Selling your restaurant is a major decision!
Is it time to sell?
You have devoted your time, money, and energy into building, running, and operating your restaurant. It may well represent your life’s work. If you have already decided that now is the right time to sell, you want the very best professional guidance you can get. This is when working in tandem with a professional EATS Restaurant Broker can make ALL the difference between selling your restaurant for the highest price and best terms, or not being sold at all.
Following are some of the most common topics and questions frequently brought up by sellers. If you have any questions that we have not covered, please don’t hesitate to contact us.
For Restaurant Sellers
If you’ve gone this far, then selling your restaurant has aroused enough curiosity that you are taking the first step.
You don’t have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your restaurant. This section should answer a lot of your questions and help you through the complex process of selling a restaurant.
The first question almost every seller asks is: “What is my restaurant worth?
This is the most common question we receive from restaurant sellers, most times it’s asked before we analyze books and records. Restaurant Valuations can be challenging and can be done various ways. EATS Restaurant Brokers are trained to provide valuations solely based on bank lending requirements on actual books and records, or an Asset Sale. Some Brokers will provide sellers bogus valuations to get the listing, and later request a price reduction to meet the buyer market demands.
EATS Restaurant Brokers get it right on the 1st time, we understand only 30%-40% of restaurants listed will sell, so it’s best to list the restaurant will the correct valuation. It doesn’t make any difference what you think your restaurant is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your restaurant is worth. Only the buyer marketplace can decide what the value of your restaurant is.
The second question you have to consider is: “Do you really want to sell this business?” If you’re really serious and have a solid reason (or reasons) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to the second part of this question: “Do you have reasonable expectations?” A yes answer to these two questions means you are serious about selling.
The First Steps
Congratulations you have decided to at least take the first few steps to actually selling your restaurant.
Before you even think about placing your restaurant for sale, there are some things you should do first. The first thing you have to do is to gather information about the restaurant.
Here’s a checklist of the items you should get together:
Three years’ profit and loss statements
Federal Income Tax returns for the business
List of fixtures and equipment
The lease and lease-related documents
A list of the loans against the business (amounts and payment schedule)
Copies of any equipment leases
A copy of the franchise agreement, if applicable
An approximate amount of the inventory on hand, if applicable
The names of any outside advisors
Clean books and records can make the difference between your restaurant selling and not. Restaurants are mostly sold two ways, 1st most profitable way based on tax returns and profit and loss statements. The 2nd method is an Asset Sale-price based on equipment, location, and lease terms. This method the restaurant owner is selling for pennies on the dollar for restaurant buildout and original equipment cost.
Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper.” As you will see later, pricing a restaurant usually is based on cash flow. This includes the profit of the restaurant, as well as the owner’s salary and benefits, the depreciation, and other non-cash items. So don’t panic because the bottom line isn’t what you think it should be. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.
A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see income and expenses. They want to know if they can make the payments on the business (more on this later) and still make a living. Let’s face it, if your business is not making a living wage for someone, it probably can’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professional who only looks for location, etc. and feels that he or she can increase business.
If you’re like many small business owners, you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it’s a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.
EATS Restaurant Brokers Insider Tips
Restaurant Buyers are smarter than ever with the information provided online regarding buying a restaurant or business. Restaurant Sellers most be ready to present and protect the financials numbers provided to the buyers for consideration of buying a restaurant. Sellers need to confirm that Tax Returns, Sales Tax Filings, and Profit and Loss statements tell the same story!
The quickest way to lose a buyer’s confident is to provide financials that don’t match up. If you did an amendment to tax returns, make sure you are sending the buyers the correct copy!
Who are the Restaurant Buyers?
Buyers buy restaurants for many of the same reasons that sellers sell restaurants.
It is important that the buyer is as serious as the seller when it comes time to purchase a restaurant . If the buyer is not serious, the sale will never close. Buyers who want to go into business strictly for the money usually are not realistic buyers for the restaurant.
