Advice for Buying a Restaurant and Selling a Restaurant

Selling Your Restaurant?  Better Check These 3 Clauses in Your Lease

Posted by Robin Gagnon on Jan 17, 2017 6:00:07 PM

Ready to sell your restaurant?  Sales are up and profits are record breaking so in your mind, it seems like smooth sailing.  Not so fast.  The restaurant brokers want to make sure you check that lease (multiple times) to be sure you understand the three following clauses which can make or break your deal to sell your restaurant. 

Assignment and Subletting

The authority to assign and sublet is usually restricted to the landlord.  This includes if you sell your corporation (a common question) or change the ownership structure.  The bottom line is this. Landlords want to control who is leasing their property. 

not your friend.jpgStudy the assignment and subletting language in your lease before you open the door on negotiations.  While the most common language prevents any form of transfer without landlord consent, there are exceptions.  Occasionally clauses allow for what’s termed a “permitted transfer”.  In this instance, it does not require the landlord consent.

These permitted transfers or what some term an “auto-assign” clause are most frequently seen with franchise brands.  They give you the authority move the deal forward without engaging with the landlord.  Examples of this type of language include clauses that say you have the right (as the tenant) to assign to an approved franchisee of the same concept. Similar language may say the lease may be assigned if the buyer has a net worth equivalent to your own (the restaurant seller) net worth. 

If you’re not sure what your lease is saying, it is worth paying your attorney or asking your restaurant broker to weigh in on the language.

Most leases have language saying that a landlord may not “unreasonably withhold” consent.  While this language sounds good in theory when you’re selling your restaurant; in practice, it’s pretty benign language.  In our experience, you (or your restaurant broker) is still going to have to jump up and down and make a dozen calls to get the lease assigned.

Usually any lease assignment will require the consent of the landlord and even if he agrees to assign, don’t assume this will mean you are released from your personal guarantee.  Most landlords will do everything possible to retain as many guarantors as possible on the lease.

Renewal Options and Renewal Periods

As restaurant brokers, we commonly review leases on behalf of our clients and always point out when a renewal must be executed.  The most common language in leases states you must notify the landlord of your right to renew no more than 180 days prior to termination of the current lease term.  Read this carefully.  This gives you a short period that is strictly defined for when you must exercise your option to renew.  We are increasingly finding that landlords are allowing leases to lapse and then playing games with tenants for additional rent because they “lost” their option rates by not renewing on time. 

You may remember that the restaurant brokers are strong advocates that the landlord is not your friend (see our book Appetite for Acquisition) and the chapter by the same title.  With many older leases set to renew at below market rates, landlords are taking the position that if you forget to tell them, they certainly won’t remind you.  That makes your option to renew invalid.  They can choose to non-renew you, or in the case of a few clients we’ve seen recently, they will renew but at new (higher) negotiated rates.  Make a reminder in your calendar now to check out the renewal time period for your lease and make sure you renew or non-renew on your own terms.  If you’re selling your restaurant, we must have years left on the lease to satisfy both the SBA lender and most clients buying a restaurant.

Market Rate

The last item to check on your lease are any references to "market rent."  As restaurant brokers we really don't like this term when it comes to our sellers and buyers.  What is market rate?  Essentially, it's whatever the landlord wants to determine it to be.  We have yet to see a landlord negotiate this to be anything less than a healthy increase over what you're paying.

If you're selling your restaurant, study the lease first or engage a restaurant broker to do this for you.  There three make or break terms may affect your ability to sell the restaurant.

 

Topics: selling a restaurant

What to Expect at Discovery Day when Buying a Franchise Restaurant

Posted by Robin Gagnon on Jan 12, 2017 9:05:00 AM

If you're buying a franchise restaurant, you are sure to encounter a requirement to visit with the brand, meet the principles and in essence, undergo a job interview to join their brand.  

Discovery Day.jpgSomewhere in the history of franchising, "Discovery Day" became the common terminology for this first meeting or size up between a prospective franchisee and their future franchisor.  Some brands have retitled this to fit their culture more aptly with names like "Day of Discovery" or "Leap Day".  While this is booked as a day for you to learn more about the brand, you should count on the franchisor also gaining important intel on you that day to gauge whether you're a fit for their concept. 

What exactly happens at Discovery Day? What should you expect?  As restaurant brokers, we have attended many discovery days and here's what you can count on.  

We will ignore the basic advice here which says arrive on time, dress professionally and be prepared.  We’re assuming that anyone who is buying a franchise restaurant already gets the basics.  Depending on the life cycle of the brand and how many territories are available in the U.S., remember that this is a sales day.  The franchise is going to try and show you all the reasons that you should join their brand.

For starters, the agenda will almost always include a very senior executive, in most cases, the brand President, sharing his or her take on the vision for the brand, the culture, where it's been an where's it's going.  Take your cues from his style and if he's open and engaging and invites questions, serve them up.  If not, know that there will be functional areas trotted out in front of you to explain in detail the operations of the brand and some questions may be a better fit for them. 

You will always, always, as a candidate to buy a franchise restaurant, be served the food.  In large discovery day groups, this may be in the form of catering or at a nearby store.  For smaller, more intimate discovery days (held one on one or in small groups), you may go to a nearby "corporate" store or training store for lunch. 

If you are seriously considering buying a franchise restaurant, you should have already been a customer of the brand long before Discovery Day. It is easily a black mark on your candidacy if you show up and ask when they started serving wings when they added the item six months ago.  As a buyer of a franchise restaurant, the restaurant brokers recommend you visit multiple times during different day parts (breakfast, lunch and dinner) depending on the service hours before you ever make it to Discovery Day.  If you're visiting from out of country where they don't have the concept, fly into town a day early and visit the stores in the market multiple times before you show up.  

