Advice for Buying a Restaurant and Selling a Restaurant

Eric Gagnon

Recent Posts

Restaurant Brokers Compare Top 100 to Your Restaurant

Posted by Eric Gagnon on Jul 22, 2013 2:41:00 PM

Eric GagnonAs a restaurant broker we often need to look at the bigger picture to better understand the best value of one or several units in specific segments, categories or locations. 

Most operators look and measure themselves internally and often blame external reasons as for why they fell short of their goals or performed worse than the previous year or quarter.

I once had the opportunity to have lunch with Jack Welch former CEO of General Electric.  I just sat there and listened carefully to his words of wisdom. Today I still remember that lunch where he spoke about annual goal settings and budgeting for all the many divisions of his company.  He discussed how "theatrical" the sessions were as the unit level leaders would try to set low goals and get high budgets so they can look great at year end and get bonuses, promotions etc. 

Mr. Welch started to ask each division how they were doing against the marketplace and their competitors.  Various fuzzy answers followed his request as basically no one was really sure. He then decided that going forward all of his divisions will be measured against growth in market share and against the competition. Needless to say some of the strongest years for GE were under his leadership due in great part to this change in vision.

As restaurant owner you should adopt the same way on how you measure your performance. For instance, if you reduced your food costs by 3% and increased sales by 4% for the year, you may be very proud of that. However, if in the meantime, your industry segment (pizza, yogurt or Thai) grew sales by 7.9% and your competitors took market share from you, then you may be in trouble and not even realize it.

As a restaurant broker we differentiate ourselves from our competitors by using empirical data to measure performance.  We encourage restaurant owners to do the same and here's how.  Every year there is a great tool published by Nation's Restaurant News called the top 100. This report is an in-depth look at the top performers in our industry.  It takes us days to go through the data that is readily available to restaurant owners and buyers, along with restaurant brokers.  You can use that data whether you are an independent owner, single or multi-unit operator to help measure your performance and have an honest look at your business.

I seldom meet with a owner that blames himself for a poor performance.  The excuses we hear as restaurant brokers are along the lines of “well the economy is bad," "I have a bad manager and/or staff," "the franchisor is not helping," " I am in a bad location." Not once in more than a dozen years of selling restaurants have I had an owner in front of me saying, “my food is bad, my service is along the same lines and my restaurant is very dirty” even when all of that is easily apparent.

Now let me share with you some of the highlights of this year’s top 100:

Overall sales for restaurants grew by 5.3%.  More specifically for those of you in the bakery/cafe segment, sales grew by 11.9% ( the highest growth) while family dining was the worst segment only growing by 0.6%. McDonald's was the number one restaurant and has been number one on the Top 100 list for the last 39 years. Number 100 this year is the Firehouse Subs franchise restaurant which is up 17 spots from a year ago. The report breaks down into very detailed information in 15 different segments.

The restaurant brokers recommend you look at the segment you identify with and start comparing your key performance indicators against them. If you are not quite ready to compare yourself with "the big boys" they will release the same type of report next month for the "next 100".

Start looking outside of your walls for answers, because most of the time that's where the answer and success hides from you.

LIKE this article?  Please SHARE it on Facebook, Twitter or Linked In

Topics: Restaurant Brokers

Restaurants for Sale or Lease in Atlanta – Fiction Vs Reality

Posted by Eric Gagnon on Mar 20, 2012 8:10:00 AM

Atlanta Restaurant Broker Eric GagnonBuyers seeking restaurants for sale or lease in Atlanta are dropping into town ready to make a purchase only to run into some obstacles in recent weeks.   We fielded a number of calls from buyers who appear from other parts of the country and believe they can come for a day and leave with a prime location fully equipped at rock bottom rent.  Part of their struggle is based on these three misunderstandings circulating in the marketplace.

Fiction Number One

Economic times are tough and a major city with restaurants for sale or lease like Atlanta is experiencing dangerous times for operators with sliding sales.

Reality:

The recession has not hit Atlanta as hard as other markets as evidenced by the sales growth seen in the marketplace.  According to CPA Robert Wagner of Net Financials, Atlanta restaurants had a second year of growth in 2011.  His well respected survey reported that sales were up 6.25% over 2010.  In fact, in his words, “Clearly the industry is as vibrant and relevant as ever and, we think, poised for solid growth in 2012.”  That’s in startling contrast to the nation’s restaurant sales numbers which rose an average of 3.4% in 2011 according to a survey published in Nations Restaurant News.

Fiction Number Two

Second generation restaurants for sale or lease in Atlanta are plentiful and can be picked up with no investment even in high profile areas like Buckhead and Midtown.

Reality:

While it may be true in some of the outlying areas of Metro Atlanta, Buckhead and Midtown still command a premium and are not available to just “pick up” without buying out assets.  Landlords for these prime locations will often let us know when a tenant is in trouble and more often than not, the space will never be advertised before it changes hands.  It is a total myth that you can just “wait” for prime space to appear in this market.  Sign up for exclusive representation with an Atlanta Restaurant Broker if you want access to the best listings first.

Fiction Number Three

Landlords are suffering high occupancy rates and it’s a buyer’s market when looking for restaurants for sale or lease in Atlanta.

Reality:

According to the Spring 2011 Metro Atlanta Retail Market report "Atlanta's retail vacancy rate decreased in the first quarter 2011, ending the quarter at 10.2%. Over the past four quarters, the market has seen an overall decrease in the vacancy rate.”  Landlords in the Atlanta market are more demanding than ever about the tenants they will take and low ball offers will not get the job done.  Expect to present a business plan that will be challenged, financials that will be confirmed and a concept that is solid to gain entry into the competitive Atlanta restaurant market.

Before those outside the market book a ticket and come to town expecting to buy a restaurant in a day, read this article for the realities of buying an Atlanta restaurant for sale or lease.

Topics: Buying a Restaurant

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: 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: Restaurant Brokers

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: Buying 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: Selling a 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.

Topics: Restaurant Brokers

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: 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: 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