Advice for Buying a Restaurant and Selling a Restaurant

5 Lies about Leasing a Restaurant Everyone Thinks Are True

Posted by Robin Gagnon on May 25, 2018 5:29:48 AM

It’s every man for himself when you are leasing a restaurant and here’s why. The landlord is out for himself and no one else. Here are five things you don’t want to learn the hard way – the five lies about leasing a restaurant used by landlords.

It’s the time of year when all the landlords in the world are gathered in Las Vegas at the ICSC (International Council of Shopping Centers) convention. They are drinking by night and plotting by day on ways to bring down you, the little guy who’s leasing a restaurant. Here are the top five lies they will tell you when leasing the restaurant.

I’m the landlord and I’m here to help is lie number one.

President Ronald Reagan referred to these words, “I’m from the government and I’m here to help” as “the most terrifying words in the English language.” He might say the same thing about landlords today. Any landlord that says, “I’m here to help…” is practicing lie number one. Here are some examples you should be aware of when leasing a restaurant.

“I’m the landlord and I’m here to help you with tenant improvement money. I’ll invest in your business along with you.” Is this true? No. The landlord is pricing that tenant improvement money into your lease rate and being paid back a very healthy (or should we say unhealthy and obscene?) amount.

“I’m the landlord and I’m here to help you with lease rates. I want you to succeed.” Is this true? No. The landlord is looking at only one person in the transaction to help. He wants to improve his checkbook, his bottom line and his earnings. He has no interest in helping you succeed. Consider this. If you fail, he still gets paid. If you fail, he gets the property back, fully improved AND your equipment (in most cases).

The Personal Guarantee is non-negotiable is lie number two.

Everything in life is negotiable. Just because the landlord says he wants a blanket guarantee over the entire term of the lease does not make it true. You can negotiate for a limited guarantee – meaning, limited to just two years or just the first term or just $50,000 or just one year of lease payments or whatever you want. Always propose something other than a full and unconditional guarantee of t

Lies about leasing a restaurant

he lease for the full term. Do not believe this cannot be negotiated in some form or fashion, particularly when you have good credit, a strong concept and money in the bank. The minute you sign, you lose all leverage.

I will not “unreasonably withhold” consent to transfer is lie number three when leasing a restaurant.

As a restaurant broker interacting with landlords every single day on lease assignments, I can assure you this is the biggest whopper of them all. Do not rely on this language when leasing a restaurant (even though it has been litigated and has precedent in legal cases) as a “catch-all” to believe your lease transfer will go easily.

Insist on specific, measurable steps with a timeline in the event you ever transfer the store when leasing a restaurant. Set up clauses that say a new franchisee of the same concept with a net worth of $500,000 shall be accepted upon notice and such notice shall constitute a 30 day window for landlord approval. Should he or she not object within 30 days, then the assumption is granted.

Work with an attorney on the language (disclaimer: I’m not an attorney and am not offering legal advice). My business advice as a restaurant broker is for you to be as precise as possible around costs to transfer, timeline to transfer and any net worth requirement. What you don’t want is for a landlord to be able to delay a transfer, charge whatever he wants and arbitrarily designate what’s acceptable net worth requirements.

Refuse to sign anything that is vague. Require the business terms to conform to language like this.

  • Costs
    • “Reasonable Attorney fees” – NO – what’s reasonable to the landlord is not reasonable to you.
    • Lease transfer fee not to exceed $1000 – YES – defined and specific.
  • Timeline
    • Shall not unreasonably withhold – NO
    • Shall be approved within 30 days - YES
  • Net Worth number
    • Same net worth as current tenant -- NO, too subjective, how do you prove what yours was and what his will be?
    • Net worth of $500,000 or more – YES.

We Sell Restaurants is working with landlords daily that are trying to charge immense fees, drag their feet and then will not approve a franchise candidate who has already been through an approval process for both lending and the franchise brand without any issues. Don't fall for the landlord's lies when leasing a restaurant.

The Property Manager and Leasing Agent are there to help is lie number four.

If you call the sign on the door when leasing a restaurant, that number goes to the landlord’s leasing agent. You are under no obligation to work directly with them but they will not disclose this to you or ask if you wan to bring your own representation to the table.  After you open the business, it’s common to develop a close working relationship with the property manager who is either onsite or responsive when you have an issue. Often the landlord’s representative will even tell you that as soon as the lease assigned, the Property Manager is your “go to” person. Remember, they do not work for you. They work for the landlord.

This lie is very similar to lie number one. When either of these parties agree to “help,” it is the landlord who receives the benefit. The leasing agent is paid a commission based on the size of the lease he negotiates. The bigger the number, the more he earns.