You can also count on hearing a lot about corporate culture.  This is where you figure out if the brand is a buttoned up corporate entity, a millennial workforce inspired laid back environment, an operations Phenom or some hybrid of these.  Don't overlook the importance of culture in deciding to move forward in buying a franchise restaurant.  If you’re attitude is not the least altruistic, you would not fit with a brand like Firehouse Subs whose foundation and commitment to community are at the forefront of their marketing and public face.  That type of culture disconnect will eventually breed dissatisfaction on one side or the other.  Use the Discovery Day to "discover" if this brand feels right for you. 

Most of the functional areas will also appear before you on Discovery Day.  Plan to meet and greet those from marketing, real estate, supply chain management and more.  That’s your time to ask questions specific to your purchase of the franchise restaurant for sale.  If you’re buying a franchise restaurant resale, evaluate where the brand is now and understand what is needs.  Then target your questions to those needs.  If food costs are too high, ask the supply chain management group how to save on costs. If sales are declining, ask the marketing department what type of support you can expect.  The restaurant brokers encourage you to have some form of questions during this time period.  If you sit back, it could appear to the franchise that you are disinterested or not as passionate about their brand as they are.  

The day will typically end with one on one interviews and this is the portion that is very much like a job interview.  You will be asked your motivations for joining the brand, the level of commitment you are prepared to bring to the table and other items that get to the heart of why you are joining them.

Within two days you will generally be awarded a franchise by the brand. Ultimately, that’s the goal of the Discovery Day, your acceptance of the brand and their approval of you.   Do you have other questions about Discovery Days when you are buying a franchise restaurant?  Call or email us and we'll be happy to respond. 

Topics: buying a restaurant

A Colorado Restaurant Broker's Take on the New Minimum Wage & Tipping Law

Posted by John Jordan on Jan 10, 2017 8:22:00 AM

As a restaurant broker and restaurant owner, I've examined the impact of Amendment 70 (Colorado’s minimum wage ballot initiative) on the industry.  In this restaruant broker's opintion, this is going to severely impact the way restaurants, bars, and food service related businesses run their establishments in the future.  What does the future look like under the new law?  Here's the implementation from 2016 through 2020.

 

 

                              Minimum Wage         Tip Credit            Tipped Wage       % increase     Tipped wage % increase

                                                                                                                                 From 2016                From 2016

2016                          8.31                             3.02                       5.29

 

2017                          9.30                             3.02                       6.28                       11.91%                     18.71%

 

2018                         10.20                            3.02                       7.18                       22.74%                     35.73%

 

2019                         11.10                            3.02                       8.08                       33.57%                      52.74%

 

2020                         12.00                            3.02                       8.98                        44.40%                     69.75%

 A restaurant using 800 tipped minimum wage hours per week is going to spend about $3500 extra dollars per month in 2017, $7000 per month in 2018, $10,000 per month in 2019, and $13,500 per month in 2020.  On an annualized basis, that means an extra $ $41,000 in 2017, $79,000 in 2018, $116,000 in 2019, and $154,000 in 2020 in real labor costs.  

How are restaurants going to cope with this?

From this restaurant broker's opinion and the owner's I have spoken to in the industry, it's clear.

Price Increases for Consumers Leading to a Reduction in Sales

About 95% are first going to raise prices.  What's the economic outcome of that?  Sales will be hurt while the restaurant business is still recovering from the great recession.  Chain restaurants have been seeing massive year over year sales decreases and are closing many locations across the USA.

Staffing Level Changes

Many restaurants are going to cut staffing levels and this will also hurt both the employees and customers. Employees will get fewer hours and customers will get reduced service. 

Change in Tipping

Some full-service restaurants may go to a “no tipping” policy but institute a “service charge” on customer’s checks. This is something I will consider and would welcome feedback from any restaurants that have tried this to offset the increased costs.

Restaurant Expansion

Some locations will close or choose not to expand.  This will hurt both employment and consumer choices.

Technology Replacement of Employees

We have seen some of the fast food chains and casual dining chains going to ordering kiosks and tableside ordering systems and payment systems. This trend will continue. 

As a restaurant broker with more than 30 years of experience in the restaurant industry the math is simple.  The average bottom line profit in a restaurant doing $1,000,000 in sales is around 10% to the bottom line. The Federal Reserve tells you there is no inflation, but that is because they exclude food and energy out of their CPI (Consumer Price Index) projections. So, if you do not eat, drive, or heat your house they are correct that there is no inflation.

Bottom line:  Restaurants have had to deal with increased food and beverage costs over the past 8 years and have been unable to pass the increases on to consumers as the fragile economy made it very difficult to do. Now with the tipped wage set to increase by 44.4% over the next three years it is going to cause a lot of pain to both operators and consumers.

We will see many marginal operators both large chains and smaller independents closing their doors as this is going to take away the profits that they had. It is going to hurt consumers as the restaurants will have no choice but to cut staffing levels, increase prices, and cut costs across the board. This is going to lead to sales decreases and drive many operators out of business.

There are going to be many changes in how a typical restaurant conducts business in the future and we will try and bring some answers as to what we can do to continue to help the restaurant industry in Colorado and the many exceptional operators continue to run high quality, profitable businesses.

                                               

Topics: buying a restaurant

Top Ten Restaurants for Sale by the Restaurant Brokers - Dec. 2016

Posted by Robin Gagnon on Jan 5, 2017 8:01:00 AM

The Holidays have come and gone in the month of December, but the gift of owing a new restaurant was still on buyer's minds. The warm weather in the southern region has shown that the buying market is not cooling down in any way. Here are the top listings in the Restaurant Broker's portfolio for the month of December 2016.  These are the most inquired about listings and had the most signed confidentiality agreements from restaurant buyers this month.  

