Buying a café or restaurant: how to fund it and what to check first

Plenty of chefs and front-of-house managers reach a point where they’d rather own the venue than run it for someone else. Buying an existing café or restaurant can be quicker than building from scratch: the kitchen is there, the customers know the address and the till is already ringing. But a hospitality purchase has its own traps, and the way it’s funded depends heavily on what you find when you look under the bonnet.

How are café and restaurant purchases usually funded?

Most buyers combine their own cash with a business loan. The structure depends on what security is available.

Situation	Typical funding path
First-time buyer with home equity	Property-secured loan ($20,000 to $5,000,000) via first or second mortgage, or a caveat for short-term needs
Existing operator buying a second venue	Unsecured or cash-flow options (typically $5,000 to $500,000) sized on current turnover, or property-secured for larger deals
Buyer with no property and no trading history	Harder; a larger cash contribution, vendor terms or a guarantor’s property usually needed

A lender can’t size an unsecured loan on a business you don’t own yet, which is why property security plays such a large role in hospitality purchases. If you’re not sure which path applies, start with a quick enquiry and a real person will tell you what’s realistic.

What due diligence should you do?

Business.gov.au recommends reviewing financial records, business operations and legal documents before buying. For a café or restaurant, that means:

• Financials: three to five years of tax returns, BAS, profit and loss statements and sales records, cross-checked against the business bank statements. A seller’s summary is a starting point, not evidence.
• Trading pattern: month-by-month takings, so you know when the quiet months fall. Plug them into our seasonal trade planner.
• Costs: food cost, wage cost (and whether the seller works unpaid hours you’d need to replace), rent and outgoings.
• Lease: term remaining, options, rent reviews, outgoings, assignment and make-good. Our retail lease checklist walks through each.
• Equipment: condition, age, service records and whether anything is leased rather than owned.
• Licences and registrations: food business registration, any liquor licence, outdoor dining permits, and whether they transfer.
• Liabilities: search the Personal Property Securities Register for security interests over equipment, and confirm what debts stay with the seller.

The seller works seventy hours a week: does it matter?

It matters a lot. Many small cafés are profitable partly because the owner works the machine six days a week without drawing a wage. If you plan to employ a manager or barista in that role, the profit shrinks. Recalculate the numbers as if every hour worked is paid at award rates. Most standalone cafés and restaurants are covered by the Restaurant Industry Award, according to the Fair Work Ombudsman.

What does it cost beyond the sale price?

• Stock at settlement, often valued separately.
• Legal and accounting fees for the contract, lease assignment and due diligence.
• Lease costs: a new bond or bank guarantee, and possibly the landlord’s costs for the assignment.
• Licence transfers and any registrations in your name.
• Immediate changes: new branding, a menu refresh, repairs you found in due diligence. See venue refurbishment loans.
• Working capital: wages and suppliers for the first weeks, before your takings settle into a pattern.

An illustrative example

Illustrative only. An experienced head chef agrees to buy the neighbourhood restaurant where she has worked for several years. Due diligence shows steady takings, a lease with a long option remaining and a kitchen that needs a new dishwasher and some cool room repairs. She owns a home with reasonable equity. A second mortgage covers the purchase balance, stock at settlement, the repairs and a working capital buffer, with her own savings contributing the deposit.

Red flags when buying a hospitality business

• Takings in the sales records that don’t show up in the bank statements.
• A lease with little time left and no option, or a landlord reluctant to assign.
• Equipment under finance or lease that the seller hasn’t disclosed.
• Staff entitlements, such as accrued leave, that you’d be taking on without a price adjustment.
• A trading pattern built around the current owner’s personal following.

Timing the purchase around the seasons

When you settle can matter almost as much as what you pay. Taking over a beachside café at the start of winter means your first months of ownership are the leanest of the year, and your working capital has to carry you until summer. Settling just before a peak gives you a stronger start but less time to learn the business before the rush.

Ask the seller for monthly takings, not just annual totals, and map them onto your settlement date. If your first three months are quiet ones, borrow a larger buffer or negotiate a settlement date that suits you better. Either way, go in knowing what the first quarter will look like.

Buying a venue? Let’s talk it through

Buying a café or restaurant is a big step, and the funding should be settled before you’re emotionally attached to the deal. A short enquiry takes about 60 seconds and involves no credit check when you first enquire. We won’t hand your details out to a list of lenders. A real person reviews your situation, talks through the purchase, security and working capital, and tells you what’s realistic. Please be accurate about the purchase price, your contribution and any property you own so we can match you properly from the first call.

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