When it comes time to transfer, the property manager onsite, your good buddy, has absolutely nothing to do with the deal. It’s a common fallacy to equate this person with the landlord. He or she does not have decision making authority. Typically the property manager cannot even receive documents related to a lease transfer. Don’t fall into a trap of thinking they are you ally and can get your assignment done or will take your side in any form of a landlord dispute no matter what they say.

Remember, when leasing a restaurant, the Property Manager and Leasing Agent’s loyalty (and paycheck) reside with the landlord. We always advise you to use the services (usually at no charge to you) of a qualified restaurant broker to represent you with negotiations on leasing a restaurant.

We’re exclusively working with you is lie number five.

A landlord is like a girlfriend (or boyfriend) that cheats. Don’t ever trust them to be exclusive. You may have thousands of dollars in legal fees invested in leasing a restaurant and the final draft in hand but if the landlord gets a better offer, he’ll drop you like a hot potato. Leasing a restaurant starts with an LOI or letter of intent but is not final until you have a lease signed by both you, the tenant and the landlord. Letters of intent are not binding. Most do not have a ‘no-shop’ clause, allowing the landlord to continue to shop this with anyone and everyone until it’s inked.

It’s not uncommon to see landlords take your letter of use it to leverage someone else into leasing a restaurant despite that fact that you’re putting time and money, drawing plans, and otherwise investing in this opportunity.

We have seen landlords accept signed leases from tenants and then decide to go with someone else if a big brand throws enough money their way. Don’t let them fool you into thinking you’re the only game in town. Until it’s inked, it isn’t real. If it isn’t stated in the lease, it isn’t real. Don’t leave any points out of that lease that were discussed. Never agree that such and such was discussed and when the time comes, the landlord will handle it.

Above all, by reading this article, please understand that when it comes to landlords, you can never underestimate them. Use what you learned to get the best deal possible for leasing a restaurant. Cover yourself going in and have a secured strategy for getting out. If you need help, contact one of our restaurant brokers to help you negotiate a deal. Don’t get caught by one of these five lies about leasing a restaurant landlords often use.

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Topics: leasing a restaurant

How to Buy a Restaurant with No Money Down

Posted by Robin Gagnon on May 21, 2018 12:33:35 PM

Falling in Love with the Dream and Buying the Reality. You want to buy a restaurant  but you don’t have money for the deal. Is there a solution? Read on for the tips and tricks from the restaurant brokers to make it happen.

First time restaurant buyers can look like seasoned professionals by following the tips in this article on buying a restaurant with no money down.  What are the steps?  What comes first?  How do you negotiate the deal.  Focus on the following first and then we’ll teach you how to shop for the right listings.

Step 1:  Get your financial house in order

If you are trying to buy a restaurant with no money down, make sure your credit is buttoned up and ready to go.  Pull a recent credit history from one of the many online sources – you are entitled to free copies.  Clean up any pending issues and make sure you have a good credit rating going into negotiations and be ready to show this to a potential seller.   If you want him to serve as your bank, you need to demonstrate that you’re credit worthy .How to Buy a Restaurant with No Money Down

Step 2:  Build a business plan

The only way a seller and a landlord will buy into your takeover is with a solid business plan.  The components of the business plan should include your knowledge, background and experience, your marketing plan, your overall strategies and tactics to build sales, along with financial projections.  If you need help building a business plan, check out our earlier blog post on this topic at this link.  Other sources of help with a business plan include SCORE, the nation’s largest network of volunteer, expert business mentors.  They have chapters all over the United States.

Step 3:  Identify target Restaurants

Now that you have your financial house in order, let's start the search.  Begn by find restaurants that are not advertising cash flow.  These are turnaround opportunities sometimes called “asset sales.” For many of these restaurants for sale, the current seller may be disengaged, working in another business or out of capital to get this business to the next step.  It could be he just doesn't have the same skills you have in operations or marketing.  Identify these listing from ads with terms like, "Gorgeous build out.  Owner spent more than XXX to create. Seller will sacrifice…”  A franchise might be advertised at “just $99,000 though the build out and cost to launch exceeded $350,000.”  These are excellent targets for buying a restaurant with no money down as the seller is already demonstrating his willingness to cut his losses.  

Does an asset sale mean the business is failing?  In many cases, yes -- today.  If you’re going to buy a restaurant with no money down, you need to be ready to take on the risk to “flip the restaurant” and take it to the next level.  How do you decide if it’s the right one?  Investigate the business. Visit as a customer.  Check out the surrounding area. Pull the demographics on the trade area and figure out if the market is good and the concept is bad.  You can change the concept.  You can’t change the location.

Identify where the seller has missed the mark by reviewing his financial picture, checking out his marketing (or lack thereof) or understanding the quality of the assets.  Fit your business plan to this situation and see if your ideas have traction in this location. 