 

This Florida restaurant for sale proves you should never linger if you want to buy a restauarant!  This restaurant priced at under $100,000 in Fort Lauderdale made it to the top of the list with activity, despite only being on the market for less than 20 days.  Offered for sale by Franchise Partner Ken Eisenband, this amount of activity signals a quick sale so bring those ofers! 
Listing ID:5228 Restaurant Broker Ken Eisenband    
Restaurant for Sale in Ft. Lauderdale Can Convert to Any Concept
Lease: Expires July 31, 2017 with options to be negotiated
Monthly Rent: $2980
Inside Sq. Ft. 1700
Outside Sq. Ft.
Price:$99,000
City:Fort Lauderdale

Ken Eisenband
(561) 350-3365

Hot Area, Hot Brand, Hot Price! This Atlanta Metro Franchise for Sale has buyers clicking for a new career in 2017. A franchise for sale priced by the restaurant brokers at under $90,000 in metro Atlanta won't last long.

Listing ID:5216 Restaurant Broker Robin Gagnon    
Fast Casual Franchise for Sale in Metro Atlanta Ready for New Owner
Lease: 2-5 year Options Remain
Monthly Rent: $2811.50
Inside Sq. Ft. 1200
Outside Sq. Ft.
Price:$85,000
City:Cumming

Robin Gagnon
(404) 800-6701

Located in one of the most desirable and high income areas, Alpharetta, Georgia, this restaurant includes a must see build out! Keep the currenty concept or make it your own. Turn your New Year into a New Career!

Listing ID:5198 Restaurant Broker Cyndi Weinbaum    
Well Known Mexican Restaurant for Sale in Alpharetta Georgia
Lease: 3.5 years left
Monthly Rent: $7132 w/CAMS
Inside Sq. Ft. 3900
Outside Sq. Ft.
Price:$129,000
City:Alpharetta

Cyndi Weinbaum
 

Georgia makes it mark again with this space for lease in Roswell. This 6000 square foot space give endless options on any concept. Bring you creativity to life with this blank canvas.

Listing ID:4832 Restaurant Broker Robin Gagnon    
Restaurant Space For Lease with great bar and patio in Roswell!
Lease: To be negotiated
Monthly Rent: $To be Negotiated
Inside Sq. Ft. 6000
Outside Sq. Ft.
Price:$0
City:Roswell

Robin Gagnon
(404) 800-6701

Another second generation space has buyers clicking to find out more. Located in a Norcross shopping center this 1850 square feet space can expand a current concept or create a new one!

Listing ID:5186 Restaurant Broker Cyndi Weinbaum    
2nd Generation 1850 Sq. Ft Restaurant Space for Lease in Norcross!
Lease: Negotiable
Monthly Rent: $1800
Inside Sq. Ft. 1850
Outside Sq. Ft. N/A
Price:$0
City:Norcross

Cyndi Weinbaum
 

Live the dream of living in the Sunshie state and serve yourself great hours! This breakfast location serves up short hours and an owner/operator will net over $70,000.

Listing ID:5156 Restaurant Broker Ken Eisenband    
Breakfast and Lunch Cafe for Sale in Broward County is close to the Beach
Lease: Expires December 31, 2020 plus five year option
Monthly Rent: $4918
Inside Sq. Ft. 2160
Outside Sq. Ft. 500
Price:$159,000
City:Pompano Beach

Ken Eisenband
(561) 350-3365

Second generation restaurant spaces for lease are creating lots of intrerest in the Georgia area! This location at $12 per square foot.  It's a great value for the very hot Alpharetta area. Some fusrniture, Fixtures and Equipment are already in place and ready to go for a new owner.

Listing ID:5191 Restaurant Broker Steve Weinbaum    
Fully Equipped Restaurant Space for Lease in Roswell Georgia
Lease: to be negotiated
Monthly Rent: $$4320
Inside Sq. Ft. 4319
Outside Sq. Ft.
Price:$0
City:Alpharetta

Steve Weinbaum
(770) 714-4552

This sandwhich franchise for sale under 90,000 has interest of restaurant buyers.  Located in an area with household incomes averaging $57,491, this location is ready to take on a motivated new owner!

Listing ID:5188 Restaurant Broker Robin Gagnon    
Franchise Sandwich Shop for Sale - Million Dollar Location!
Lease: Valid through May 1, 2020 with additional 2 5 year options
Monthly Rent: $12000
Inside Sq. Ft. 3805
Outside Sq. Ft.
Price:$89,995
City:Peachtree City

Robin Gagnon
(404) 800-6701

Another Franchise for Sale under $100,000 is making its way to the Top 10 restaurants for sale in December.  The trend continues with this six figure location.  This unit is looking to take on a owner that wants to grow a desired brand even more!

Listing ID:4971 Restaurant Broker Eric Gagnon    
Franchise Bakery for Sale - Atlanta Bread Company 6 Figure Earnings
Lease: Valid thru Feb 1, 2023
Monthly Rent: $9572
Inside Sq. Ft. 4800
Outside Sq. Ft.
Price:$99,000


Eric Gagnon
(404) 800-6704

Rounding out our top 10 list is another second generation space that  has curb appeal. Ample parking, beautiful patio, major reatailer near by can take your restaurant ready dreams and kick them off in 2017.

