Advice for Buying a Restaurant and Selling a Restaurant

Eric Gagnon

Recent Posts

How to Sell a Restaurant Business

Posted by Eric Gagnon on Feb 10, 2012 11:09:00 AM

selling a restaurant businessThe time has come to sell your restaurant business, perhaps it's not making the money you need anymore, or you just don't have the time to run it any longer. Just like when selling any other item, there a few basic things to consider to make sure your business is an attractive option for potential buyers. It may be necessary to invest some extra capital to ensure a better sale price in the long run.

The first step in selling a restaurant is to make sure that the business is ready to sell. If it is an active, operating restaurant then it is important to make certain that any and all maintenance is attended to. This includes repairing or replacing all of the equipment and addressing any aesthetic issues. Potential buyers that notice an array of problem areas when they view the space will be left wondering what else is wrong with the business that they cannot clearly see. 

When the restaurant is looking its best, it is then important to check out all the paperwork technicalities that may cause problems down the line. Leases for both the property or any equipment that will be part of the sale need to be checked to make sure they are transferable to a new owner.  Then you should contact an expert restaurant broker who can pull together research on the area in which the restaurant is located, as well as information on sales figures, costs and other restaurant statistics.  He or she will form a business offering package to attract buyers along with a restaurant valuation report, which helps tell both you and the buyer how much the business is worth.

With these steps out of the way, the process of selling can begin. Restaurant brokers rely on their database of buyers and website advertising as the best starting point for selling a restaurant business.  They will have a well organized process of reviewing potential buyers so that their ability to buy is checked before time is wasted or offers are tendered.  Expert restaurant brokers have all the tools to successfully move the transaction from contract to the closing table.

Topics: restaurant brokers, selling a restaurant

Atlanta Restaurants Sales Up Says CPA. Restaurant Brokers Agree.

Posted by Eric Gagnon on Jan 28, 2012 10:34:00 AM

Atlanta Restaurant BrokersAtlanta restaurants are reporting sales increases of 4.7% over 2011 according to CPA Robert Wagner at Net Financials. Restaurant brokers are seeing a similar trend.

Robert Wagner, CPA at NetFinancials has released his recent report of fourth quarter sales for Atlanta restaurants and the news is on par with what restaurant brokers at We Sell Restaurants have been seeing.

Quoting directly from his report, Wagner states, "Fourth quarter 2011 same-store sales increased 4.7% over sales for the same period in 2010, according to NetFinancials’ latest sales survey of 71 independent Atlanta restaurants. While positive, this increase is the lowest quarterly sales increase in 2011. Quarters 1, 2 and 3, 2011 sales increased 5.3%, 7.2% and 6.4% respectively, over 2010. As in prior 2011 quarters, the fourth quarter 2011 same-store sales gains are broad-based, impacting all three major Atlanta restaurant sectors – fast-casual, causal and fine dining."

Robert Wagner, NetFinancials president states that, “Though consumers faced daunting economic worries in 2011, Atlanta’s restaurants managed to post impressive sales gains. It is remarkable that almost 90% of Atlanta restaurants we surveyed revealed positive sales gains in 2011. Clearly the industry is as vibrant and relevant as ever and, we think, poised for solid growth in 2012.” 

That's in line with what Atlanta Restaurant Brokers are seeing in the marketplace.  One other interesting trend noted by Wagner was that the fourth quarter results were not quite as strong as the other three periods in the year.  he attributes this to the strength of the prior year.  According to him, "Quarter 4 2010 was exceptional exhibiting a one-time ‘recession bounce’ from pent up demand and returning business customers.”

Wagner shared the source of the increase. “Operators tell us the sales increases are due to both increased customer counts and increased check averages in Q4 and year-to-date 2011.”

Atlanta Restaurant Broker and We Sell Restaurant President Eric Gagnon reports similar trends stating, "Our sellers keep us regularly posted on both profitability and revenue trends.  We have seen positive results quarter after quarter in 2011.  The best growth has originated from our fast casual and sports bar restaurants for sale." 

Topics: sell restaurant, robert wagner, atlanta restaurants, restaurant brokers, restaurant broker

Restaurant buying 101. How to buy a restaurant

Posted by Eric Gagnon on Dec 27, 2011 1:00:00 PM

Buying a restaurant takes understanding of the industry and access to restaurants for sale.  Here’s how to get both.

