Restaurant Due Diligence Checklist

Why due diligence matters

A restaurant looks the same from the sidewalk whether it's clean or riddled with liabilities. Due diligence is the process of getting behind the sidewalk view — verifying the lease, the license, the permits, the numbers, and the equipment — before your deposit becomes non-refundable.

1. Lease review

• Full lease with every amendment and estoppel.
• Remaining term and every renewal option (in writing, not verbal).
• Base rent, CAM, insurance, taxes, and how they escalate.
• Assignment and change-of-control clauses — who has to approve, and what standards can they apply?
• Personal guaranty language — is it good-guy, full recourse, or burn-off?
• Use clause — does it permit your intended concept or restrict alcohol/hours?
• Exclusives, radius restrictions, co-tenancy, kick-out rights.
• Landlord's current standing with the property (foreclosure, tax liens).

2. Financial verification

• 24 months of monthly POS sales reports (Toast, Square, Aloha exports).
• 24 months of bank statements — reconcile deposits against POS.
• 24 months of merchant processor statements.
• Trailing four sales-tax returns (California CDTFA / BOE-401).
• Federal tax returns for the operating entity (last two).
• P&L, balance sheet, and A/R aging.
• Payroll register — verify tip reporting and workers' comp classifications.
• Vendor invoices for the last three months (food cost verification).

3. ABC license status

• License type (41, 47, 48, etc.) and premises address.
• Every Conditional Use Beverage (CUB) restriction — hours, entertainment, food-service ratios.
• Disciplinary history from the ABC file.
• Any pending accusations or license holds.
• Confirmation the license is transferable person-to-person.

4. Health Department history

• Current grade card and last 24 months of inspection reports.
• Red-tag history and any current open violations.
• Whether the current permit covers your planned menu and equipment.
• Open plan-check items or required corrections tied to the address.

5. Building & Safety

• Certificate of Occupancy — confirms legal use of the premises.
• Permit history — any unpermitted construction becomes your liability.
• ADA exposure — restrooms, path of travel, parking.
• Fire Dept clearance and current extinguisher/hood-suppression tags.

6. Equipment and personal property

• Itemized equipment list with age and condition.
• Which items are owned outright vs. leased (POS, ice machine, dish machine, soda system).
• Copies of every equipment lease with payoff or transfer terms.
• Serial numbers on hood, walk-in, ovens — confirm they match the bill of sale.

7. Contracts and staff

• Every service contract: pest, grease, hood cleaning, linen, waste, POS, music.
• Employee census with wage, position, tenure, and I-9 status.
• Any union or collective bargaining coverage.
• Open workers' comp claims or wage-and-hour actions.