Advice for Buying a Restaurant and Selling a Restaurant

Robin Gagnon

Recent Posts

Warning: Bars for Sale indicating "Cash" -- Do You Buy?

Posted by Robin Gagnon on Jul 15, 2019 2:29:48 PM

Bars for sale with cash on the books are promoting earnings that are usually not provable. With a bar, the term, “you get exactly what you pay for,” holds true. Pricing and earnings are difficult to prove resulting in the age-old struggle of how to set pricing on a "cash" business.

We Sell Restaurants would tell you that the only means to value a bar for sale company is based on earnings. Earnings are based on a profit and loss statement on the business and items that benefit the owner directly, called add backs. The sum of these are called Seller's Discretionary Earnings. This method, referred to as the Income Valuation Approach to valuation doesn't work when a bar owner states they have “cash earnings" they want to monetize in the sale.

warning_ bars for sale with _cash_

Buying a bar or pub for sale with verifiable earnings is the answer. The pricing may not seem as great a "bargain" as but if you are a buyer who favors a less risk adverse strategy, it’s the only way to go. Something advertised at a good price with "cash" earnings means there is simply no way to verify that number as a purchaser.

Since pricing is based on earnings that can be proven, any restaurant broker that takes some amount of funds done “off the books” will soon be overpricing the business. The only means by which the value would be right is if the earnings had been authenticated and the purchaser kept the company operating in the same manner he took over. That may mean running afoul of the law since potentially, earnings and revenue are misstated.

Another problem with a valuation that includes “cash” earnings is that the seller has already been overpaid on his unreported income. He (or she) got a huge benefit since he's avoided all the reasonable and customary taxes (state income tax, federal income taxation and more). Now he wants to sell that at a premium.

If the deal looks too good to be true, it likely is and that’s the case with “cash” off the books. Getting to the ideal price is critical. The seller of the bar or pub for sale has operated on a less than candid basis with his franchise (if he has one), the State Alcohol licensing jurisdiction, the state sales tax board and the Internal Revenue Service. It is a little stretch to now believe he or she is going to be forthright with you, as a buyer in an arm’s length transaction. Outside of coming to the business as a worker for a series of months, it is not possible to set up the "actual" earnings.

Trusting in transparency from a Seller that avoids certain tax requirements and doesn't report all his earnings is a difficult task. Should you convert the cash earnings onto the books, you're looking at an instant hit to earnings. The national, state, and sales tax implications alone could drive the operation to a negative earning scenario.

Brokers often promote these listings on the internet with caveats such as “cash to be shown by the seller.” Other restaurant brokers don't take these listings or simply offer them as asset sales since they can't be confirmed.

We Sell Restaurants has a simple recommendation when you buy a bar or pub. Pay for what you can see. Then you avoid the issue entirely and don’t overpay for earnings that never materialize on the back end.

Ready to see our bar for sale opportunities? Click the link below for the latest listings.

 

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Topics: Buying a Restaurant

Recently Sold Firehouse Subs of Fredericksburg

Posted by Robin Gagnon on Jul 15, 2019 11:30:00 AM

We Sell Restaurants closes on another restaurant for sale transaction; the resale of the Firehouse Subs franchise in Fredericksburg, Virginia

We Sell Restaurants is pleased to announce the sale of Firehouse Subs located at 1036 Warrenton Road in Fredericksburg, Virginia. Asif Siddique of Arlington, Virginia acquired the company from Sivasankar Beeravalli. The transaction was handled by Robin Gagnon of We Sell Restaurants.

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Firehouse Subs was founded by two firefighter brothers that refer their growth as a “controlled burn” due to the numerous locations in our nation. Firehouse Subs is a nationwide brand with more than 1,000 units nationwide, including three in Fredericksburg, Virginia.

The buyer, Asif Siddique, is thrilled to be the newest franchisee owner in the Fredericksburg market with the Firehouse Subs brand. He shared his thoughts on the transaction saying that We Sell Restaurants provided, “extraordinary services during the closing of the business deal.” He went on to say, “You took (the) right amount of time to understand my business needs as well as guided me to the correct solution.  Your constructive attitude makes you the finest agent in the industry.”