Listing ID:5187 Restaurant Broker Cyndi Weinbaum    
Restaurant for Lease in Suwanee, GA! 2nd Generation Lease Space
Lease: negotiable
Monthly Rent: $4000 1st 2 years, add cams of $3,50 psf for years 3-5
Inside Sq. Ft. 3500
Outside Sq. Ft. 400
Price:$0
City:Suwanee

Cyndi Weinbaum
 

Georgia was at the top of the listing heap with most of the activity in December 2016.  That means the market is gearing up for a delicious new year.  The two big winners in the top 10 for this month -- franchise concepts and second generation space!  All listings are getting strong activity however with page views and requests for information topping our continuing growth in traffice.  Ready to sell your restaurant?  January is typically the busiest month of the year and we are burning through inventory at unprecedented rates.    Free Restaurant Valuation Contact us to Sell Your Restaurant

 

 

Topics: buying a restaurant

Latest Franchise Deals Inked for 2016 Compiled by the Restaurant Brokers

Posted by Robin Gagnon on Jan 3, 2017 7:01:00 AM

As we ring in 2017, several groups made quick bids to get deals in contract and announce franchise expansions just before 2016 ended.  The restaurant brokers have combed the latest news articles and carefully read the Franchise Times deal update to uncover the lastest franchise units announced across the nation.  What's on tap for 2017?  Here's your first look at hundreds of new franchise units either acquired or signed in late 2016. 

One of the latest large deals announced was with GPS Hospitality, the Atlanta, Georgia based franchisee group.  They are expanding their national footprint with the acquisition of 194 Burger King Restaurants into five states including Alabama, Arkansas, Florida, Louisiana, and Mississippi. With this acquistion, GPS Hospitality has doubled its size and is on track to meet its goal of $1 billion in company sales in 10 years.

Bar Louie, a self described, "neighborhood bar and eatery with handcrafted cocktails" has around 110 units in operation.  They just inked a new three unit develop
Growth among pubs.jpgment agreement in the Lexington and Louisville markets.  The same group is currently building out a unit in Lexington Kentucky. The restaurant brokers are seeing renewed interest on all franchise fronts in the Kentucky markets which, while not as large as other markets, can often cement a mid-tier brand as a major player.  Two other concepts that feature full service in a neighborhood bar style also announced plans to expand. 

Walk-On Bistreaux & Bar will be introducing it's brand to eight new markets in four states, increasing Walk-On's franchise locations to 50. These new locations are Auburn and Tuscaloosa, Alabama; Gainesville, Pensacola and Tallahasee, Florida; Gulfport, Mississippi; and Knoxville and Nashville, Tennessee. In June of 2017, a Zachary, Louisiana franchise location will be opening.

Big Whiskey’s Franchising LLC has announced the signing of its newest franchisee in Kansas City.  Big Whiskey’s American Restaurant & Bar currently operates 3 restaurants in Springfield, one each in Ozark & Branson and will open its first franchised location in Bentonville AR in February 2017. Big Whiskey’s began franchising in late 2015.

A similar style concept BreWingZ Restaurant and Bar opened its second location in the San Antonio area at 5630 Walzem Road.  This marks the family friendly restaurant chain's 23rd location. BreWingZ is based in Houston Texas.  .

The trend continues for neighborhood full service wtih bars.  North Carolina based Hickory Tavern is opening its newest South Carolina location and their 25th restaurant overall. The new restaurant, located along the Grand Strand at the Coastal North Town Center.  This expands the count to six stores in South Carolina.  Their Hilton Head location opened earlier this year. 

Still another concept in a similar vein, Scotty's Brewhouse is also growing.  Due North Holdings, LLC, has acquired the Indiana-based, Scotty's Brewhouse. Scotty's Brewhouse, has expanded to 17 locations in Florida, Indiana, and Illinois. Due North Holdings, LLC is planning on expanding the current Midwest region and is looking to bring the concept to the Southwestern US including Arizona within the next year.

What's driving all this growth among full service Americanized 'pubs' and neighborhood bars?  The restaurant brokers think a number of operators are seeing thinner and thinner margins in fast casual and relatively low check averages.  Add full service to the equation and increase the tab with alcohol sales at higher profits and suddenly a unit can go from $500,000 in volume to a million in volume.  We'll withhold judgement on how much saturation the market can handle.  This report alone has highlighted seven concepts all vying for growth in the same space.  If this trend takes off, it will certainly squeeze independent operators of the actual neighborhood pub out of the mix especially as they face higher occupancy costs and deal with the additional regulation thrown at them in recent years.  

Moving on from full service to Mexican Fast casual, both El Pollo Loco and Del Taco are seeing expansion. as Mexican remains a top favorite of American consumers.  A franchisee partner, Poco Loco's, LLC,  is expanding in Utah with a restaurant in West Valley, the fourth location in Utah. . In addition, Chicken Time I, LLC, an affiliate of Henry Investment Group, opened its second El Pollo Loco location, in Hurst, Texas. Sierra Pollo Inc opened its sixth location, this one in Bishop, California.

Del Taco isn't being left out of the Mexican growth mix.  They announced two recent deals: One with CAI Investments to build 10 locations in the Phoenix-Scottsdale area beginning in 2018. Four locations, opening in southeastern Phoenix in 2018.  In addition, Taco Bueno announced that it will be expanding with the signing of new expansion agreements in Arkansas, Louisiana, Oklahoma, and Texas.

Dunkin Donut's is pouring it on in the south.  They announced current deals with one group for six restaurants in Greenville and three new restaurants in Raleigh-Durham, North Carolina.  More Dunkin' Donuts stores, including some co-branded ones with sister brand, Baskin-Robbins ice cream, were also announced for a total of 65 new restaurants in Dallas-Fort Worth, 35 new Dunkin' Donuts restaurants in Wise, Rockwall and Hunt Counties. 

From name brand to upstart, Rise Biscuit Donuts franchise will be adding 30 units in Georgia, Kentucky, and South Carolina. The first store planning to open in early 2017. They may not be as well known as Dunkin Donuts but they're rapidly growing.  The franchise has 100 stores under developments in nine states.

As the nation embarks on a healthier start to 2017, two smoothie concepts announced growth.  Tropical Smoothie Cafe will be growing in Florida with the opening of four new locations in the next several years. The goal for the area will be at least 50 cafes in the Tampa area. Juice It Up! franchise in California also announced a new location in the Riverside area.