A quick note on asset sales.  They are not always independent restaurants.  Often a franchise restaurant for sale location will not be making money under the current ownership.  The seller is often absentee and has not embraced the franchise model.  This is an easy one for a turnaround situation.

One other key restaurant broker bit of advice on examining asset sales.  It is never a good idea to focus on cutting costs.  Most sellers have tried that path.  Look at any restaurant for sale to expand the top line.  Where can you grow sales?  If you take care of sales, almost all other elements of the financials come into acceptable ratios.  Take lease rates as an example.  If the current seller is doing $400,000 in sales on a space leasing for $6000 per month, his occupancy cost as a rate to sales is far too high.  Will the landlord negotiate this down?  Usually not.  Focus on what he is not doing that will drive top line sales to the right level (closer to $750,000 on this rent number) and if you can’t make it work, don’t tie up your credit and time in this restaurant.  The most common solutions are marketing and advertising.  Most sellers with restaurants that are under-performing are failing to reach out with strong ideas to drive traffic.  In addition, look at delivery.  The many sources of delivery today including, Uber Eats, Door Dash and many more that represent a strong opportunity for higher sales.

Final Step:  Negotiate a deal with no money down.

Once you have identified your target, approach the seller or the broker with a proposal for acquiring the business with no money down.  Demonstrate that by taking over today, you will remove the current seller’s liability for the lease or franchise.  – A seller who is currently not making money is often willing to walk away provided you address his obligations.  That includes the personal guarantee on the lease or the franchise agreement.  Sometimes he has equipment that has a remaining note.  See if you can take over his payments. The point of the negotiation is to remove the pressure of staffing and running the business today.  He needs to see you as his solution in order to sell you the restaurant with no money down.

Nothing down doesn't mean he'll never be paid.  Be creative in financing terms.  You can tempt the seller to accept your offer with an “earn out” or stake in the future production of the business, including a percentage of sales or percentage of profits.   You will need to do some strong work on presenting the deal and the “upside” to the seller but, hey, you’re buying for no money down, so put the effort into the negotiations. 

Demonstrate to the seller why this is a win for them and build an acceptable interest rate into your future payments.  You are taking a chance on buying a restaurant based on what the future holds.  You have to convince the seller to take the same chance on you! 

Like this article or want to talk more or see restaurants for sale?  Check us out online at this link.

 

Blog Byline Robin

 

Topics: buying a restaurant

IBBA presents Eric Gagnon with Outstanding Producer Award

Posted by Robin Gagnon on May 17, 2018 5:28:04 PM

 We Sell Restaurants President Eric Gagnon recognized as Outstanding Producer in 2017 by the International Business Brokers Association at their annual convention.

2017-Outstanding Producer-Award-Eric GagnonEric Gagnon of We Sell Restaurants is the recipient of the Outstanding Producer Award given out by the International Business Brokers Association (IBBA) during its annual conference in New Orleans on May 4. The Outstanding Producer Award is awarded to applicants who closed one or more business deals amounting to at least $1 million in total purchase price during the 2017 calendar year.

“As the only international association for business brokers, it’s important for the IBBA to recognize individuals like Eric who are worldwide leaders in this industry and who display the high standards of skill and excellence that the IBBA promotes,” said Warren Burkholder, IBBA Board Chair, "This award lets sellers and buyers know they are working with one of the industry's top performers."

The IBBA is the world’s premier organization operating exclusively for professionals and firms engaged in business brokerage. The Member Excellence Awards Gala that the IBBA 

Eric Gagnon

puts on during their annual conference gives winners the recognition they deserve for their achievements, while also giving their IBBA colleagues the opportunity to engage with them and learn from their experience.

Eric is the founder and President of We Sell Restaurants and wesellrestaurants.comEric is an industry expert in restaurant sales and valuation and holds the Certified Business Intermediary (CBI) designation from IBBA.  He has also been designated a Business Industry Expert by  Business Brokerage Press. 

Gagnon is the Past President of the Georgia Association of Business Brokers (GABB) and Lifetime Member of their Million Dollar Club. He is also the recipient of the Phoenix Award, presented to a select few who have received the Million Dollar Award for more than a decade.  Eric belongs to industry organizations including the International Business Brokers Association (IBBA) , Business Brokers of Florida (BBF), and the International Franchise Association (IFA) . Eric is also an active member of the Southeast Franchise Forum where he serves on the membership committee. Eric is licensed as a Broker in Georgia, Florida and South Carolina. He holds degrees from major universities in both the United States and Canada.

 

About the International Business Brokers Association

The IBBA provides business brokers with education, conferences, professional designations and networking opportunities. As an exclusive education opportunity, it offers coursework and seminars required to obtain its prestigious Certified Business Intermediary (CBI) certification.