Record numbers of Americans searching for a small business combined with a hunger for all things “foodie” are creating a perfect storm of demand for buying a restaurant.  It’s no wonder buyers are seeking out established restaurants for sale since building a restaurant from scratch is such an uncertain prospect.  Six out of ten startup restaurants are out of business by the end of year three, a grim reminder of shattered dreams. Countless restaurants don’t ever truly get off the ground since the owner’s capital is all depleted in the build out phase.    

There’s no such thing as instant success in the restaurant industry but buying an existing restaurant delivers significant advantages over starting from scratch.  Finding these existing restaurants for sale in Atlanta delivers a streamlined path to success for would-be restaurant owners. 

Buying a restaurant gives you control over restaurant start up costs. The single largest cause of failure for restaurants is lack of capital.  The capital burn rate increases exponentially when a skilled restaurant professional attempts to turn into a building contractor overnight simply because the project is an eatery.  Unless you’re a general contractor who happens to swing a hammer as successfully as you filet a swordfish, then your restaurant will take far longer to build and cost much more than you ever imagined. 

Buying a restaurant greatly reduces your time to market.  Your restaurant can be operating tomorrow with the purchase of an existing concept.  Compare that to six to nine months to permit, build and then open a restaurant from scratch.  You can be serving your first sandwich tomorrow to existing customers instead of waiting an average of seven months to open the door.

You get existing sales with a restaurant purchase.  An existing restaurant, even a struggling one, has a base of business.  Any brand new restaurant has to build the initial dollar of sales volume and every dollar thereafter incrementally.  The first $100,000 of sales volume is the toughest to achieve.  Without the expense and time spent building from scratch, you can implement marketing plans and operational changes to drive the existing sales line higher.  Starting from zero sales is a daunting task no matter how well known you are as a chef or how many customers you believe will visit your store.  

The final and most important reason to buy a restaurant is the purchase of existing cash flow.  On a comparative basis, purchasing the cash flow of an operating restaurant with good books and records is less expensive than many other business types.  The inventory is negligible and cash flow is often purchased for 2.5 times earnings or less. That means someone looking for $100,000 in cash flow can acquire an operating business churning out six figure earnings for less than $250,000.  There are few other investments where placing $250,000 on the line nets you a 40% return in the first year and pays off in two and a half years. 

You can find restaurants for sale listed with expert restaurant brokers who specialize in buying and selling restaurants.  The cost is certain, the sales line already exists and the cash flow is provable.  Most importantly, you can own a restaurant tomorrow. 

Topics: restaurant broker, buy a restaurant, how to buy a restaurant

Atlanta Restaurant Sales Trending in Positive Territory Says Local CPA

Posted by Eric Gagnon on Oct 31, 2011 12:03:00 PM

Atlanta restaurant sales are up over 2010 continuing a positive trend measured for each quarter of this year by local CPA Robert Wagner of NetFinancials.

Atlanta restaurant owners are breathing a sigh of relief over increased sales in third quarter 2011 versus 2010.  That's according to CPA Robert Wagner's latest survey of 70 independent Atlanta restaurants.  Those surveyed reported gains of 6.4% over the preceding year for the same time period and marks the third consecutive quarter of gains for the local Atlanta restaurant market.

The local results are better than those cited nationally by the National Restaurant Association that published a report last week showing only 50% of  restaurants surveyed showed increases in September over the prior year.  That was better than August where only 45% of the restaurants surveyed posted gains. In the Atlanta survey over three quarters of those that responded (77%) said their same store sales increased in third quarter.The full National Restaurant Association report can be found online at http://www.restaurant.org/pdfs/research/index/201109.pdf

Robert Wagner, president of NetFinancials said, "National surveys showed that consumers were in a grumpy, pessimistic mood. The Atlanta restaurant industry is incredibly fortunate that in such a challenging environment, Atlanta consumers continued to spend on eating out."  Those thoughts were mirrored by We Sell Restaurants President Eric Gagnon who stated, "Atlanta is a very resilient restaurant market.  Restaurant buyers are definitely present in the market and seeking good businesses to buy as well as a lot more education and information on how to buy a restaurant."

