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First of all, you definitely sound like you have your head in the right place for buying a business. I have no doubt with that mindset that you could do extremely well for yourself :)

Secondly, I think you answer your own concerns in buying a business with a dwindling profit, by planning to “craft out a niche by modifying its existing menu”. There are a thousand and one success stories of people buying failing businesses and turning them around within a year or two. With the right recipe of product/service changes, marketing and PR, anything is possible.

I recommend you know exactly the type of niche you want to specialise in (i.e.: on-the-go food for tradies, vegetarian, international foods, etc) and then focus on the location of a well-priced business to serve your purposes.

I would say that there are 3 main reasons for a failing F&B business:

(1) Cash flow management
(2) Failure to meet customer service or quality expectations
(3) Failure to cater to the local market

If you know you can turn these around, and really provide something unique that the local population would value, then it all comes down to making sure you have enough in the kitty to get your message out there and bring people back to the failing location, and then provide a great service to keep them coming back.

I’ll step out of the legal and accounting questions as I don’t want to offer any incorrect advice, except to say that in spending 40k, I wouldn’t skimp on either. The broker wants to sell the business, so it’s doubtful he’ll be completely forthcoming about issues with the business. Focus on finding a premise that really works for what you want to bring to your customers, and then bring in a lawyer to evaluate the offering.

I wish you every success on your venture :)