Robin Gagnon is the Co-Founder of We Sell Restaurants and the firm's Chief Marketing Officer.  One of the most prolific restaurant brokers in the industry and a franchise resale specialist, she holds the Certified Business Intermediary (CBI) designation from the International Business Brokers Association or IBBA and is an MBA. She has been named a Certified Franchise Executive or CFE by the International Franchise Association and designated a National Industry Expert by Business Brokerage Press in Franchise Resales. 

Robin Gagnon said of the transaction, “It was my greatest pleasure to work with Asif on this transaction.  He set the standard for all my buyers to close on their deals.”  The Firehouse Subs brand is a strong prospect for resales with many of our buyers.  Their in-depth training and support make it a winning opportunity for those entering the food and beverage industry for the first time.

Other franchise restaurants for sale can be found directly online at wesellrestaurants.com. We Sell Restaurants is the country's leading restaurant brokerage focused on those buying, selling or leasing a restaurant.first time.

 

We Sell Restaurants is the nation’s largest restaurant brokerage firm, specializing in restaurants for sale, restaurants for lease and franchise restaurant resales.  Found online at wesellrestaurants.com, We Sell Restaurants offers services in 45 states nationwide.

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Topics: Buying a Restaurant, Restaurants for Sale, sold

Recently Sold Howard's Famous Corned Beef and Deli

Posted by Robin Gagnon on Jul 10, 2019 12:55:22 PM

We Sell Restaurants closes on another restaurant for sale transaction; the sale of the Howard's Famous Corned Beef and Deli in Boca Raton, Florida

We Sell Restaurants is pleased to announce the sale of Howard's Famous Corned Beef and Deli located at 3571 N. Federal Highway in Boca Raton, Florida. Sal Angrisani of Greenacers, Florida acquired the company from Howard Rich.  The transaction was handled by Ken Eisenband, Franchise Partner with We Sell Restaurants for Palm Beach and Broward Counties.  The location was sold after just 122 days on market. 

Howard's Famous Corned Beef and Deli is an outstanding location that’s been described as one of the most authentic delis in Boca Raton, Florida. The concept features signature corned beef that is cooked in-house as well as smoked salmon. They offer half pound sandwiches with their daily fresh breads. Howard's Famous Corned Beef and Deli also offers catering service and onsite beer and wine sales.

 

The seller, Howard Rich, said of his experience with Ken Eisenband, “I listed my restaurant for sale with Ken Eisenband and We Sell Restaurants. The process was very easy, and he brought in many prospects. Once we were in contract for sale, Ken was very organized and guided me through the entire process. I would definitely recommend Ken and We Sell Restaurants to anyone looking to sell their restaurant.”

Eric Gagnon, President of We Sell Restaurants said of the transaction, “Ken is an excellent Franchise Partner and one of the strongest players in the competitive business for sale marketplace in South Florida.  He is a consistent top producer for the brand and the state with excellent feedback from his clients.”

Ken Eisenband

Ken Eisenband is the multi-unit Franchise Partner for Broward County and Palm Beach County Florida, the southern part of the Sunshine state. Ken leads two offices for We Sell Restaurants with distinction and directs a team of Restaurant Brokers as a multi-unit owner. Ken is a member of the Business Brokers of Florida Association where for two consecutive years (2015 and 2016) he received the prestigious Dealmaker Award as one of the top 5 transaction agents in the state of Florida as well as receiving the Million Dollar Club award.

Ken graduated with Honors from The School of Hospitality at Michigan State University in 1983 and has thirty years of experience in the restaurant industry.  In 1996 Ken joined Ruby Tuesday’s finance team as an analyst working closely with the Real Estate department and Vice President of Operations on site selection and feasibility studies. Ken can be reached by phone at (561)-350-3365 or by email – ken@wesellrestaurants.com. His listings can be found online at wesellrestaurants.com.

We Sell Restaurants is the nation’s largest restaurant brokerage firm, specializing in restaurants for sale, restaurants for lease and franchise restaurant resales.  Found online at https://www.wesellrestaurants.com, We Sell Restaurants operates in 45 states nationwide assisting those buying or selling a restaurant.   

 

 

Topics: Selling a Restaurant

Attention Restaurant Sellers.  Don’t Sign the Listing Until You Mystery Shop the Broker.

Posted by Robin Gagnon on Jul 6, 2019 11:56:16 AM

Two years ago, We Sell Restaurants embarked on a journey to confirm that our customer service standards were being met.  We achieved this through Mystery Shopping our Restaurant Brokers. We now highly encourage any restaurant seller to do the same.  Here’s why.