As we ring in 2017, several groups made quick bids to get deals in contract and announce franchise expansions just before 2016 ended.  The restaurant brokers have combed the latest news articles and carefully read the Franchise Times deal update to uncover the latest franchise units announced across the nation.  What's on tap for 2017?  Here's your first look at hundreds of new franchise units either acquired or signed in late 2016. 

One of the latest large deals announced was with GPS Hospitality, the Atlanta, Georgia based franchisee group.  They are expanding their national footprint with the acquisition of 194 Burger King Restaurants into five states including AlabamaArkansasFloridaLouisiana, and Mississippi. With this acquisition, GPS Hospitality has doubled its size and is on track to meet its goal of $1 billion in company sales in 10 years.

Bar Louie, a self-described, "neighborhood bar and eatery with handcrafted cocktails" has around 110 units in operation.  They just inked a new three unit development agreement in the Lexington and Louisville markets.  The same group is currently building out a unit in Lexington Kentucky. The restaurant brokers are seeing renewed interest on all franchise fronts in the Kentucky markets which, while not as large as other markets, can often cement a mid-tier brand as a major player.  Two other concepts that feature full service in a neighborhood bar style also announced plans to expand. 

Walk-On Bistreaux & Bar will be introducing its brand to eight new markets in four states, increasing Walk-On's franchise locations to 50. These new locations are Auburn and Tuscaloosa, Alabama; Gainesville, Pensacola and Tallahassee, Florida; Gulfport, Mississippi; and Knoxville and Nashville, Tennessee. In June of 2017, a Zachary, Louisiana franchise location will be opening.

Big Whiskey’s Franchising LLC has announced the signing of its newest franchisee in Kansas City.  Big Whiskey’s American Restaurant & Bar currently operates 3 restaurants in Springfield, one each in Ozark & Branson and will open its first franchised location in Bentonville AR in February 2017. Big Whiskey’s began franchising in late 2015.

A similar style concept BreWingZ Restaurant and Bar opened its second location in the San Antonio area at 5630 Walzem Road.  This marks the family friendly restaurant chain's 23rd location. BreWingZ is based in Houston Texas.  .

The trend continues for neighborhood full service with bars.  North Carolina based Hickory Tavern is opening its newest South Carolina location and their 25th restaurant overall. The new restaurant, located along the Grand Strand at the Coastal North Town Center.  This expands the count to six stores in South Carolina.  Their Hilton Head location opened earlier this year. 

Still another concept in a similar vein, Scotty's Brewhouse is also growing.  Due North Holdings, LLC, has acquired the Indiana-based, Scotty's Brewhouse. Scotty's Brewhouse, has expanded to 17 locations in FloridaIndiana, and Illinois. Due North Holdings, LLC is planning on expanding the current Midwest region and is looking to bring the concept to the Southwestern US including Arizona within the next year.

What's driving all this growth among full service Americanized 'pubs' and neighborhood bars?  The restaurant brokers think a number of operators are seeing thinner and thinner margins in fast casual and relatively low check averages.  Add full service to the equation and increase the tab with alcohol sales at higher profits and suddenly a unit can go from $500,000 in volume to a million in volume.  We'll withhold judgement on how much saturation the market can handle.  This report alone has highlighted seven concepts all vying for growth in the same space.  If this trend takes off, it will certainly squeeze independent operators of the actual neighborhood pub out of the mix especially as they face higher occupancy costs and deal with the additional regulation thrown at them in recent years.  

Moving on from full service to Mexican Fast casual, both El Pollo Loco and Del Taco are seeing expansion as Mexican remains a top favorite of American consumers.  A franchisee partner, Poco Loco's, LLC, is expanding in Utah with a restaurant in West Valley, the fourth location in Utah. . In addition, Chicken Time I, LLC, an affiliate of Henry Investment Group, opened its second El Pollo Loco location, in Hurst, TexasSierra Pollo Inc opened its sixth location, this one in Bishop, California.

Del Taco isn't being left out of the Mexican growth mix.  They announced two recent deals: One with CAI Investments to build 10 locations in the Phoenix-Scottsdale area beginning in 2018. Four locations, opening in southeastern Phoenix in 2018.  In addition, Taco Bueno announced that it will be expanding with the signing of new expansion agreements in Arkansas, Louisiana, Oklahoma, and Texas.

Dunkin Donut's is pouring it on in the south.  They announced current deals with one group for six restaurants in Greenville and three new restaurants in Raleigh-Durham, North Carolina.  More Dunkin' Donuts stores, including some co-branded ones with sister brand, Baskin-Robbins ice cream, were also announced for a total of 65 new restaurants in Dallas-Fort Worth, 35 new Dunkin' Donuts restaurants in Wise, Rockwall and Hunt Counties. 

From name brand to upstart, Rise Biscuit Donuts franchise will be adding 30 units in Georgia, Kentucky, and South Carolina. The first store planning to open in early 2017. They may not be as well-known as Dunkin Donuts but they're rapidly growing.  The franchise has 100 stores under developments in nine states.

As the nation embarks on a healthier start to 2017, two smoothie concepts announced growth.  Tropical Smoothie Cafe will be growing in Florida with the opening of four new locations in the next several years. The goal for the area will be at least 50 cafes in the Tampa area. Juice It Up! Franchise in California also announced a new location in the Riverside area.

The restaurant brokers will continue to write about the franchise expansion deals and keep our readers posted on the growth as 2017 unfolds.

 Want to see the latest franchise for sale by We Sell Restaurants?  Check them out at this link. 

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Topics: selling a restaurant

What does the new SBA Amendment Mean for Restaurant Buyers?

Posted by Robin Gagnon on Dec 27, 2016 6:05:40 PM

New rule changes for SBA lending are effective as of January 1. If you're not familiar with the updates, take this opportunity to learn a little more. 