While the sales trending data is positive, it's important to note that some results are being driven by price increases on many menus as a result of commodities cost increases.  As recently as last week, We Sell Restaurants tweeted about food giant McDonald's warning investor's to be prepared for another menu price increase on the heels of two others ones already posted this year.  The industry is seeing higher food costs across all sectors including fast casual, casual and fine-dining.

NetFinancials, Inc. provides a full range of tax and accounting services for restaurant companies and can be found online at www.netfinancials.com.

Topics: sales and atlanta restaurant

Master Chef Season 3 Auditions Coming to Atlanta

Posted by Eric Gagnon on Oct 28, 2011 12:08:00 PM

Have you ever wondered how people end up on restaurant reality TV shows?  The answer...they AUDITION!  Auditions are coming to Atlanta for Master Chef (Season 3) in two short weeks.  Are you ready to show your stuff on a casting call that might get you in front of Gordon Ramsey and millions of TV viewers?  Here's what you do.  They want some information, photo and video so prepare everything before you get started.

  1. 1. Pre-register your profile and pick your open call location in advance (PRE-REGISTER HERE). 
  2. 2. Download the application form HERE and bring it with you to an open call.
  3. 3. Bring a current photo of yourself 
  4. 4. Bring a photo of your plated dish

Then you bring your food/ingredients to be finished and plated once you enter the audition room.  NOTE: There will not be a kitchen to cook or warm up your dish so come prepared! Like all good things in life, there are rules.  Here are a few of them. 

  1. You must be 18 years or older on or before February 1, 2012 and not a minor in your state of residence. 
  2. You must also be a citizen or legal permanent resident of the United States.
  3. Your main source of income cannot come from preparing and cooking food in a professional environment (restaurants, hotels, food trucks, catering etc).

Georgia has two different audition sites - Atlanta and Savannah! 

ATLANTA, GA
Saturday, November 12, 2011
Le Cordon Bleu

1927 Lakeside Parkway
Tucker, GA 30084
10:00 AM - 6:00 PM

SAVANNAH, GA
Saturday, November 19, 2011
Savannah Tech College               
5717 White Bluff Road
Savannah, GA 31405   
10:00 AM – 6:00 PM

If you make it onto the show, We Sell Restaurants and all of Atlanta will be pulling for you.  The amateur cooks will be put through the paces, and only the most deserving among them will win the coveted white apron and move on to the next round of the competition. One thing is certain in MASTERCHEF: Winning will be no piece of cake.

What to Include in Your Letter of Intent When Leasing a Restaurant

Posted by Eric Gagnon on Oct 27, 2011 2:36:00 PM

A letter of intent is the way to cement the terms between a landlord and restaurant tenant.

If you are leasing a second generation or former restaurant space that contains existing equipment, it is important to include a clause in your Letter of Intent that clearly defines the current furniture, fixtures and any other equipment that will be transferred to your use during the terms of the lease. In addition to adding the clause to your Letter of Intent, you should also include an itemized list of the furniture and other equipment you will be allowed to use. Itemizing the current furnishings is important because the previous tenant may remove the furnishings and equipment between the time you tour the restaurant and the time you sign the lease. Another common occurrence you may encounter is a landlord that neglects to tell you that the furnishings, fixtures, and equipment will be removed before you rent the restaurant space. When you are including the amount of square footage you will rent, remember that patio space that is exempt from the total square footage unless it includes walls, ceiling, heating and air conditioning. When the patio includes these components it is then considered a room however, if the restaurant has an open patio space make sure you include the term “approximately” when defining the square footage.

When you are negotiating the terms of the lease it is common to initially lease the restaurant on a five-year term with an option to renew the lease at the end of the five years. Requesting a term any less than five years generally results in a counter-offer from the landlord. It is also important to be aware that if you request fewer months of free rent in the preliminary term, this will result in a lesser amount of months of discounted rent because the landlord must amortize the amount during the initial term. Calculating the rent for commercial restaurant space should include the base rent fee plus the amount of the Commercial Area Maintenance (CAM) fee calculated on an annual basis. The total of the base rent plus the CAM fee should then be divided by twelve to calculate the total rent on a monthly basis. Let’s use an example calculation based on an area square footage of 1,631. If the CAM fee plus the base rent amounts to $18.50 per square foot, you would multiply $18.50 x 1631 to calculate an annual amount of $30,173.50. The annual amount is then divided by 12 months which equals $2,514.46 per month for rent. When you are calculating Common Area Maintenance, it is commonly distributed among everyone that is using the total area of square footage. For example, if you are renting a restaurant in a shopping mall every business in the mall contributes to maintenance services such as garbage pickup and other types of services on a square footage basis. On the other hand, if the restaurant is located in a standalone building you are responsible to pay the property taxes, building insurance, and maintenance costs through a triple net lease also known as a net, net, net lease.