The IBBA also strives to create professional relationships with successful business transaction advisors to increase the value of the IBBA to its members and to be a leader in the exchange of business referrals. Membership in the IBBA includes these excellent networking opportunities, as well as a complete package of other benefits and services. Formed in 1983, the IBBA has members around the world. For more information about the IBBA, visit the website at www.ibba.org.  

Topics: buying a restaurant, selling a restaurant

We Sell Restaurants Founders Earn CBI (Certified Business Intermediary) with IBBA

Posted by Robin Gagnon on May 14, 2018 3:23:48 PM

Eric and Robin Gagnon, the founders of We Sell Restaurants have each recently earned a designation in the industry as a Certified Business Intermediary or CBI.  The prestigious designation is held by less than 500 individuals worldwide. The two tested last week in New Orleans at the annual conference of the International Business Brokers Association.  Those holding this designation represent a unique community of professionals who have undergone significant coursework, possess relevant experience and have passed a test consisting of both industry knowledge and financial competency in recasting. 

Eric Robin Gagnon The CBI designation is earned through the International Business Brokers Association or IBBA.  The IBBA website states that, "the Certified Business Intermediary (CBI) is a prestigious designation exclusive to the IBBA that identifies an experienced and dedicated business broker. It is awarded to intermediaries who have proven professional excellence through verified education as well as exemplary commitment to our industry."  They go on to remark that the designation will, "indicate to potential clients that anyone who holds the CBI certification is a knowledgeable, invested, and dedicated brokerage professional. Successful completion of the certification process significantly distinguishes business brokers from their peers." 

Lifelong learners who are committed to the business brokerage and restaurant industry, the Gagnons had this to say about their latest certification.  "Teaching others how to buy a restaurant, sell a restaurant or just providing overall knowledge and data points are critical to our practice.  A designation like the CBI is just one more piece to our overall commitment to the highest caliber knowledge base we can draw upon to help our customers." 

The International Business Brokers Association (IBBA) is the largest international non-profit association operating exclusively for people and firms engaged in business brokerage and mergers and acquisitions. This association provides business brokers education, conferences, professional designations, and networking opportunities. Formed in 1983, the IBBA has members across the world.

The IBBA strives to create a professional relationship with successful business transaction advisors (i.e. CPAs, bankers, attorneys, and other related associations), to increase the image and value of the IBBA to its members and to be a leader in the exchange of business referrals. A membership in the IBBA provides “the most complete package of membership benefits and services and the best networking opportunities with the most influential group of business brokers.”

The IBBA concentrates on providing educational courses for the business broker profession. It awards the Certified Business Intermediary (CBI) certification as well as the courses and seminars required to obtain this certification.

CBI

Eric and Robin Gagnon have long histories in the business brokerage industry.  They launched the We Sell Restaurants brand in 2001 and currently work in approximately 45 states across the nation.   

Eric is the founder and President of We Sell Restaurants and wesellrestaurants.com.  He is the nation’s leading restaurant broker.  Eric is an industry expert in restaurant sales and valuation.  Eric, along with Robin is the co-author of Appetite for Acquisition  an award winning book on restaurant brokerage published in 2012 and named "Best of" by Small Business Book Awards.  Eric began his career in the financial services industry for Bank of America, Bank of New York and big five accounting firm, KPMG before launching the nation’s premiere restaurant brokerage firm and restaurant brokerage franchise.

Eric is the Past President of the Georgia Association of Business Brokers (GABB) and Lifetime Member of the Million Dollar Club. He is also the recipient of the Phoenix Award, presented to a select few who have received the Million Dollar Award for more than a decade.  He is a member of the International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), and the International Franchise Association (IFA). Eric is also an active member of the for the Southeast Franchise Forum where he serves on the membership committee. Eric is licensed as a Broker in Georgia, Florida and South Carolina.   He holds degrees from major universities in both the United States and Canada. 

Robin is the Co-Founder of We Sell Restaurants and the firm's Chief Marketing Officer.  Robin is one of the most prolific restaurant brokers in the industry and is a franchise resale specialist. Robin's expert articles appear online and in print across the country. She co-authored Appetite for Acquisition,  the industry's leading book on buying restaurants that received the prestigious "Best of " award by Small Business Book Awards.  Robin is a member of the International Franchise Association and serves on the Women's Franchise Committee and the 2018 Conference Committee.  She is also the Chair of the Women's Franchise Network - Atlanta Chapter.    

Robin holds an undergraduate degree and an MBA where she graduated first in her class and was named "Outstanding MBA." Robin is an emeritus member of the ASU Business Advisory Council. She is also a founding member of the ASU Entrepreneurship Board. Robin is a licensed real estate salesperson in both Georgia and Florida and member of the Georgia Association of Business Brokers (GABB), the International Business Brokers Association (IBBA) and the Business Brokers of Florida (BBF).  She has been named a National Industry Expert by Business Brokerage Press in Franchise Resales.   Prior to joining We Sell Restaurants, Robin served as Vice President of Strategic Marketing for a $4 billion-dollar retailer and Director of Advertising and Director of Business Development for another Fortune 100 company. 