A Restaurant Buyer Profile
Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. Almost 50 percent will have less than $100,000 in which to invest in the purchase of a restaurant. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a restaurant before, and most likely will buy a restaurant he or she had never considered until being introduced to it.
Their primary reason for going into restaurant business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing, be in charge of their own destiny, and they don’t want to work for anyone. Money is important, but it’s not at the top of the list; in fact, it probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one’s own restaurant, the buyer must be able to make that “leap of faith” necessary to take the risk of purchasing and operating a restaurant.
Here are just a few of the reasons that buyers buy restaurants
To reach the American Dream of Business Ownership
Customers or Fans of a Brand
Leaving or retiring from Corporate America
Desire for more control over their lives
To be part of a community
Keep in mind the following traits of a willing buyer
The desire to buy a restaurant
The need and urgency to buy a restaurant
The financial resources available- liquid assets or loan approval
The ability to make his or her own decisions
Reasonable expectations of what restaurant ownership can do for him or her
What do Restaurant Buyers want?
Most buyers are looking to buy a restaurant for cash flow. When deciding to sell a restaurant it may help in your decision-making process to understand not only who the buyer is, but also what he or she will want to know in order to buy your restaurant.
EATS Restaurant Brokers Insider Tip
What about the Internet? The Internet is a real “buzz” word – and if its use is appropriate for your restaurant, then developing a web site is important not only to your on-going business, but also to a buyer. Many buyers are conscious of what the Internet is doing for many restaurants. If you have a web site for your restaurant, it could be a big plus.
Here are some questions that you might be asked – and, should be prepared to answer:
How much money is required to buy the restaurant?
What can be done to increase the sales?
What are annual sales for past 3 years?
What are the royalties and marketing fees? -Franchises
Have sales increased or decreased since last year?
How much is the inventory?
Will the seller train?
What can the buyer do to add value?
Buyers Wants Cash Flow
The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant or bookkeeper and begin to get your financial statements in order, with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, as well as owner or family compensation. They will consider any excess compensation to employees and family. Buyers will also look at large, one-time expenses such as a new computer system or remodeling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner prerequisites. These are items that an EATS Restaurant Broker considers when advising a restaurant seller on a selling price.
What can You do?
You should create an operations manual
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!
There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.
Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.
EATS Restaurant Brokers Tip
This may sound like something that should have been done when the restaurant first started, so it may be “after-the-fact”. You should create an operations manual. You may already have one, or started one years ago, or simply, have thought of doing one. Now is the time! It may actually create added value to the restaurant.
Even if it doesn’t, it will impress restaurant buyers that you have your business “act” together and should help you sell more quickly and effectively. Preparing a manual on how to operate your restaurant can also be helpful even if you don’t want to sell. It doesn’t have to be elaborate, just cover the basics. A collection of ads that you have placed in a catalog or sample of products, publications, or menus is also impressive. Include anything to do with the business that might be helpful for a new owner.
Buyers who want to go into Restaurant Ownership
Can notice flaws of restaurant a seller does not see.
It might also be helpful if you took a good look at your restaurant from the perspective of a buyer. Try to put yourself in the place of a prospective purchaser of the restaurant.
Below you will find a few friendly recommendations that will help in our marketing efforts when you decide you are ready to sell:
Clean up equipment and outside premises.
Repair non-operating equipment or remove it if you are not using it.
Remove items that are not included in the sale and unnecessary items, especially if inoperative.
Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything, increase it so your business will look busy.
Repair signs, replace outside lights, etc. You don’t want your restaurant to look as if it has been neglected.
Keep normal operating hours. There may be a tendency to “let down” when you put your restaurant up for sale. However, it’s important that prospective buyers see your business at its best.
Spruce-up the inside of the kitchen and seating areas.
What would you do to make your restaurant more attractive or more saleable?
Obviously, the financial records of your restaurant are critical to the sale of your restaurant, but how it looks is also important. First impressions really count! If a potential buyer doesn’t like the appearance of your restaurant, the rest of it may never get a chance. If you have any questions, please don’t hesitate to call us. We look forward to hearing from you!