You should always agree to the pro-rata share and not more than that. The pro-rata share is calculated on the square footage as defined in your lease and is termed as “in proportion.” For example is you are leasing 1631 square feet and you are located in a mall that totals 10,000 square feet the Common Area Maintenance fee should not exceed 16.31%. This protects you as the tenant in the event the shopping mall becomes vacant. If you agreed to more than 16.31% you would be responsible for all of the common area maintenance plus takes and insurance. It is also a good idea to negotiate the Common Area Maintenance fees at a minimum during your first two years of running your restaurant business. Placing a cap on the Common Area Maintenance also protects you from item increases you might otherwise be required to cover such as taxes and insurance. More often than not, landlords are laid back about working for toward the best price on insurance and fighting the city on outrageous tax increases so placing a cap on the CAM fees will help you to control the costs. If you begin with placing these five points in your Letter of Intent when negotiating a restaurant lease this will result in a successful agreement that is beneficial to both parties. Make sure you use an attorney since the small details will be negotiated later and placed in legal language in the lease. Employing an attorney will ensure that the lease serves your best interests and it will help you to understand everything before you sign on the dotted line.

Topics: restaurant broker, leasing a restaurant

Restaurants for Lease - Three Myths That Cost You Time and Money

Posted by Eric Gagnon on Sep 27, 2011 2:33:00 PM

There are plenty of misconceptions about leasing a restaurant.  Here the most common three.

Myth #1: If I do the buying myself I can get a better deal because the landlord will not have to pay extra fees. This is a misconception because there is no financial gain if you are not represented by a broker. The reality is that the commission has already been determined on the restaurant space and remains the same even if you do not use the services of a restaurant broker plus the leasing agent for the landlord will receive 100 percent. Although the representative for the landlord can offer useful information you still have to be concerned about the things that he will not share with you. The landlord’s representative is familiar with the property and will have information pertaining to the property and current tenants however you can obtain all of the same information if you are represented by a restaurant broker. The representative for the landlord is not looking out for your best interests but if you use the services of a restaurant broker they will act on your behalf and be loyal to your interests. They will provide you with information if another space becomes available prior to the finalization of the lease and they will negotiate the lease with your best interests in mind. Additionally, they can provide you with sound advice and offer information about other restaurants in the local area.

Myth #2: I do not need to use a broker since all they do is call the number on the advertisement to set up arrangements for me to see the space. This is another common misconception because your broker can represent your best interests because they are experienced enough in the industry to negotiate a successful transaction. If you do it yourself you are on your own. Also, the reality is that it is much easier for them if you let the landlord’s representative handle the transaction because when someone else is looking out for your best interests they will challenge them at all costs. They also do not want to share the commission with your representative. For this reason, you do not want to have a family member that is involved with real estate to negotiate the deal so you can collect the commissions. Although you may gain thousands in the commission you may lose your fortune in the process due to a bad decision. If you work with an experienced restaurant broker they can keep you up to speed with industry specifics such as HVAC and hood system. Chances are the representative for the landlord does not specialize in the restaurant business so they would have no way of knowing whether an HVAC unit is properly sized for a restaurant operation. If you open your restaurant after negotiating the lease and start operating the unit, you will find that your customers are dying from the heat which will obliterate any commissions that you have collected. Also, the representative for the landlord will only be able to compare the rent that the landlord is charging. If you work with an experienced restaurant broker they will have comprehensive knowledge of the market level data and competing rents based on their experience with negotiating many leases with many landlords. The restaurant broker will have a handle on the latest trends with regard to rent abatements and concessions, tenant improvement money, and current leasing rates and terms available. The representative for the landlord may be aware of some of this information however they will not share it with you since it means negotiating against themselves.