For more information on the services of We Sell Restaurants or its founders, visit their website at wesellrestaurants.com 

 

Topics: buying a restaurant, selling a restaurant

April Top Ten Restaurants for Sale

Posted by Robin Gagnon on May 11, 2018 4:27:26 PM

Topics: buying a restaurant

Restaurants Sales flat in 2017 - What does 2018 Look Like?

Posted by Robin Gagnon on Apr 26, 2018 8:37:59 AM

What happened to restaurant sales in 2017?  Well the Restaurant Brokers at We Sell Restaurants are studying the latest data released by accounting firm BDO.  Here are some of the findings from their report and our analysis.  

For the first time in recent memory, restaurant same-store sales were flat in 2017 with no increase over the prior year.  According to the BDO article, "The year was marked by continued change in consumer preferences, but positive economic indicators and improved consumer confidence failed to convert to more comparable sales for restaurateurs.?

In a world of increasing costs, creeping rents, rising labor rates and other economic pressures on the business, this report on restaurant sales can seem a bit discouraging.  What happened in 2017? 

The big hit to the industry was in the fast casual category.  As it's a large percentage of the overall base, where fast casual goes, so goes the industry.  Their negative trend contributed heavily to the overall flat performance.  As reported by BDO, the fast casual segment was down 1.6 percent for the year.  In the opinion of these restaurant brokers, this is partly a reaction to the "me too" trend that affects the business each time winning concepts emerge.  For the past five years, the growth in the number of fast casual concepts, all fighting for a piece of the pie has led to many options for customers and an overall shrinking share.  You did not have to be a restaurant broker to see this one coming. When the best performer in the industry was  Chipotle who was comping negative 20 percent sales against the prior year, it's a signal that there are too many players all vying for the same customer.  We actually expect this trend to continue. 

Why was fast casual hit the hardest?  The economic news is good and consumers have more money in their pocket.  However, the inverse of what occurs when the economy is bad is now taking place.  Customers trade up to the next level of dining.  The other reason for the drop in 2017 is the slowness of fast casual to adopt to delivery trends.  Operators did not want to give up dollars to Grub Hub, Uber Eats, Door Dash and the other giants of delivery.  By holding back, they cost themselves sales.  They are now seeing that the topline sales increase may be worth the profit swap as those in the delivery funnels are getting the dollars from time challenged customer.  We anticipate more fast casual concepts will be tying their menus to this delivery wagon and it will rebound some sales for them. 

One sector did outperform the others.  Pizza  topped the list with a 2.9 percent increase in the year.  That was below their 2016 trend of plus 4.6 percent however.  We expect pizza to continue to perform but the options for delivery may continue to slow their performance against the overall market. 

Other sectors reported as follows in the BDO results: 

  • Quick serve posted a modest 0.8 percent increase through Q4 2017. The category was led by Carrols Restaurant Group (+5.2 percent), Taco Bell (+4.0 percent), and McDonald’s (+3.6 percent).
  •  Upscale casual and casual reported flat results for the year at -0.1 percent and 0.0 percent, respectively. Texas Roadhouse was the top performer in the casual category, reporting a 4.5 percent increase for the year, while Applebee’s (-5.3 percent) continued to struggle.

There is encouraging news for the future as some investments in 2017 will pay off this year. Restaurant owners spent money on technology, delivery partnerships, new concepts, menu upgrades, and experiences.  There's no instance success button for restaurant sales.  We anticipate that with continued strong consumer confidence, actual results in the market from the tax cuts, and greater emphasis on joining the delivery bandwagon, fast casual and the total industry will post better results in 2018.   

 

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Topics: buying a restaurant

A Restaurant Broker Asks, "Do I Draft a Quarterback or Receiver?"

Posted by Dominique Maddox on Apr 20, 2018 7:48:00 AM

Should I draft a Quarterback or Receiver to sell my business? This restaurant broker has an opinion on the topic.  What's yours?

It's the time of year when football fans are glued to the TV listening to sports commentators talk about NFL prospects waiting to be drafted. This highly speculative event is where players realize their lifetime dreams of being drafted into the "league." Team owners a lot of money each year for their scouting department to evaluate the talent of potential players. They make this investment with one goal in mind. Which player can help their organization WIN? The right draft pick can help a team WIN and increase the value of an organization.

Pink Hobbies Facebook Post

The NFL draft puts a dollar value on each player position and the market value for each position is different. The team with the number #1 pick wants to get the most production and value for their pick. This is very similar to a seller that wants to sell their restaurant. They are choosing from a lineup of players (or brokers). Their challenge is to find the one who can help them WIN and increase the value of the transaction.

