What you are actually buying
Most restaurant sales are asset purchases: you buy the furniture, fixtures, and equipment (the “FF&E”), the leasehold improvements, the name and goodwill, the inventory (usually counted and paid separately at closing), and the right to step into the lease. You do not, in a typical asset deal, buy the seller's corporation or its old liabilities. Three things decide whether the deal is worth what the listing says:
- The lease. Remaining term plus options, the rent and any percentage-rent clause, who pays the common-area charges, and — above all — whether the landlord will consent to an assignment to you. Most California retail leases require that consent. A restaurant with two years left and no options is worth far less than the same restaurant with eight.
- The build-out. Hood and fire-suppression system, grease interceptor, walk-in, gas service, restrooms that meet current accessibility rules. A second-generation restaurant space with a working hood can save a new operator six figures versus building one; that is often what you are paying for, more than the recipes.
- The concept and the people. If the owner is the chef and the regulars come for them, the earnings walk out with them. Negotiate a real transition period and ask which staff are staying.
The numbers that matter for a restaurant
Restaurants are cash-heavy, margin-thin businesses, so verification matters more than in almost any other purchase. Ask for, and reconcile against each other:
- POS system reports by month for at least two years — daily sales, ticket counts, average check. These are harder to fake than a spreadsheet.
- Sales-tax returns filed with the CDTFA — taxable sales reported to the state should track POS sales closely. A wide gap is a problem you are buying.
- Three years of income tax returns and the bank and merchant-processor statements behind them.
- Food and labor cost. Together these “prime costs” commonly run 55–70% of sales; a seller claiming 45% is either exceptional or mistaken. Ask for supplier invoices and payroll reports rather than the summary line.
- Third-party delivery share. Sales that arrive through delivery apps carry commissions of roughly 15–30%; a restaurant whose growth is all delivery is a lower-margin business than the top line suggests.
Then rebuild seller's discretionary earnings yourself (net profit plus the owner's pay, perks, and legitimate one-time costs — see how small businesses are priced). Owner-operated restaurants commonly change hands at the lower end of main-street multiples, roughly 1.5×–3× SDE, because the earnings depend so heavily on whoever is running the line. A listing priced well above that range is asking you to pay for the build-out or the location; decide whether that is what you want.
California licenses and permits: what transfers, what doesn't
| Item | Transfers? | What to do |
|---|---|---|
| County health permit (public health / environmental health) | No | You apply for a new permit in your name; the county usually inspects before or at change of ownership. Budget the fee and the timing into closing. |
| ABC liquor license (Type 41 beer & wine, Type 47 general — both “bona fide eating place” licenses) | Yes, person-to-person | Application, background and financial review, a 30-day public posting at the premises, and the purchase consideration held in an escrow. Plan for 60–90 days. |
| Seller's permit (sales tax) | No | Register your own with the CDTFA and request a tax clearance certificate so the seller's unpaid sales tax cannot follow you (successor liability is capped at the purchase price once you have it). |
| Business license, sign permit, sidewalk-dining permit | Usually no | City-level; apply in your name. Sidewalk and parklet permits are often the ones that lapse. |
| Food handler cards / certified food protection manager | Personal | California requires a food handler card for food employees and at least one certified food protection manager per facility; existing staff cards stay with the staff. |
| Grease interceptor / FOG compliance, fire-suppression service | Follows the premises | Ask for the last inspection reports; a failed hood inspection is a closing-day surprise you can avoid. |
Two documents go with every California business sale regardless of type: a bulk-sale notice (recorded and published before closing so the seller's creditors are notified) and the tax clearances from the CDTFA and, if there are employees, the EDD. Your escrow company handles both; make sure they are on the checklist.
Due diligence, restaurant edition
- Sit in the restaurant for several full shifts across a week, including the slow ones. Count covers. Compare against the POS reports for the same days.
- Read the lease with an attorney before you go hard on the deal. Confirm assignment rights, remaining term, options, rent escalations, and any “relocation” or demolition clause.
- Get the equipment list in writing, walk it, and check what is leased (ice machines, dishwashers, and POS systems often are) versus owned.
- Pull the health inspection history — most counties publish it. A pattern of repeat violations is a management problem you will inherit.
- Check for liens: a UCC search shows equipment loans and any secured creditors that must be paid at closing.
- Ask why the owner is selling, then ask the staff and the neighbors the same question.
How buyers pay for a restaurant
SBA 7(a) loans finance many restaurant purchases, typically with about 10% down from the buyer and a personal guarantee; lenders will want the same tax returns you asked for and often a cushion of working capital. Seller financing for part of the price is common and worth asking for — a seller who carries a note believes the numbers survive the handover. Smaller cafe and fast-casual deals frequently close for cash.
Red flags
- Sales that exist only in the seller's spreadsheet, not in the POS or the sales-tax returns.
- A lease the landlord has not yet been asked to assign.
- A liquor license with conditions you have not read, or one that is not actually held by the seller's entity.
- Equipment that is leased, financed, or failing — especially the hood, the walk-in, and the grease trap.
- An owner-chef with no transition plan and no interest in staying through training.
Where to look
Nalren lists restaurants for sale across California with asking prices, details, and direct contact with the seller or listing agent. Start with the cities that carry the most restaurant inventory — Los Angeles, San Bernardino, North Hollywood, Long Beach, Santa Ana, and Fountain Valley — or browse the statewide map and filter by Restaurant & Food Service.