Myth #3: If my lawyer is processing the terms of the lease it is not necessary to use a restaurant broker. This is the third misconception that could cost you time and money. When it comes to a commercial lease it will be necessary to have every resource you can to reduce the risk and minimize your costs. The average commercial lease can be in excess of $8000 per month over a period of five years which totals $480,000. Although your attorney has the skills necessary to act in your best interests by focusing on the language of the lease, an experienced restaurant broker can assist in the areas of the lease negotiation where your attorney lacks knowledge. The restaurant broker will make sure the lease is going to work out with your landlord by focusing on the business terms and making sure that getting in and out of the lease is covered in the event things to do not work out. You can look at it from the angle of a pre-nuptial agreement that can be followed in the event things go south with the relationship.

Topics: restaurant broker, restaurants for lease, leasing a restaurant

Restaurant Brokers and Ashley Vicos, Food Network Star

Posted by Eric Gagnon on May 24, 2011 1:39:00 PM

Restaurant brokers shared the microphone recently with Food Network star Ashley Vicos.

Restaurant brokers Eric and Robin Gagnon recently joined Food Network's newest star Ashley Vicos on the Atlanta radio airways.

Ashley Vicos is affectionately called "The Cake Queen" by Food Network.  She leads her motley crew of assistants around the country creating jaw-dropping, three-dimensional cakes for every type of event imaginable.  She recently created two memorable cakes - the first a "handbag" cake featured at Fashion Week in New York City and another oversize and over the top cake for the Harlem Globetrotters.

According to her biography (found online at Foodnetwork.com) Ashley has been professionally decorating cakes for 11 years and owns Sweet Ashley's, a private baking studio in Atlanta. Her in-demand cakes have become so popular, she also travels around the country baking for high-profile events and top-tier clientele. Born and raised in New Orleans, her passion for cake decorating began at age five with an Easy-Bake Oven and led to a career specializing in sculpted and custom cake work. In addition to creating one-of-a-kind cakes, she teaches small groups and private cake decorating classes. A single mom to three daughters, Ashley has been featured on Food Network, TLC, CBS, and NBC, as well as in American Cake Decorating Magazine and Modern Baking Magazine.

Topics: restaurant brokers, dishing with donna, food nework

The Basics of Selling an Atlanta Restaurant

Posted by Eric Gagnon on May 19, 2011 2:13:00 PM

One of the key basics when you sell a restaurant is the relationship that you have with your restaurant broker.  It is of utmost importance to establish a trusting and open relationship that advocates complete honesty in all respects.  It is extremely important to live by the “no surprises” policy to ensure that your restaurant broker knows about all of your liabilities and dirty laundry well in advance.

You may have situations that you are embarrassed to reveal because you think you are the only restaurant owner who has experienced these things.  The situations could range from being slapped with a liquor license citation, back rent that is owed in the amount of $30,000, a tax lien for thousands of dollars, or a lawsuit from an employee. 

The reality is that the restaurant broker has seen and heard it all before and nothing surprises them.  In fact, the restaurant broker is equipped with the skills to help you work through these types of issues to help the deal reach the closing table.  This is the reason you should never hide anything from the restaurant broker and maintain a relationship that is open and honest.  The broker cannot help you with things that he or she doesn’t know about.

Second, establish the grounds for communications when it comes to how the broker will communicate with you.  There are many different ways a broker can communicate with you so ask them what method they use for communicating when someone inquires about your listing.  The broker may automatically send you an email where others will call you when there has been an inquiry.  Other brokers are poor communicators and will not let you know anything at all.

Set the expectations for how you want your broker to communicate with you regardless of whether you want ongoing communication or a simple notification when there is a deal.  Remember that brokers who specialize in the restaurant and bar industries are quite familiar with how the business works.  This means they will not call you at eight o’clock in the morning since you work late and they will not call you during peak periods in the business such as the lunch or dinner hour.  They may never call you at the restaurant to maintain confidentiality or if they do call, they will simply leave their first name to protect your privacy.  It is important to communicate to your broker how you want to be contacted and when.

Third, it is important to make sure there are no misunderstandings with the listing agreement contract.  This is a contract between you and the restaurant broker that defines exactly what you are selling and the parties that are authorized to sign so that the offer can make its way to the closing table.