Quarterbacks are a highly specialized positions that can change the fortunes of a team. This position requires owners to pay a premium salaries. Kirk Cousins just signed a 3-year, $84 million dollar averaging $28 million a year and it’s ALL guaranteed! The highest paid Receiver only makes $17 million a year. Why would an owner pay a Quarterback 165% more than the top Receiver?

 

The answer is very easy. It’s called Value. That can be defined as “the regard that something is held to deserve; the importance, worth, or usefulness of something.” A Specialized Restaurant Broker is like a Quarterback. They bring more value than a generalized agent that is a "jack of all trade" selling anything from a day care center to a beauty salon.  Making the wrong choice to sell your restaurant would be like drafting a Receiver that would not help you WIN.

Certified Restaurant Brokers quarterback the sales transaction from the beginning to the end. They communicate with the seller, buyer, bank lenders, landlords, CPA’s, Franchise, closing attorney, and sometimes vendors. Restaurant Brokers are valuation specialists and understand the cash flow and add backs of a restaurant situation. They understand the deal making process and know when an audible may have to be called to get the deal closed.

I played football at Morehouse College in Atlanta, Georgia and I did not get drafted to the NFL. On the other hand, I have restaurant sellers draft me every day to quarterback the sales transaction of their restaurants. I’m honored to represent these sellers and give them an opportunity to pursue their new life ambitions.

When it’s time for you to sell your restaurant make sure you draft the right person to represent you. It's not fantasy football and the right pick is critical.  The right draft pick can be the difference between selling your business for the most money in the shortest period of time or waiting while the clock runs out on the field. Get the guy that can score a touchdown each and every time!

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Sell My Restaurant

 

Topics: selling a restaurant

As the Restaurant Brokers Predicted, 2018 Business Sales Climb to New Heights

Posted by Robin Gagnon on Apr 16, 2018 10:03:51 AM

The Restaurant Brokers have been bullish on restaurant sales since very early in 2017 and our predictions have been spot on with reports from the marketplace.  BizBuySell is confirming our findings, stating that the first quarter of 2018 brought "record-breaking sales prices and transactions"  for  business sales.

Orange Accent Photography Quote2018 Versus 2017 Results

Asking prices, count of restaurants on the market and selling prices all rose in the first quarter of 2018 versus 2017 acording to the latest tracking data released by BizBuySell.  In their report, "small businesses sold for the highest sale prices since they started tracking data in 2007."  That's a decade ago!  Selling prices were up 3.4 percent increase from last year at this same time.  Asking prices are up as well.  Their report says that the median asking price of sold businesses also hit a record high.  The number was $262,000, a 4.8 percent increase over 2017.

There were a total of 2,678 businesses sold in the first quarter of 2018. This represents a 13.1 percent increase from this time last year and the most businesses reported as sold in a quarter since BizBuySell began collecting this data. What about restaurant sales?  Restaurants represented 21% of all businesses sold.  From our internal data, as the largest restaurant brokerage firm nationwide, we can confirm that transactions, asking prices and selling prices are all up from last year.  Restaurant transactions were up 7.65 nationwide in the first quarter. 

Drivers of these Results

What's driving the change?  It's the Trump effect and specifically, the tax bill.  Small business owners are listing businesses they previously held back on because they know the tax consequences are less when it sells in 2018.  Simultaneously, small business confidence is at an all time high.  The tax bill has made a number of buyers and seller realize that their efforts will put more money in their pocket so small business ownership is looking good to them.  

The strong stock market has also contributed to the boom in restaurant sales.  Many buyers rely on 401K savings and fund acquisitions through rollover products.  Now that their savings have seen a 20% to 25% bump in the last year, they are feeling flush with cash and ready to invest in themselves. 

Will it Continue?  Only if the Tax Bill Remains Unchanged

What do the trends look like?  Here's the quarter by quarter graph released by BizBuySell showing the sale price versus asking price since 2014.  You'll see that the first quarter of 2018 has the highest point on the graph.  The restaurant brokers fully expect this trend to last for the year with one caveat.  Should the Democrats take back control of the House or Senate, putting them in a position to reverse the tax package, as they have pledged, expect these numbers to tumble significantly.  

2018 Q1 Small Business Sale Price vs Asking Price

For now, the tax package has not only spurred tremendous growth in sales, it is also paying for itself, a little discussed fact released by the Congressional Business Office or CBO last week.  Last June, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3% — a significant upward revision. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%. The CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts. The CBO report also makes clear that this faster-growing economy will offset most of the costs of the Trump tax cuts.   BizBuySell surveyed business owners and and nearly half of them (more than 48 percent) believe the tax changes benefit small businesses.  Less than a quarter (24 percent) found it harmful. 

