Starting an F&B in Singapore is definitely an exciting journey that comes with tons of responsibility and is no mean feat. Lots of thoughts and considerations goes into planning out many aspects of your F&B establishments, such as the concept, the interior, menu, equipment, licenses and suppliers. Some of us may prefer to take over an existing F&B business instead , wanting to avoid worrying about the difficulties of starting one from scratch. If you find yourself falling under this category, read on to find out the important things to consider when taking over an existing F&B business!
Taking over an F&B business
According to Commercial Guru, taking over an F&B business refers to buying over the entire business at an agreed rate with the previous tenant. It commonly includes the name, brand, logo, equipment, shop of the previous business. In simple terms, it means that the business is switching its owner. (E.g.,Mr. Daniel Tay, Bakerzin owner sold his store in 2007 and Boga group took over Bakerzin).
In addition, it does not mean that you own the premises. Rent is still applicable, and you would still have to pay the rent based on the agreement with the landlord.
2. Pros and Cons of taking over a business
Pros:
Taking over the business allows you to be able to:
Save lots of time - You do not have to spend time drafting out business plans, worrying about your target audience, doing up your menu, finding your employees, getting the licenses etc. needed to open your F&B business. Some licenses are tough to get and have to go through change of use. (E.g. Nightclub license are tough to get and they have to get the permission of use from URA)
Attain foreign worker quota - There is a foreign worker quota that all F&B businesses in Singapore have to abide by. New F&B businesses have to start from scratch to hire Singaporean employees before they can hire foreign employees so this is one of the reasons why taking over a business is great as you are able to get the help required for the business.
Save money on your starting cost - Things like equipment needed to cook the food, kitchen piping, aircon piping’s costing, fixtures such as tabletops, chairs, licenses, etc. can be saved as the business is already equipped with all of these.
Save on your marketing costs - If the previous tenant has built a name on their own, you will be able to gain from the fame as there is a solid customer base. You do not have to start your marketing from scratch and this can help you to save cost and also think of other ways the money can be used. E.g. You can spend money on building your customer loyalty, engagement, etc.
Cons:
Be careful of hidden costs!
Some hidden costs such as unpaid rental fees, supplier debts, bank loans that are tied to the business, etc. will be transferred to your name after you purchase the business and you will be liable for these costs. Sometimes, the previous tenant might not reveal the debts for fear that their business might not be sold so it is important for you to check before agreeing and signing the takeover document.
3. Checklist of what you need to do before taking over a business
Performing your research before speaking to the previous tenant is vital as you might be able to find out more about the shop's reputation and potential problems that you may encounter in the future. The gathered information will then assist you in either finalizing or reconfirming your decision.
Some methods include going down to the location and observing its surroundings, speaking to your potential neighbour, or using Google, Social Media to see if the shop has been reported in any media before.
In addition, speaking to the boss of the business directly should not be forgotten as it will help you to find out why he is selling the business. Besides that, you would be able to better understand the business direction, strategies on how the business has become successful in the past.
Takeover fees refer to the selling price of the shop that you and the tenant have agreed to. Takeover fees commonly include the name of the business, the fixtures (Fans, table counter, shelving), fittings (mirrors, tables, and chairs), current reservations, employees, etc. You have to check that the business includes the name of the business as without that, you are not allowed to use the same name, or it might be deemed as copyright infringement. Takeover fees vary and are commonly negotiable from owner to owner. It depends on how much the owner is willing to let his/her shop go.
In addition, equipment, furniture and fittings are tangible items and they depreciate over time. (E.g, A pasta machine is valued at $1000 on first hand. 5 years later, its depreciation per year is $160.) With that, you have to ensure the amount you are paying for the restaurant takeover is reasonable and not overpriced!
Bear in mind to look through the types of licenses that the tenant holds to be sure of what you are allowed to sell. E.g., if you are taking over a restaurant that sells food along with alcohol, the business would require a Foodshop (Restaurant) license and an Alcohol license issued by the Singapore Food Agency and The Singapore Police Force respectively.
To know which type of license the shop owns, you may refer to the picture below.
To find out the expiry date of the license, you may refer to the top of your license.
Upon expiry of the license, you will have to renew the license to continue the business. Renewal of the license will be viable 2 months before the expiry date. (E.g. If your license expiry date is on 20 August 2021, you can prepare to renew your license in June 2021.)
A fee is charged based on the license that your F&B business holds. Remember to take note that once the license has passed the expiry date, you will have to apply for a new license.
Operating a food establishment without a valid food license can amount to a fine up to S$10,000 so make sure that your license is still valid before taking over.
Look at the Tenancy Agreement before taking over the business! If the TA states that a 2 + 1 year rental tenancy, this means that there is 2 years of fixed rental and 1 year of option that you can choose to renew or decline if it is mutually agreed by both tenant and landlord.
If the existing lease is near the expiry date, you have to speak to the landlord to see if he is willing to extend the lease and check how much it would cost to extend it.
This is an important step as you have to ensure that the previous owner of the business does not leave their debts behind for you to clear. (Unpaid rental fees for previous months, unpaid supplier payment, unpaid employee salary, etc.). To do that, look through the business account books or hire an accountant to help you ensure that there are no outstanding debts over the time he/she is handling the business.
When looking at the accounts, you cannot assume that the business is making a profit just because you see an increase in the cash from month to month as the cash flow includes the business operations cost, purchasing inventories, paying employees salaries. Thus remember, the cash flow is not an exact representation on whether the F&B business is making a profit.
Speak to the employees to determine if they are willing to stay or if they want to work for someone else. Your goal is to retain the existing employees(local and foreign workers) as getting staff to work in the F&B industry is a tough process and there is a foreign quota that all F&B businesses have to abide by to hire foreign workers. By letting go of existing employees, it might be difficult to find workers to work and operate the business.
All in all, being inquisitive of the business processes and accounts are the most important aspects as they are crucial in providing you a full overview of how the business is performing. This also protects yourself from being answerable for the bad debts that previous owners have incurred.
Caroline Yap is the editor and intern at iCHEF Singapore. She manages iCHEF Club, a growing community of F&B owners in Singapore – organizing events, an online newsletter, and the F&B Entrepreneur Bootcamp, the only regular workshop on opening a new restaurant in the country. In her spare time, she loves drawing, painting, and creating new visuals. Her love for Korean food runs deep such that you can spot her at any famous Korean Restaurant in Singapore.