Quarterly, our restaurant brokers are shopped by “secret” buyers.  They never know which buyer inquiry it is, and they never know how they are chosen. They simply receive one of many inquiries on a restaurant for sale. Our corporate standard for follow up is that each buyer will be “touched” three times within the first three business days.  Why three times?  It shows genuine interest without putting undue pressure on the customer.  If the first message or contact is ignored, it lets the restaurant buyer know you will be professionally persistent without being annoying. 

Dont Sign - Until you SHOP

What’s a touch?  The first, most critical touch is by phone.  There are auto email responses on buyer inquiries, so we penalize the scores of brokers that email the buyer.  If a buyer has inquired through a national website, odds are any broker will have an automated response that says something like, “Thank you for inquiring on my restaurant for sale….”  In addition, the online listing site will also send an automated response..

Imagine that a buyer inquires on three listings.  They will easily get a total of six auto response emails (three from the site and three from the broker), without having spoken to anyone. Buyers are getting inundated with email but are not receiving a personal touch in the form of a phone call and actual discussion with a broker.   

We hired a research firm to develop the scoring mechanism.  An email outreach results in a negative score.  Failure to achieve three touches results in a negative score.  If the outreach occurs over six days instead of three business days, full points cannot be achieved.    

Overall, it’s simple.  Each broker is held to a standard for buyer contact by phone three times within the first three business days of their inquiry.  We compare each office and each broker to others as well as their last quarterly “shop.”  Lastly, we compare the income of the brokers with the highest Mystery Shopping scores to the income of restaurant brokers with the lowest scores.  What we found got their attention.  The brokers with the highest Mystery Shopping scores had the highest income and most sales.  Every. Single. Time.  The brokers with the lowest Mystery shopping scores correlated directly to the lowest income.  Every. Single. Time. 

What does this mean?  Restaurant brokers is a full contact sport.  You must touch and communicate with buyers in order to sell a listing. When we figure out how to sell restaurants with total automation and through email, then brokers are no longer needed.

So why must Restaurant Sellers perform this exercise for themselves?  After a year of quarterly shops, we decided to shop our competitors in year two.  That’s right.  In every single market, nationwide, we knew our performance, but what about the person we’re competing with for the listing.  What did we find? 

Brokers have forgotten to use the telephone.  They don’t realize it has a function other than to send and receive email.  In markets nationwide, in dozens of mystery shopping scenarios with competitors, our “buyers” did not receive one single phone call from other brokers. It is almost unbelievable, but the results are clear and scientific.  We gave them an email address, a phone number that rang to an area code in their market and an inquiry.  We did not get a single response outside of email. 

I recently sat through a software presentation built for business brokers and the entire focus was to build a chain of emails to respond to the buyer.  That’s fine for marketing and brand recognition but for sales, a personal phone call is still required. 

If another broker offers to sell your business for less, consider what that means.  If they do not call buyers and try to put deals together, it doesn’t matter how much they market or what else they do.  Emails do not sell restaurants.  Brokers do.  Don’t sign my listing agreement or anyone else’s until you make a buyer inquiry and see what happens.

When I call you three times in three days, I deserve the listing. 

Robin Blog Update

Topics: Selling a Restaurant

We Sell Restaurants Sells Firehouse Subs of Charlotte

Posted by Robin Gagnon on Jul 1, 2019 2:02:47 PM

We Sell Restaurants closes on another restaurant for sale transaction; the resale of the Firehouse Subs franchise in Charlotte, North Carolina

We Sell Restaurants is pleased to announce the sale of Firehouse Subs located at 4732 South Boulevard in Charlotte, North Carolina. Trung Nguyen of Charlotte, North Carolina acquired the company from Timothy Goss.  The transaction was handled by Justin Scotto of We Sell Restaurants.

Firehouse Subs, a fast-growing franchise chain with over 1,160 opened restaurants was founded by two firefighter brothers. Firehouse Subs is a nationwide brand with many locations in Charlotte, North Carolina.  The South Boulevard store in now under new ownership with the assistance of the We Sell Restaurants Franchise Partner in the market.   

The seller, Tim Goss, said of his experience with We Sell Restaurants and Franchise Partner, Justin Scotto, “Could not have asked for it to go any smoother.  Made the process easy to stay on track and complete as scheduled.”  The buyer is excited to be the newest franchisee in the Charlotte market for the Firehouse Subs brand.  He said, “Justin handled the deal with care and professionalism. He clearly laid out the timeline and what was needed to close the deal."

