Advice for Buying a Restaurant and Selling a Restaurant

Ken Eisenband

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What is the Process to Sell a Restaurant?  Here are the Steps

Posted by Ken Eisenband on Jun 23, 2017 12:21:04 PM

Are you wondering about the process for selling a restaurant?  The steps are actually very straightforward.  Here's a guide from Certified Restaurant Broker Ken Eisenband on selling your restaurant - step by step.  It's a blueprint from start to finish.  Let us know what you think.

pieces.jpgStep 1 - Preparing the Listing

Seller agrees that We Sell Restaurants has the exclusive right to sell the business at the agreed upon listing price and financing terms contained in the listing agreement.  This includes any other terms the seller agrees to.

Seller furnishes We Sell Restaurants all the necessary financial documents and data required like tax returns, lease, payroll records, etc.

We Sell Restaurants values the business by analyzing the data and in some cases, touring the facility.  A comparison to previously sold restaurants and current listings will be used to make sure we get the right listing price.  That’s critical in making sure we sell your restaurant for the most money in the shortest period of time.

Step 2 - Marketing the Listing

We Sell Restaurants will write the listing copy and search engine optimize your listing to get the greatest possible response. The listing is then email blasted to the most current database of buyers.  That buyer count now exceeds 65,000 and is growing daily. 

Step 3- Maintaining Confidentiality and Working with Buyers

We Sell Restaurants will require buyers to sign a confidentiality agreements and pre-qualify prior to releasing the name and address of the business.

The Buyer will visit the location as a secret shopper.  

We Sell Restaurants will set up a meeting with theSeller, Buyer and Broker to tour the faility and answre any questions. 

Step 4- Purchase Agreement 

We Sell Restaurants will prepare an Asset Purchase Agreement and collect the good faith deposit in escrow.  

Your restaurant broker will provide buyers with third party lending resources.

Offers will be presented by We Sell Restaurants to sellers.

Step 4- Due Diligence 

We Sell Restaurants will set up any meetings to tour the facilities and answer any questions.

Your restaurant broker will work to coordinate inspections or any other due diligence items. 

Step 5 – The Closing

For the final step, the We Sell Restaurants Certified Restaurant Broker will work with the closing agent to insure all material necessary will be provided to ensure a smooth closing for both the buyer and the seller.

All the steps taken during the process of buying and selling a restaurant run smoothly with the help of a Certified Restaurant Broker.  Are you ready to meet a broker in your area? Contact us today!   

Free Restaurant Valuation

 

Topics: selling a restaurant

Selling a Restaurant for Full Value Isn't a Guessing Game

Posted by Ken Eisenband on Sep 18, 2013 4:41:00 PM

No Guessing Blog ArticleI worked for a national restaurant chain many years ago. I’ve recently noticed that I still own a couple of hundred shares of stock in this company.  The stock is currently selling at about 25 percent of what I purchased the shares for...  It’s not fair that I don’t get all of my money back.

Sound ridiculous doesn’t it? As a certified restaurant broker, I meet restaurant owners everyday who say the same thing to me in all seriousness, “I bought this restaurant 10 years ago for $200,000 and I will not take a penny less” or “It cost me $275,000 to get this place up and running last year and I deserve more than that from anyone who buys the place because I did all the work.” Sorry to be the bearer of bad new, but no one cares how much you spent to buy or open your restaurant. What matters is what it’s valued at today. Want to know what else doesn’t matter?  Purchase costs, build-out costs, future growth and previous sales don’t matter. The most important component to valuation is the owner’s benefit or how much money the owner made in the recent year. There are factors outside of profits that go into the valuation such as location, concept, and seasonality, but understand that profits are the driving force in the valuation of a restaurant.

Once an owner understands that the value of the restaurant is based on owner’s benefit, the certified restaurant broker’s job should become easier right? That is not necessarily the case. Here is an example of a comment I heard, “Sales are $800,000 per year and I take home$300,000 per year. I should be able to sell for $600,000.” Really? Do you have tax returns, profit and loss statements that back up your claim?  Remember, if you have not reported $100,000 of the $800,000 in sales and then show $200,000 in owner’s benefit your value is $400,000. Do not be upset about losing $200,000 in value because you saved $6,000 in state sales tax payments. Remember, if you get caught you could be fined and be subject to jail time.

Many of the owners who do not report all of their sales for tax payments pay some or the entire payroll “off the books.”  The most common reason to do this is to avoid paying payroll taxes and workman’s compensation insurance. Tell me, how great are your savings when one of your employees cuts themselves and has to go to the emergency room for stiches… with no insurance? Or better yet, when a former employee tries to claim unemployment wages based on the job you were paying “off the books.” The defense, “everybody does it” probably won’t work with the department of labor.

“Saving” money by not paying taxes or not buying insurance will lower the value of your restaurant when it is time to sell. It also can keep you awake at night always worrying about a possible audit or accident that could cost you so much money it will force you to close the business.

