Personally, I would be suspicious of the numbers. Has your friend gone through with the deal?
Financial records can be misleading and personal estimates can be outright wrong. Someone else already questioned if the numbers were being audited? One of the most important metrics of a restaurant’s profitability is real cash flow.
Real cash flow is a figure adjusted for inflation and it better reflects the change in money value.
Did he also analyze
labor costs? Are the same employees sticking around? Are the other restaurants they own further out?
How about the lease? Each lease is different, so there are no hard-and-fast red flags to be aware of, but sometimes there may be provisions that could damper the deal.
Any
potential liabilities he is unaware of? When you close on a business deal you will inherit everything — including its liabilities. These might include financial burdens such as debts and recurring fees. Also be aware that liabilities extend beyond mere financial obligations. Legal liabilities such as health code violations or labor code violations will also come along with the business.
There are countless factors that play into buying a restaurant. Even the most keen business people can encounter a lemon if the process is rushed. To me it sounds like your friend needs to do more homework, stay persistent, and ask the right questions during the process before signing anything. Wish him much success!