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Justin Scotto is the multi-unit Franchise Partner in the Carolina's. A Certified Restaurant Broker, Justin has been in the restaurant industry for 20 years. Justin is a longtime veteran of the restaurant industry.  In recent years, Justin developed and operated 12 fast casual restaurants with Firehouse Subs from the ground up before pursuing a path of restaurant brokerage with We Sell Restaurants.

Eric Gagnon, President of We Sell Restaurants, had this to say of the transaction.  “Justin is one of our newest Franchise Partners and has shown strong results in the Charlotte market.  We look forward to his continued success.”

Franchise Partner Justin Scotto is a specialist in the restaurant sales industry. 

Justin is a graduate of the University of North Carolina at Chapel Hill.  He lives in the Charlotte Region and when he is not busy brokering restaurants, he enjoys family time with his wife and five children.

Justin is also a member of the Carolina's-Virginia Business Brokers Association. Justin can be reached by phone at (704) 609-4460 or by email – justin@wesellrestaurants.com.

 

Restaurant for sale listings can be found online at wesellrestaurants.com, the nation’s largest and most heavily trafficked marketplace for the sale of restaurants. 

We Sell Restaurants is the nation’s largest restaurant brokerage firm, specializing in restaurants for sale, restaurants for lease and franchise restaurant resales.  Found online at wesellrestaurants.com, We Sell Restaurants works in 45 states nationwide.

Sell your Restaurant

 

Topics: Franchise, sold

Three Lessons SBA Lenders Won’t Teach You When Buying a Restaurant

Posted by Robin Gagnon on Jun 24, 2019 1:48:53 PM

Are you in the market for buying a restaurant?  Are you looking at lending resources?  If you’re like a lot of buyers, it may be your first experience with SBA lending.  Don’t count on getting these lessons from your lending partner but trust We Sell Restaurants to fill in the blanks.

3 Lessons (2)

Lesson # 1:  The Seller Can Contribute to YOUR EQUITY when buying a Restaurant

If you are buying a restaurant and the SBA lender is looking for 20% down, some of that may come from the seller.  That means on a $300,000 purchase, you can put as little as ten percent down or $30,000 and have the seller hold a note for $30,000. The lending community views this as twenty percent equity combined between the two which meets the threshold for lending in most cases.

This is a great lesson in reserving your own cash when buying a restaurant with financing terms. It also keeps the seller engaged in the game with a little “skin” which never hurts when there is lending involved. It is referred to as a seller’s “hold-back” or “seller’s note” in banking language.

 

Lesson # 2:  A Seller note has to be on a Standby for Two Years

Don’t count on the lender to explain this up front and your broker may not be familiar with this requirement in many instances but this one is not negotiable.  If a seller lends money in the deal (see Lesson 1), then he or she may not receive a payment until 24 months and one day after the closing.

Why is this rule in place?  The bank wants to be sure you have maximum cash flow to succeed and make the payments BEFORE a payment goes to someone else.  The form of the payment can then conform to whatever terms you and the seller decide.  Want a lump sum at 24 months?  That’s not a problem.   

Interest can accrue on the balance (and should accrue at whatever rate you and the seller decide.  You can set the 24-month mark for monthly payments, lump sum, quarterly payments or whatever works between you and the seller.  The lender will have to examine the note and it will be part of the closing documents. The seller will also have to subordinate his interest in the furniture and fixtures to the bank.  That means any claim they have on the assets is superior to the seller’s lien or claim.

 

Lesson # 3:  SBA Rules can be Overcome

There are hard and fast rules for SBA lending but lesson three is that any requirement can be overcome or re-negotiated.  One requirement is that a second mortgage is always a requirement to secure SBA lending.  Not every time.  In a recent transaction with We Sell Restaurants, two well qualified individuals did not want to secure their note with real estate holdings.  In their case, the financials were strong enough and their net worth position was strong enough that the lender offered an alternative.  They were allowed to deposit a fixed amount of money in an interest-bearing account with the lender for a two-year period.  When the two years ended, they would get a full refund of the amount.

In other cases, we have seen lenders overcome issues like:

  • Felony convictions
  • Credit scores of spouses
  • Bankruptcies

The bottom line to this lesson is that if you don’t ask, you won’t get.  Be open to negotiate the terms of a deal and make sure your restaurant broker works to represent you in the matter.