Business Confidence Rules

The restaurant brokers aren't the only ones discussing business confidence.  The NFIB or National Federation of Independent Business group surveyed its members in February.  In their  Small Business Economic Trends Survey, they reveal that "small business owners are showing unprecedented confidence in the economy."  These results are spilling over to unemployment numbers which has fallen to 4.1 percent, the lowest since the dotcom boom back in 2000.  That is also affecting small business owners and of those surveyed by BizBuySell, 60 percent plan to hire more staff and 57 percent plan to raise compensation.  

 All of this economic growth is pushing those interested in small business ownership to seek opportunities like our restaurants for sale, especially since the businesses themselves are performing better. 

Cash Flow Trends

Restaurants for sale like the ones we represent are priced based on cash flow.  The businesses sold in the first quarter of the year reproted higher earnings.  That is the trigger for rising valuation and ultimately, higher selling prices.  The median cash flow of businesses sold in Q1 increased to $120,000, a 2.3 percent increase over the same time last year.  This is still a minor raise that would not dramatically affect pricing but we expect to see this trend continue up as well.  Businesses selling in 2018 are reflective of 2017 earnings.  As trends strengthen this year, this will be factored into the valuation of transactions later in the year.  

Are more sellers putting their businesses on the market?  Yes.  The report found an increase of 6.9 percent in businesses listed.  The restaurant brokers continue to believe the time has never been bettter for selling.  Between small business confidence, the number of buyers in the market and continued favorable lending trends, 2018 is the year to sell your restaurant.

Blog Byline Robin

 

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Topics: buying a restaurant, selling a restaurant

Why Restaurants Fail - a Restaurant Broker's Perspective

Posted by Robin Gagnon on Apr 12, 2018 9:38:51 AM

As a Restaurant Broker dealing with dozens of franchise resale opportunities every single day, I am often asked why restaurants fail.  Here are the candid and all too real answers about why restaurants fail. They can be summed up in three ways.  

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Reason Number One - "If you build it, they will come" is not a business model, it's a movie. 

Restaurants fail because grown men and women believe that "if you build it, they will come." That single line from the movie Field of Dreams is the number one reason we see those operating great franchise brands failing in the market.  The operator believes it's enough to open the door, put up the sign and sit back and wait for the business to happen.  

They refuse to acknowledge that the business world has expanded far beyond the four walls of the store and now requires the active pursuit of customers.  They do not want to take a hard look at their catering line and decide they have to invest to develop this all important way to add top line sales and ultimately, bottom line profit. They don’t want to acknowledge that people would rather stay home than dine out and fail to sign up for delivery services.  Lastly, they believe that investment in the brand name of the franchise is enough.

Restaurants fail because owners believe that a franchise brand is their lifeline and a guaranteed path to success.  It is not.  The brand is the starting point for developing the business. It's up to the business owner to grasp that fact and grow the business. 

Reason Number Two:  Restaurant Ownership Is a Hands-On Business 

The second reason why restaurants fail is that owners in countless other fields see the business model as one they can operate on an absentee basis.  In most cases, this is just not a viable option.  Many restaurant buyers contact me and insist they can operate while pulling down a full time job or from many miles away or even from out of state. 

A restaurant buyer last month made an offer on a business in Florida while he and his wife lived in Missouri.  He did not reveal, until very late in negotiations with the seller, that he intended to stay in Missouri for two more years.  He seemed incredulous that the franchise brand would not approve him to operate a brand from hundreds of miles away.  His plan was to give the current manager a minority stake in the business and let him keep running it. 

Is a minority stake for managers a good idea?  Absolutely.  This can lock in front line people to contribute their best and stay in place.  It is not, however, a guarantee that manager will not leave, not like the new owner, fall in love with someone moving out of state or continue to run the business well, knowing the owner is thousands of miles away. 

Most franchise brands require an ownership stake in the operations of the business.  They want to see a family member with equity in the business at the helm if you're not running it.  Otherwise, if you want to operate as an absentee owner, get ready to add your business to the list of restaurants that fail.

Reason Number Three:  Failure to Grasp the Basics -- It's the Numbers

The third reason restaurants fail, in this restaurant broker's opinion, is an underlying failure to understand the three key financial variables required to manage for success:  food cost, labor cost and occupancy cost.  These three items drive the lion's share of the monthly profit and loss statement.  Food costs and labor costs have to be closely managed on a day to day basis (refer back to Reason Number Two in why restaurants fail).  Now you see why absentee ownership is a bad idea. 