What do the new rules mean?  Study up now as everyone on all sides of the transaction will be affected.  This includes franchisors, franchisees, restaurant brokers and landlords.  WhSBA.pngat will the changes mean?  Will these rules make it tougher to borrow?  What about timing?  Are we looking at a longer or shorter lending cycle?  We may have to experience a few deals to get answers to all these questions but at the outset, it appears the new rules will streamline lending for franchise restaurants.

Here's the short version of the SBA rule changes along with some perspective from the restaurant brokers.  The three big changes look relatively simple on the surface but may cause some concern depending on whether you’re a franchisee or franchisor.  We attended one webinar where the host stated that “for most brands who have used SBA financing in the past, things will remain relatively the same.”  Let’s see if you agree. 

What are the big changes?

First and foremost, Franchisors no longer have to submit their franchise agreement for SBA review.  This process is sure to shorten the cycle since the franchise review process was relatively cumbersome.

Secondly, franchises will no longer be required to be listed on the Franchise Registry. This is a dramatic departure from business as usual since prior to this, all franchise brands had to have audited financials, submitted to a national clearinghouse and then uploaded to a site accessed by SBA lenders.  Removing this step will reduce expense and regulatory burdens on franchisors.

Lastly, under the new rule, both the franchisee and franchisor must sign a two-page addendum to the franchise agreement that covers four provisions: change of ownership; forced sale of assets; covenants; and employment.  The SBA lender can NOT make a loan or disburse any loan proceeds unless this addendum is signed.  It is an all or nothing scenario so it can’t be negotiated.

What the franchise must understand is that this addendum takes priority over the Franchise Agreement in the event of a conflict.  That means that franchisors must now subordinate their interest to the standard agreement. 

What are the issues covered by the addendum?  It’s basically four areas and this is the specific language of the addendum.

Transfers – SBA Loan New Language

If Franchisee is proposing to transfer a partial interest in Franchisee and Franchisor has an option to purchase or a right of first refusal with respect to that partial interest, Franchisor may exercise such option or right only if the proposed transferee is not a current owner or family member of a current owner of Franchisee. If the Franchisor’s consent is required for any transfer (full or partial), Franchisor will not unreasonably withhold such consent. In the event of an approved transfer of the franchise interest or any portion thereof, the transferor will not be liable for the actions of the transferee franchisee;

The Restaurant Brokers Call Outs on New Transfer Language

On this point, we feel this really helps with individuals who are transferring an interest within a family situation. It’s our position that franchisors should not be collecting a transfer fee or using a family change to force someone out.  We are big fans that for the new language that franchisors shall not unreasonably withhold consent.  This is new language and we feel this is advantage – franchisee!

Option to Buy – SBA Loan New Language

If Franchisor has the option to purchase the business personal assets upon default or termination of the Franchise Agreement and the parties are unable to agree on the value of the assets, the value will be determined by an appraiser chosen by both parties. If the Franchisee owns the real estate where the franchise location is operating, Franchisee will not be required to sell the real estate upon default or termination, but Franchisee may be required to lease the real estate for the remainder of the franchise term (excluding additional renewals) for fair market value;

The Restaurant Brokers Call Outs on this new provision - Option to Buy

This is interesting language from our viewpoint.  The point that a Franchisee will be required to be the landlord for the franchise brand (even if they are no longer under a franchise agreement) introduces a new dynamic to the process.  Imagine that you own your real estate and open a Dunkin Donuts franchise.  At some point, you decide (or they decide) to terminate the relationship.  Under this constraint, you may be required to lease the real estate so it can remain a Dunkin Donuts even if you are no longer the franchisee at “fair market value.” 

The restaurant brokers see a lot of ways this could go sideways if a franchise is terminated.  It might be a smart idea (if you own the property) to consider selling this to a non-related group over which you have control (and doing a lease back) before entering into amendment.  In our mind, this is advantage – franchisor!

Real Estate Control – SBA Loan New Language

If the Franchisee owns the real estate where the franchise location is operating, Franchisor may not record against the real estate any restrictions on the use of the property, including any restrictive covenants, branding covenants or environmental use restrictions; and

The Restaurant Brokers Call Outs on this provision - Real Estate Control

It has been a relatively common industry practice for a build to suit scenario where the franchisee owns the real estate for the franchisor to place restrictive covenants and/or branding covenants restrictions.  This language appears to remove their ability to do so by not allowing restrictive covenants or branding covenants.  We see this one as advantage – franchisee!

Employees - 

Franchisor will not directly control (hire, fire or schedule) Franchisee’s employees.

The Restaurant Brokers Call Outs on this provision - Employees

This is a win for franchisors who rightly, should not have their franchisees considered as employees.  There has been an unheard of amount of language written on this topic in 2015 as the Obama administration worked to bring into play ‘joint work” scenarios whereby franchisees were viewed as employees.  This one is advantage – and rightly so – Franchisor.  

This is our initial reading of the new rules and provisions in the amendment.  As we see these play out in actual restaurant lending situations over the coming year, the restaurant brokers will continue to weigh in with updates.   

Want to see our restaurant for sale listings already approved for SBA Lending? Check them out at this link.

Topics: buying a restaurant

Financing a Restaurant Purchase?  Here's a Review of the 5 C's of Borrowing.

Posted by Robin Gagnon on Dec 22, 2016 9:05:26 AM

Are you planning to finance a restaurant purchase?  If so, the restaurant broker's recap of the "Five C's" may be a helpful prelude to SBA lending. Being aware of these five factors can help you determine if you are ready for lending before buying a restaurant. . What are the Five C's? These are the items lenders use as a determination of risk.   For bank lending, it’s all a matter of risk versus return.  Here are the five C’s and the restaurant broker’s  brief review of these important item.  Be prepared before you ask for that loan.