What can you do to get the full value for your restaurant (when it’s time to sell) and get a better night’s sleep while running your business? Have an accounting program, such as QuickBooks, in place. Every day, record your actual sales in this accounting program. Every check that is written for the business should be recorded in the accounting system. This program will be able to give you daily, weekly, monthly, quarterly, and yearly reports on sales, expenses, and profits with the push of a button. An added benefit is that you will control your costs on a daily basis, also adding value to the business. When you list and sell your restaurant you will have accurate numbers that will match completely with all of your tax filings. Many businesses have expenses that will go away when the owner sells. Examples would be salary and payroll taxes to owners, cell phones, health insurance, car payments, depreciation, amortization, interest on loans. You will still pay for these items through the business. Check with your accountant for ramifications. A certified restaurant broker will add back the payments that are entered in the accounting system and will adjust the owner’s benefits so that you receive maximum value for your business. You will not have to spend sleepless nights worried about slip and falls in the kitchen and payroll or IRS audits anymore.

Make no mistake about it, a restaurant with verifiable books will sell quicker and for more money than the same restaurant that has no books. An owner MUST have records to verify the owner’s claims of sales and profits.

Topics: restaurant broker, selling a restaurant

A Restaurants Brokers Advice on Selling a Distressed Restaurant

Posted by Ken Eisenband on Dec 14, 2012 11:24:00 AM

Owners contact restaurant brokers when they want to sell their restaurants. This article discusses a distress sale and how a restaurant owner handles it.

Ken Eisenband Restaurant Broker South FloridaThe reasons people contact restaurant brokers to sell their restaurant include retirement, health, divorce, burn-out, other business goals, and of course distress. Just what is a restaurant in distress? A restaurant in distress might not be losing money. It is however not making enough money for the owner to survive.  The restaurant owner has to pay all of the bills in the restaurant, but also has to pay the mortgage and rent for his/her home, car, insurance, utilities, and support his/her family. This restaurant owner is under a lot of stress. You can see it when you enter the establishment. Employees feel it every day at work. This feeling is passed along to the customers. Repairs and maintenance on equipment aren’t made. Renovations and upkeep on the facilities do not happen. The restaurant starts running out of food. Lower quality food items are used as substitutes. Staffing levels are cut. The owner starts working seven days a week. Why is this happening?  The owner is juggling which bills are going to be paid. Do I pay my mortgage at home or do I pay the rent for the restaurant? Do I pay the food supplier to do I go to Publix for my family?  The stress level is building and the restaurant owner wants out. He contacts a restaurant broker and says he wants to sell.

This is when the first of many mistakes occurs. The restaurant owner does not want to admit failure to the broker so he says the restaurant is great and making money, but he/she wants to sell because of burn-out or other business opportunities. The restaurant broker says they can help sell the restaurant.

As a restaurant broker we are selling one of two things. The assets of the business or a paycheck for the new owner. If we are selling the assets of the restaurant you can expect 10 – 20 cents on the dollar of what you spent. If we are selling a paycheck you can expect a multiple of those earnings (or owner benefit) in the selling price. This is when the valuation gets tricky. The restaurant broker will ask for current profit and loss statement in order to an evaluation. In a perfect world the owner would print them up and go over the statement with the broker and indicate what expenses would go away once the new owner takes over. These expenses include owner’s salary and taxes associated with salary, cell phone bills, personal insurance, car bills, loan payments and interest, depreciation, etc. These expenses are referred to as add-backs. Now, the second mistake. The distressed owner indicates that not all sales are accounted for and that he takes $75,000 out the business in cash each year.  He doesn’t tell you that out of the $75,000, $65,000 goes to pay employees under the table. In essence, the owner wants to sell the restaurant based on the numbers reported to the IRS plus the cash he has stolen from the business, and then not report all expenses. The owner will then make this statement, “Everyone does it, and anyone seriously looking to buy a restaurant should realize that.” Then the distressed owner will say “I need to get at least what I put into the place.” The restaurant broker asks why and uses this analogy. If you invested $200,000 to buy a stock and the stock price drops to $100,000, can you say I just want what I purchased it for? Unfortunately, assets are sold at 10 to 20 cents on the dollar and if you cannot prove earnings you do not have earnings.

Now, the third mistake. The distressed restaurant owner says he will list, but only at his price. The inexperienced restaurant broker relents and lists at a price he knows is too high. As weeks and months go by the distressed owner blames the restaurant broker for lack of activity. The sales are dropping, bills are piling up and the distressed owner goes deeper in debt.

Finally the fourth, and final mistake is made. The distressed restaurant owner calls the restaurant broker and asks to list the property as an asset sale. Even then the owner wants more than he can hope for. It sits on the market for an additional month or two and the owner goes deeper in debt. The landlord is now threatening to evict and since the restaurant owner has signed a personal guarantee on the lease the landlord is threatening to sue the owner, not the restaurant. The distressed owner calls the restaurant broker and says “just get me anything; I need to get out of this lease.”  The broker sets a price that might attract a buyer. Unfortunately, you only get one chance to make a first impression and many buyers will not look at the restaurant no matter the price. However, your broker manages to find some possible buyers and has them go over to look at your restaurant. To the surprise of the buyers and the broker you have closed up your restaurant. You needed to support your family. The bills became too great, you declared bankruptcy to keep the landlord off your back, and you took a job that paid you enough money to support your family.

This scenario could have been avoided. The distressed restaurant owner needs to be honest with themselves and their restaurant broker. A restaurant priced correctly takes an average of nine months to sell in this economy. If you know you cannot last nine months, you need to price your restaurant aggressively. You might lose money on the transaction, but you will have receive some money, save your credit score, reduce your stress immediately, and be able to start your life with a clean slate. To sum up how to sell a distressed restaurant. Be honest with yourself, your restaurant broker, and the potential buyer.

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Topics: restaurant brokers, selling a restaurant