Food costs mean managing the portion size to exactly what is laid out in the brand requirements.  It also means control over ordering.  Your inventory ages and when it ages, it results in waste.  Control over food costs mean managing what goes out the front door and what ends up in the dumpster at the back door.  This and labor cost, are the single most important variables to control 

In today’s high tech world, failure to exercise control over labor is just inexcusable.  It is very easy to see in advance the number of meals that have to be prepared.  Any POS system is going to tell you what you did for a Tuesday at lunch last year, last week, last month and yesterday.  Absent any unforeseen event like weather, tourist influx or natural disaster, any owner should be able to plan the schedule and labor correctly to maximize results and minimize costs.  For that reason, failure to grasp this basic and control it within acceptable financial reasons contributes, along with food costs into why restaurants fail.

The last large variable in costs are the occupancy costs and this is the rent number.  Once that number is determined, it’s very difficult to change.  Getting the cost right up front and not inflating sales estimates are the only way to keep from getting into an occupancy cost over 10% which starts highly impacting profitability.  There is generally no way to renegotiate a lease mid-stream.  Landlords have you locked in with personal guarantee.  You will have to sell yourself out of this problem by getting the top line sales results up.

Overall, there are many reasons why restaurants fail.  In this restaurant broker’s experience, however, the three above are the main reasons we see otherwise successful opportunities take a turn for the worse.

Looking for franchise resale opportunitities  Visit us online at wesellrestaurants.com or follow the link below to view our listings.

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Blog Byline Robin

 

 

 

Topics: restaurant brokers

Selling Your Restaurant? Better Start Your Spring Cleaning

Posted by Eric Gagnon on Apr 9, 2018 12:57:13 PM

 

Dark Blue and Red World Press Freedom Day Social Media Post-1Spring is in the air. We all feel driven to clean out closets, tidy up spaces and do a general touch up. Thinking of Selling your restaurant? Apply the same thought process.

Most of us take a hard look at our homes and we will try to make it look as good as we can for the upcoming months. Why not do the same for your restaurant? If you’re thinking of selling your restaurant, here are some of the major areas to focus on from the restaurant brokers. These are the major areas and ideas for your Spring cleaning.

 

Dining room, Patio, Kitchen

When it comes to selling your restaurant, you need to look up, down, and all around. When is the last time you really cleaned your dining room floor? I don’t mean just mopping it. What about steam cleaning, rebuffing, re-waxing or even replacing a tired surface. You may not look down, but your customers do.

A continuation of the dining room floor are the base boards. When selling your restaurant, no detail is too small. Take a moment and wipe down the baseboards?

For a larger project, consider touching up paint on walls, a fresh coat of paint maybe even a new color? HGTV is filled with stories of a “before” and “after.” Many of these are just fresh paint colors that can have a huge impact.

Don’t forget to look up. That A/C leak from last year that stained a few of your ceiling tiles is a constant reminder of failed equipment. Don’t let a restaurant buyer focus on these negative items if you’re selling your restaurant. Look up, fix the ceiling tiles and, how about those ceiling fans? Please don’t tell me the last time you dusted them was last Spring.

Look at your décor. Change out old faded artwork or posters. You can do better. New pictures, new TV screens, new table covers; all are easy and simple (low cost) ways to bring Spring in the air.

Your kitchen is the engine every buyer wants to see. When is the last time you pulled out your kitchen equipment and steam cleaned the entire space and equipment? Have you gone to your storage area and disposed of any items no longer in use? Consider updating to newer technologies or upgraded equipment for the upcoming busy season. New equipment may cost now but make a huge difference to your bottom line this year if the food cooks faster or the temperature is stable.

Patios are often a huge plus for restaurants but to require upkeep. That area if visible from the road could also be the first look in your establishment for many customers. Make sure you have a picture-perfect patio area. Adding water or fire elements to your patio could also make a very positive impact on your business. Your patio, seen from the road, can be a billboard for you.

Menu Spring Cleaning

When selling a restaurant, the focus is on profitability. When is the last time you took a hard look at your menu? Adding and/or deleting items, pricing adjustment, seasonal specials, promotions, LTO’s. Be very strategic here. An outside consultant or food vendor can help with this. This is a big part of your business. If you can bring up your loss leaders or trade non-selling items on your menu for more profitable and sellable items what are you waiting for? Status quo is very easy and comfortable but if your sales are not going up, you are losing marketing share.

Staff Spring Cleaning

When selling your restaurant, you want the best possible crew. Do you need to provide additional training to the current team? Should you roll out a new incentive package for the team to participate in? You can host team building activity to set the tone and expectations for the busy season ahead. Whichever you decide to do here do not overlook or skip staff spring cleaning.

You spend a tremendous of time in your restaurant and sometimes it is very difficult to step out be candidly honest with yourself about the appearance. When selling your restaurant, that first impression may seal or sink the deal.

A quick Spring cleaning can go a long way. Any changes small or big will be noticed by your team and your customers. That new paint smell or new air freshener in your bathrooms will soon become the smell of new customers and new profits.

Topics: selling restaurants