow the restaurant generates.
Due diligence action plan (8 weeks)
Week 1-2: Financial analysis
Request 3 years of complete administration: annual accounts, VAT returns, monthly revenue figures. Calculate average food cost, personnel costs and EBITDA. Check for seasonal patterns.
Week 3: Operational review
Visit the kitchen and check whether recipes, cost prices and procedures are documented. Test the systems (POS, accounting). Talk to staff about their experience and working methods.
Week 4: Legal checks
Verify all permits, the lease agreement and any legal disputes. Request NVWA reports from the last 2 years. Check for outstanding fines or claims.
Week 5-6: Market analysis
Research the location: foot traffic, parking options, competition. Check municipal plans for the area. Analyze online reviews and reputation.
Week 7: Valuation and business plan
Calculate a realistic value based on cashflow. Create a business plan for the first 2 years. Identify necessary investments and improvements.
Week 8: Negotiation and contracts
Negotiate based on your findings. Have legal documents reviewed by a lawyer. Arrange financing and insurance before you sign.
✨ Pro tip
Plan a 'mystery visit' during a busy evening to see how the restaurant really functions. Watch wait times, quality and how staff performs under pressure.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
How much does thorough due diligence cost?
Budget €3,000-€7,000 for accountant, lawyer and possibly a hospitality specialist. This seems like a lot, but often saves you tens of thousands of euros in surprises later.
Can I see the accounting before I make an offer?
Yes, this is normal for serious acquisitions. Request at least 3 years of figures and VAT returns. If the seller refuses, there's probably something to hide.
What if the restaurant doesn't make a profit but does generate revenue?
Then you're basically buying a job, not a profitable business. Check if you can make a profit with small adjustments, otherwise it's too risky.
How do I verify that the revenue figures are correct?
Compare receipt tapes with VAT returns and bank statements. Sit in during a busy service and count the covers - does this match the stated daily revenue?
What are red flags I should watch for?
No documented recipes, high staff turnover, overdue rent, poor online reviews, or a seller who's in a hurry or withholding information.
Should I hire a hospitality specialist?
For acquisitions over €100,000, it's recommended. They know typical pitfalls in hospitality and can better assess operational risks than a regular accountant.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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