Mexican Restaurant Buyer Due Diligence Checklist

Reconcile POS reports against tax returns for the trailing 36 months.

Cash-heavy Mexican restaurants frequently show revenue gaps between reported sales and filed taxes.

Red flag: POS totals exceed tax returns by more than 5% with no clear explanation from the seller.

Request monthly P&L statements and identify all owner add-backs claimed as SDE.

Family wages, personal vehicle expenses, and owner health insurance inflate stated SDE artificially.

Red flag: Add-backs exceed 20% of reported SDE without supporting payroll records or receipts.

Verify food and labor cost percentages over the trailing 24 months.

Food costs above 32% or labor above 35% signal margin compression that erodes investment returns.

Red flag: Costs trend upward quarter-over-quarter with no documented corrective action by the seller.

Review all supplier invoices and confirm pricing terms are transferable to a new owner.

Favorable produce and protein pricing negotiated by the seller may not survive an ownership change.

Red flag: Key supplier relationships are verbal-only with no written contract or pricing agreement on file.

Obtain the full lease document and identify assignment and landlord consent clauses.

Many commercial leases require landlord approval before transferring to a new restaurant operator.

Red flag: Landlord has right to increase rent or renegotiate terms as a condition of lease assignment approval.

Calculate rent-to-revenue ratio using verified sales figures.

Restaurant leases above 8–10% of gross revenue compress margins and increase closure risk.

Red flag: Rent exceeds 12% of gross revenue or includes aggressive annual escalation clauses above 4%.

Confirm remaining lease term and renewal options in writing.

Fewer than 3 years remaining creates refinancing risk and limits SBA loan eligibility.

Red flag: Lease expires within 24 months with no executed renewal option or landlord commitment letter.

Assess the physical condition of the kitchen, dining room, and hood suppression system.

Deferred maintenance on equipment or fire suppression systems creates immediate post-close capital needs.

Red flag: Hood system or grease trap has not been serviced or inspected within the past 12 months.

Request a written operations manual covering recipes, prep procedures, and supplier contacts.

Undocumented recipes create key-person dependency that threatens product consistency post-close.

Red flag: No written recipes exist and head cook refuses to commit to a transition or training period.

Shadow operations for at least one full week during peak lunch and dinner service.

Hands-on observation reveals actual ticket times, waste practices, and staff competency firsthand.

Red flag: Owner is present for every shift and staff cannot answer basic operational questions independently.

Verify POS data for catering revenue, delivery platform sales, and repeat customer volume.

Diversified revenue streams reduce reliance on dine-in traffic and support a more defensible valuation.

Red flag: More than 90% of revenue comes from walk-in dine-in with zero catering or delivery infrastructure.

Confirm all equipment is owned free and clear with no outstanding financing liens.

Undisclosed equipment loans or lease obligations reduce net asset value at closing.

Red flag: UCC search reveals active liens on commercial kitchen equipment not disclosed in the seller's FF&E list.

Confirm liquor license type, current status, and transferability to a new owner.

Liquor license transfers can take 60–120 days and require state approval, delaying your closing timeline.

Red flag: Liquor license is in the owner's personal name and cannot be transferred to a new business entity.

Pull the full health inspection history for the past three years from the local health department.

Repeated critical violations signal systemic food safety failures that create liability post-close.

Red flag: Two or more critical violations or a temporary closure appear in the trailing 36-month inspection record.

Verify current status of business license, fire inspection certificate, and certificate of occupancy.

Lapsed permits can halt operations immediately after closing and trigger costly re-inspection delays.

Red flag: Any required permit is expired, conditional, or under active review by a regulatory agency at signing.

Confirm sales tax filings and payroll tax deposits are current with no outstanding liabilities.

Unpaid payroll taxes survive an asset purchase and can become a buyer liability under successor rules.

Red flag: IRS or state tax authority shows open balances, payment plans, or liens against the business.

Interview the head cook and key front-of-house staff about their intent to stay post-close.

Authentic recipe execution and bilingual customer service walk out the door if key staff leave.

Red flag: Head cook is a family member of the seller with no employment contract and no commitment to stay.

Review payroll records to identify undocumented or cash-paid workers on the team.

Off-book employees create wage and hour liability and inflate true labor cost disclosures.

Red flag: Payroll records account for fewer staff than you observe working during your operational shadow period.

Assess whether a non-owner manager currently runs daily operations without seller involvement.

Buyer cannot operate the restaurant personally on day one if seller was the sole functional manager.

Red flag: No salaried manager exists and all vendor calls, scheduling, and ordering flow through the owner alone.

Negotiate a seller training and transition period of 60–90 days as part of the purchase agreement.

Structured transition protects recipes, supplier relationships, and customer trust during ownership change.

Red flag: Seller refuses to commit to more than 30 days of post-close involvement or training support.