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The first C is Capital! 

How much money will you bring to the table to finance the deal?  Unlike houses, the restaurant brokers have never seen anything like a "no money down"  or 3% down scenario for buying a restaurant.  Prepare to have at least 20% of the purchase price in the bank before you ask for a loan.  Otherwise, you will risk an almost automatic turndown.  What about more?  Always better!  Why?  This takes the pressure off the business to meet the SBA lending cash flow requirements and gives you some "breathing room" once you take over the business.  

Credit:

What is your personal credit score?  No discussion of the "C's" would be complete without a full discussion of credit.  After all, your past performance in paying your bills is a predictor of your future performance.  As we discuss in our book, Appetite for Acquisition, you should never go shopping to buy a restaurant and start due diligence until you've done some due diligence on yourself.   Before you buy a restaurant, please pull your credit score.  Make sure no one has lifted your identity or that unknown to you, a spouse has racked up a lot of debt that affects the number.  A minimum score of 650 by both a spouse and applicant are required on an SBA loan but that's on the low side.  Banks will look hard at that credit score.  If it's a little on the "soft side”, that can be overcome with careful documentation and notes to the bank. 

Capacity:

Capacity refers to the repayment ability of the business or the cash flow.  The SBA lending requirement is that a business will have sufficient cash flow to BOTH cover the principle and interest (and buyer's financial needs) along with a cushion of 25%. Any restaurant broker worth their salt would have already made sure the "capacity" part of the equation is satisfied before listing the business.

Character:

The next "C" in lending is a character.  This refers to your business experience.  If you are buying a franchise restaurant, having experience isn't always required as the process, systems and way to operate are part of what you are acquiring.  If you come from the airline industry however and are looking to start running a full service white tablecloth business with no background, this one could get dicey.  There are ways to overcome an "experience" or character issue.  Bringing on a family member or partner with experience will fulfill this requirement as would putting a pause on your plans while you gain the relevant experience in the industry would help.

Collateral:

dollar-1362244_1280.jpgThe last of the five "C's" in lending are collateral.  What are the assets you have to guarantee the loan?  Aside from the assets of the business which will always be pledged, the bank will request that you collateralize the loan as well.  This is often with a second mortgage on your home or other property you may own.  For some restaurant buyers, this is a sticking point, so making sure you and your family are on board with what you are willing to risk is important before going forward with SBA lending.

That’s it.  Spend some time making sure you are prepared to address these five C’s with lenders and your loan will see easy approval.  Concerned about one of these items?  Contact the restaurant brokers personally to discuss your situation and see how we can help you with our SBA lending resources.  Remember, these are guidelines, not absolutes and every deal is different.  Ready to prequalify and talk to our resources?  We can help with that as well.  

 

 

Topics: blog

We Sell Restaurants Opens Latest Office in Florida

Posted by Robin Gagnon on Dec 19, 2016 11:49:14 AM


 

We Sell Restaurants, the restaurant brokerage firm selling more restaurants than anyone else, announces the opening of their latest office in Florida.  The new office will host most corporate activities as the firm increases centralized operations from the sunshine state.

New FL Office Door.jpgThe new office, approximately midway between St. Augustine and Daytona Beach Florida is less than a mile from Interstate 95 and easily reached from this major roadway.  The location includes executive offices for the growing corporate staff as well as an enlarged training facility with the audio and visual support needed to train each new group of Certified Restaurant Brokers. 

Eric Gagnon of We Sell Restaurants said of the new operation, "The central Florida market is easily accessible from multiple airports, experiences year round great weather and allows us to offer training to our franchisees and team members nearby amazing beaches and great family resorts. When considering a new location, this one made perfect sense."

We Sell Restaurants, established since 2001, opened the Atlanta headquarters in 2010 and has franchisees in Colorado, Tennessee, Florida, Texas and North Carolina.  The new Florida office replaces many of the operational functions of the home office including management of the B.O.S.S. (Broker’s Operations and Sales System Platform), centralized marketing and lead generation for the franchisees. The We Sell Restaurants brand has expanded from a localized Georgia brand to a nationwide practice operating in 32 states in the years since the original headquarters was established on Centennial Olympic Park Drive in Atlanta Georgia. 

WSR Florida Interior.jpgThe new location in Florida is located at 2561 Moody Blvd, Suite B in Flagler Beach Florida.  Robin Gagnon, co-founder of the brand says of the move, “As we continue to expand through franchising, each strategic move for the firm includes conversations about that growth.  Our Atlanta footprint is strong and is home to many franchise brands.  Florida is another very large franchise development market offering tremendous opportunity.  It is also the state where we are looking to grow our franchise presence, particularly in the Orlando and Miami markets.”

The first Certified Restaurant Broker training class will be conducted in the new offices in January of 2017.  That class will see four graduates of the brand move into franchise territories across the nation.

About We Sell Restaurants

We Sell Restaurants is the nation’s largest restaurant brokerage brand, specializing in the sale of restaurants.  The firm began franchising in 2012.  For more information on franchising, visit us online at wsrfranchise.com.  For more information on restaurants for sale, visit our listings at this link.

Visit Our Listings Online!

 




 

Topics: buying a restaurant

We Sell Restaurants Expands to Raleigh North Carolina with Latest Franchisee

Posted by Robin Gagnon on Dec 14, 2016 5:06:13 PM

Katy Sizemore.jpgWe Sell Restaurants, the restaurant brokerage franchise selling more restaurants than anyone else nationwide, announces their newest franchisee in Raleigh North Carolina.  Katy Sizemore, a licensed real estate broker in North Carolina, has purchased the rights to represent We Sell Restaurants in the Research Triangle (Raleigh - Durham) market.  The Raleigh location is slated to open in early 2017.