Before signing the listing agreement make sure that you have secured all partner consent and you have signed a corporate resolution to sell.  If you have partners in the business this move will protect you when offers are presented and one partner changes their mind or another is out of the country without email. 

Make sure you obtain a corporate seal and signature on a document that states the corporate officers met and agree to sell the business by vote taken on this day.  One of the partners should be provided with the authority to sign on behalf of the other partners in the business. If the partnership involves a husband and wife this step is usually not necessary. When there is more than one partner, the restaurant broker may request the resolution accompanied by a signature on the listing agreement.  The broker will then keep a copy and include another copy in the appendix.

Fourth, it is important to establish an understanding of who is selling the restaurant and the listing agreement must be signed by the person who owns the business and holds the liquor license.  The agreement requires a signature by the legal entity who owns the business assets and the legal name of the business that is being sold is used on the contract.

Fifth, you will need to verify the status of your corporation by accessing the Secretary of State website online for your state to ensure that the officers that are listed on the website are accurate and the complete filings are up to date.  It is important to take this step early on to avoid conflicts later when the contract is drawn up.

Topics: restaurant broker, sell a restaurant, selling a restaurant

Should You Build or Buy a Bar or Club?

Posted by Eric Gagnon on May 19, 2011 1:55:00 PM

You can buy a bar and open your business immediately or start from scratch and face these pitfalls.

There is a perfect storm of demand brewing for buying a bar or club as record numbers of a buyers are searching for a small business that offers all things “foodie.”  Building a pub or bar from scratch requires planning, spending a lot of money, and then waiting which makes it a very uncertain option.  For this reason, buyers are opting to seek out clubs that are already established so they can be up and running and making money right away.

Statistics point to the fact that a lot of clubs are never launched due to the capital being depleted during the build out phase with six out ten new bars and pubs that close their doors by the end of the first few years.  These statistics point to a dismal outlook for a startup bar or pub and contribute to shattered dreams of aspiring bar owners.  What makes it worse is that most new bars and pubs that might have potential, startup cash poor without any advertising budget to market the bar or pub and no funds to help keep it going for the first few years it takes to operate at a profit.

When it comes to the phrase “if you build it, they will come,” unfortunately this is as highly unlikely in the bar business as it is in baseball.  Buying an established pub makes a lot of sense since there is no magic formula for a startup in the bar or pub industry.

If you buy an established bar or pub this will ensure your path to success as a potential bar or pub owner.  If you build a bar or pub from scratch it is highly likely you will deplete the capital if you are a skilled bartender but amateur contractor and decide to tackle the project yourself.  If you are not a skilled contractor who uses his tools as efficiently as you can shake up a meant martini, then your bar or pub will take much longer to build. 

In our years of experience with selling bars or pubs we always come across someone who tries to reduce costs by building their bar from scratch.  As the project progresses they begin upgrading their construction choices to moving walls and other costly additions and end up driving the constructions costs so high that it quickly depletes the budget.  The reality is that if you buy a second generation pub or bar and add a new space this will always turn out to be much more cost effective.

When it comes to business time is money.  If you buy an existing tavern you can be operating tomorrow.  When you compare this to building a pub or bar from scratch you are looking at up to nine months to permit, build, and open a bar.  Instead you could be serving your first cold brew tomorrow with an established bar instead of waiting close to a year to open the doors on a bar that is built from scratch.  What’s more is that despite the fact that an Atlanta liquor license does not transfer to the new owner, you still have an advantage over trying to obtain a liquor license on a bar that you built from scratch.

When you purchase an established bar or pub it will have an immediate customer base even if the bar is struggling at the time of purchase.  If your bar is brand new you have to start from the bottom with building the initial sales dollar and then go from there with every dollar incrementally.  It is important to note that the first sales volume of $100,000 is the most difficult to achieve and if you buy an existing bar or pub, you can implement the necessary marketing plans to take the current sales to a higher level.  This is much easier than if you start a bar or pub from scratch with zero sales.  It will not matter how famous you are as a mix master or how many customer you predict will come to your bar, starting from scratch is a daunting task any way you look at it.

These reasons alone should help you to decide to buy an existing bar instead of starting from scratch and find a restaurant broker to help you find the bar of your dreams.

Topics: buy a bar, restaurant broker, buy a pub