Here’s what you learned from today’s article.  First, you’re not on your own to raise the down payment.  The seller’s hold back or note can be part of the equity or down payment in the deal.  Secondly, a seller note has to be on a two year standby, meaning he can receive no payments for 24 months.  Lastly, despite what you may hear, there are some rules that can be overcome or renegotiated.

If you’re buying a restaurant with lending, use these lessons to minimize your down payment with input from the seller and negotiate terms that work for you as a buyer.

 

For more information on lending resources or buying a restaurant, visit these links:

Restaurants for sale with lending

 

For more information on lending, Download our Free Guide to Lending at this link. 

Topics: Financing a Restaurant

5 Deadly Mistakes to Avoid in Selling Your Restaurant

Posted by Robin Gagnon on Jun 18, 2019 8:55:00 AM

Selling your restaurant is not easy.  Here are five deadly mistakes to avoid for greater success.  We Sell Restaurants has been selling restaurants for twenty years.  Our best advice follows.

5 deadly mistakes

Deadly Mistake 1:  Choosing a Broker based on the cheapest rate

It’s human nature to look for the most cost effective means to accomplish anything.  That may mean seeking a low cost provider when selling your restaurant.  Why is this a mistake?  The person who is charging the lease amount of money often has the lowest investment in marketing, the least number of buyers in their database and the lowest potential for selling your restaurant.  You would not engage with a POS provider who gave you a 1% lower rate if in fact, your credit card machine wouldn’t operate during peak hours.  Why would you engage with a business broker based on the lowest cost?

The other issues with selling your restaurant with the cheapest resource is that you may be dealing with a novice in the in industry.  There are many costs that come into play when selling your restaurant. Many of these can easily cause items to “leak” from the cash you take away from the closing table.  Negotiating the security deposit which landlords are notoriously slow to hand back is one element.  If your broker does not secure your interest in this property up front, you could potentially save $4,000 in commission and give up $7,000 in security deposit.  The same is true for inventory or cash on hand in the safe or tills.  Those items must be negotiated and the “newbie” who does it for less may simply not negotiate the devil in the details that adds up to thousands of dollars in lost cash for you on the settlement statement.

One of the costliest mistakes that someone who is the “cheapest” may make on your behalf is simply negotiating a weak letter of intent or LOI without the proper structure of a full Asset Purchase Agreement.  This not only leads to the issues cited above with loss to the seller of reimbursable expenses but often leads to a seller engaging with an attorney which can result in thousands of dollars in fees before a deal is even done.  The adage to avoid being “penny wise and pound foolish” comes into play when selling your restaurant.  The “cheap” choice can be very costly.

Deadly Mistake 2:  Pricing above market

The second costly mistake for sellers is going out above the recommended pricing level.  It seems harmless as you simply list “higher” and see what comes in the door.  Today’s consumers for buying a restaurant are more informed, have great financial skills and are savvier than ever before.  If the restaurant for sale is priced above market, you’ll lose countless days while it garners no interest before you adjust the pricing to the reasonable level.

Deadly Mistake 3: Taking Your eye off the Ball

A third deadly mistake when selling your restaurant is assuming that the buyer will pick up the slack and taking your eye off the ball. There’s never a more important time to stay fully engaged in the business and make sure it’s running at its full potential.

Buyers won’t purchase the future potential.  They are purchasing the current performance.  Be careful that you don’t become complacent or start generating sales drops once you’re listed, since after all, you’re out the door before long.  When selling your restaurant, the bank, the buyer and the broker are looking for comparable store sales to stay at or above last year.  Failing to do so is a deadly mistake that will impact your eventual selling price.

Deadly Mistake 4:  Saying “no” to a deal

This is perhaps the worst of the deadliest mistakes when selling your restaurant.  There are always three options when presented with an offer.  Yes, is one option and it’s generally not the first response.  No is the second option which is a deadly mistake.  The last option is the appropriate one – a counter.  When a buyer is engaged enough to make an offer, no matter what the offer, it’s time to swallow your pride and come back with a counteroffer.  The most important part of the negotiation is to keep the would be buyer engaged.  A flat out “no” leads to a buyer that must then, negotiate against himself and most will simply bow out.