Located in the thriving North Carolina metro area, this new location marks the 8th franchise unit for the restaurant brokerage brand which began franchising in 2012.  Katy Sizemore, the latest franchisee, is a graduate of North Carolina State University. She has proudly called the Triangle area home since 2000 and became a licensed real estate broker in 2007.  Katy is married to Jonathan Sizemore, a partner with Adams, Howell, Sizemore & Lenfestey, P.A.   

Eric Gagnon, President of We Sell Restaurants, say of the expansion, “We have had tremendous demand from the Raleigh market for a local franchisee.  We have listed and sold several million dollars in restaurants over the past few years in this market.  Expanding with a local office allows us to provide a superior customer experience for those buying and selling restaurants.”

As the founder of Sizemore Realty Group, Sizemore has expertise in both sales and business management.  She will open her new We Sell Restaurants office with a full team to support the new business services. Robin Gagnon, co-founder of the brand says, “Katy is an ideal candidate for our restaurant brokerage brand.  She is focused on reaching her goals, which are accomplished by her efficiency, her focus, and her fantastic interpersonal skills. She has a dedication for providing uncompromised customer service which makes every transaction she manages seamless and stress free.”

Sizemore will undergo one of the most thorough training programs in the nation for business brokerage before embarking on her new role.  She will undergo testing before being awarded the title of Certified Restaurant Broker, a distinction held by only a few individuals nationwide. 

Restaurant buyers and sellers in the Raleigh market can expect to hear from the new franchisee in early 2017 as the marketing kicks off in the area.  The new We Sell Restaurants office will work with the local restauranteurs, franchisees and buyers as they buy and sell restaurants.  1logowoutborder_wtm.jpg

About We Sell Restaurants®

Founded in 2001, We Sell Restaurants has grown to the largest restaurant brokerage firm in the nation.  We Sell Restaurants began franchising in 2012 and thanks to an ever-expanding need, continues to growth nationwide.  We Sell Restaurants currently sells restaurants in more than 32 states nationwide.  For more information visit wesellrestaurants.com.  For information on the franchise brand, visit wsrfranchise.com.  We Sell Restaurants® and the We Sell Restaurants logo are federally registered trademarks of the We Sell Restaurants brand.  No unauthorized use is permitted. 

 

Topics: selling a restaurant

Selling a Restaurant?  Avoid the Top 7 Mistakes Made by Restaurant Sellers

Posted by Robin Gagnon on Dec 12, 2016 3:40:25 PM

If you’re interested in selling your restaurant for the most amount of money in the shortest time, read this advice by the restaurant brokers.  These are the top seven mistakes we see made by sellers when listing their restaurant for sale.


dining-room-103464_1920.jpgFirst on the list of Restaurant Selling mistakes is hiring someone without experience.  Deciding that your friend Sarah the residential real estate agent who sold your home has the skills it takes to sell your restaurant will certainly lead to a less than desirable outcome. You need someone with the background, legal forms and experience to make the sale happen.  Don’t forget.  Mistake number one.  Don’t hire a rookie.

What’s second on the restaurant brokers list of mistakes in selling a restaurant?  Hire a specialist, not a generalist.   Let’s try this analogy.  Both your internist and your dentist went to medical school. Who would you prefer to see about follow up tests on your cholesterol?  It’s important to hire a specialist in your field.  A general business broker may sell a carwash today a day care tomorrow.  Those brokers specializing in selling restaurants have working knowledge information about the industry, contacts, and credibility when it comes to speaking to buyers.  Mistake number two:  Don’t hire a General Broker for a Specialized Job.

Mistake number three on our list of the seven to avoid is what we call the ‘Do it yourself” approach.  Anyone who watches the home improvement shows where an unlikely home owner starts trying to take down walls can appreciate this warning.  If you’re good at running a restaurant, stick with that.  The restaurant broker serves as a buffer to the questions, the issues and the validation that occurs during due diligence.  There is a lot of emotion associated with your own business and that makes it difficult to segregate when it comes time to negotiation. Let the professionals handle the sale of your business. Mistake number three:  Don’t do it yourself.

What’s the fourth most common mistake we see when selling a restaurant?  It’s asking too much for the business.  A professional knows how to price based on what the market is reporting, what lenders will finance and what your restaurant is actually worth.  It’s very difficult for a seller to come to those same conclusions and inevitably, they price too high to begin with and their listing grows stale without offers.  Mistake number four:  Don’t Price Too High.

The fifth most common mistake is actually the opposite of the last point.  You can actually underprice your restaurant if you are not working with a professional familiar with the market and the current and correct multiple or who understands the process of recasting add backs.  Personal expenses covered by the business on your behalf can be added back to the net income of the business to calculate benefit for the owner.  Examples may include something like health insurance or cell phone expense. Mistake number five:  Don’t Undervalue Your Restaurant.

Talk about a big mistake.  The next one that comes to mind could have far reaching consequences for your business.  This is mistake number six.  As a seller you get so excited about working with a buyer that you give out sensitive information before buyers are qualified.  All buyers are not created equal.  Your financial information should be treated securely.  Your financial documents include your EIN (Employer Identification Number).  This is the same as your social security number as an individual.  Mistake number six:  Don’t hand over Confidential Information before Qualifying Buyers.

The final in our list of the top seven mistakes made when selling your restaurant is failing to put legal protection in place. Just as you should qualify buyers (mistake number six), you also need to be sure and put a confidentiality agreement in place and have one signed before releasing any information.  Make sure there are consequences if the agreement is breached.  Mistake number seven:  Don’t share anything until the Confidentaility Agreemetn is in place.

That’s it!  Avoid those seven mistakes and you will have a much higher rate of success in selling your restaurant!  Do you have other questions?  Reach out and give us a call or request a free valuation of your restaurant at this link or click the button below.  

Free Restaurant Valuation

Topics: selling a restaurant