Inspecting Your New Restaurant's Equipment

Maybe you already know the ins and outs of the business world; maybe you're finally ready to take your back-of-house career to the bank to pursue your dreams of owning an independent operation. Either way, you've decided to buy a restaurant, and as you lean into the brief due diligence phase of your acquisition, the state of the equipment that's part of the deal might seem like the least of your worries. With the closing of your deal contingent on the equipment and facilities being up to par and conveyable to you at the beginning of your term as tenant, if something's broken, it will get fixed – right? Maybe.

The lifespan of most restaurant equipment is longer than that of the average restaurant, but your new commercial kitchen is loaded with tons of gas-fueled and high-voltage machinery, most likely pushed to capacity seven days a week by an ever-changing string of busy employees. Restaurant equipment can depreciate faster than a car pulling out of the lot, yet many sellers of failing businesses may see it as a last chance to get back what they've lost over the years. So, how much risk are you prepared to manage?

Equipment Matters

The specs and condition of the physical restaurant are significant factors not only in determining the price you've agreed on for the business but in its success once you assume control. Your business's revenue stream, its reliability, the strength of its earnings, its lease and location, and details regarding equipment, furniture, and facilities you buy determine the valuation multiplier applied to the asking price.

But think beyond closing for a moment. Whether your intent is to clear the space and outfit it your way or to operate within the existing layout, there are many details specific to your restaurant's physical setup to understand. The due diligence period is your opportunity to make sure that what you've agreed to buy matches reality – down to the wire.

Who to Trust with Your Equipment Inspection

For a first pass, you'll want to secure the services of a general contractor or building inspector to assess the functionality and longevity of the facility's main systems: HVAC, electrical, refrigeration, and plumbing. In many jurisdictions, it's a legal requirement for obtaining a business license; the downside of skipping this step is obvious to most.

Though equally important, equipment inspection is not always seen that way. Maybe it's the sheer profusion of stuff. Besides prep and cooking equipment, there's everything used for storage, service, cleaning… Are you the right person to verify all the detail that represents? Probably not. Once the deal is done, will you pick up the tab for broken parts, employee injuries, and lost business? Absolutely.

Stick With the Pros

A small cloud of appraisers, consultants, and advisors – licensed or otherwise – has probably already formed around your business deal, each person offering their considered opinion based on considerable experience in real estate, construction, finance, and – hopefully – restaurants. Since you're on the hook for this, ensure the professional you hire is the right kind.

Home inspectors charge roughly what equipment inspectors do and can give you certain information about some of your hardware and infrastructure. But can they estimate fire-control system repairs, source replacement controls for discontinued ice makers, or spot a weak gasket behind a rangetop? If they can, will they, like a building inspector, issue you a report to that effect, including a cost analysis of repairs? The bottom line is that your inspector should be qualified to inspect the equipment you're purchasing.

If you're using a certified restaurant broker, ask them for at least two referrals. Otherwise, a good place to start is the Commercial Food Equipment Service Association (CFESA). Their technicians¹ are trained to diagnose and repair according to manufacturers' specs and communicate with factory engineers to resolve problems. They're familiar with food equipment systems, equipment repair procedures and precautions, national codes that cover gas, electricity, refrigeration, and steam power, and the regulations of the National Sanitation Foundation and the American Gas Association.

You might also use an inspector to verify the status of service agreements for the mechanical systems and water lines, sewage lines, and grease traps.

In situations where you use a restaurant broker for your purchase of an operating business, note that you may be bound by a confidentiality agreement to make sure an inspection doesn't tip off staff to an impending sale. It would be your responsibility to schedule the inspection to take place during off hours by a discreet technician prepared to cover for you, the buyer, with a tactful word if necessary.

An Equipment To-do List for New Restaurant Owners

Meanwhile, you can undertake some of the detective work yourself. Back up the paid inspection with your own investigation.

• Record of Repair. Find out who the owner uses for repairs. Contact them and ask how many times they've serviced the account over the past year. Have they recommended fixes that haven't been completed?
• Leased Equipment. Verify with your state that the equipment is owned by the business. If not, is some or all of it leased through a creditor? Month-to-month or longer term? Is there a lien on it? You will have to secure assignment of all equipment leases – and if that happens, it's your responsibility to transfer those accounts into your name at close of escrow. Make sure you understand who gets the gear when the lease expires.
• Final Fire-up. Right before the close of escrow, fire up all the equipment to ensure it runs correctly. The seller should undertake repairs or issue an appropriate credit in escrow.
• Setting Up Service. To avoid having your emergency call shuffled to the back of the queue when you desperately need your kitchen up and running, consider nailing down maintenance contracts in the first hundred days of operation with companies that service sprinklers and fire extinguishers, HVAC, fryers and coolers, pest control systems, grease traps and plumbing, electrical, point-of-sale systems, and anything else that could malfunction.

Resources

1. CFESA Technician Certifications. CFESA. Accessed January 2022.