Sellers that refuse to counter and simply respond “no” are acting out of emotion.  These are the same sellers that return to We Sell Restaurants later and say, “Can you call that guy and see if he’s still interested.”  We get one bite at the apple in negotiations.  If you simply say no and go back later to negotiation, you are in a severely weakened position.  No matter what the offer is; it’s a good strategy to look for some positive in it and counter the buyer.

Deadly Mistake 5:  Going to market without good financial data

The last deadly mistake is going to market without good financial data.  When buyers are interested, time is money.  If you don’t have your past year books and records in order or if you don’t have the ability to provide electronic documents, get ready to lose deals.

You must have your financial house in order and be ready for due diligence.  Time kills deals and introduces doubt.  While we are waiting on due diligence materials, the buyers are getting cold feet by the minute.  Don’t make this deadly mistake.  Have your records ready to go.

In twenty years of selling restaurants just like yours, these are the five most deadly mistakes we’ve seen.  Don’t fall victim to them.  Prepare up front and contact a broker today for success in selling your restaurant.

Want our free downloadable checklist on selling your restaurant?  Click the link below.

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Topics: Selling a Restaurant

Robin Gagnon of We Sell Restaurants Achieves CFE (Certified Franchise Executive) Designation

Posted by Robin Gagnon on Jun 14, 2019 9:34:00 AM

Robin Gagnon, co-founder of We Sell Restaurants has completed the study and testing to attain her Certified Franchise Executive (CFE) designation offered through the International Franchise Association. 

A passionate leader in the franchise community, Robin joins those worldwide who demonstrate strong credibility in their franchising expertise by study and testing for the designation.  She serves on the Executive Board of the Women's Franchise Network - Atlanta and is the past leader of that team.  She is also on the a member of the Women's Franchise Committee at the national level of the International Franchise Association.

Robin GagnonThe mission of the Institute of Certified Franchise Executives™ (ICFE) is to enhance the professionalism of franchising by certifying the highest standards of quality training and education. Among franchise leaders, the CFE designation has become widely known and recognized as a mark of distinction.

Why this, Why Now?  Gagnon says, “I undertook the study to become a CFE as a lifelong student dedicated to professional development.  It’s the same reason I achieved my Certified Business Intermediary or CBI status in business brokerage.  The process of learning does not end with graduation from a university, in my case, with an MBA.  It requires constant affirmation and commitment to study to stay current.  As a business broker with many franchise clients as well as a franchisor of our brand, We Sell Restaurants, it’s critical to understand the industry on every level, including the legal and finance sides, as well as the marketing and sales.  The CFE designation tells others in the industry that I am serious about franchising and I understand all the nuances.”

What was the course of study? “3500 credit hours were required which included a combination of experience, classroom study and online classwork.  The curriculum ranged from marketing to legal and financial considerations of franchising, as well as ultimately, testing.” 

What was your favorite part?  “The interaction with peers at classes attended during the International Franchise Association (IFA) conferences was the best part of the program.  I made valuable contacts and learned from others in all levels of franchising.  I was paired with everyone from leaders of 1,000 unit brands to start-up franchisors. There was an immeasurable amount of talent in each course and everyone was generous in sharing their talent and experience.”

How does someone get the combination of experience and credit hours to attain their CFE? “The IFA does an excellent job of providing educational opportunities including everything from Wednesday “Webinars” to classroom courses.  Experience credits are granted for attendance at local events like the SEFF Southeast Franchise Forum or the Women’s Franchise Network of Atlanta (WFN) and of course, the IFA convention each year.  Through a combination of attendance at events, study online and coursework at conference, you can earn your CFE in one to two years.”   

How will you use your CFE?  As a franchisor and co-founder of We Sell Restaurants, we are already using the knowledge from my CFE studies to implement best practices and build a brand for the future.  As a business broker focused on franchise resales, my clients, including major brands and single units, know they are getting representation from someone committed to the ideals of the CFE. These include professional development, peer networking, industry recognition, professional standing, and commitment to franchising.”

Do you recommend others interested in franchising commit to their CFE?  “Absolutely. It requires a strong commitment of time and money but it pays off.”

Is there a graduation ceremony?  “There is!  I will walk the stage at the next International Franchise Association conference in February next year.”

For more information on Robin’s franchise listings, visit this link online.

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Robin Gagnon bio

Topics: Buying a Restaurant, Selling a Restaurant

4 Must Know Landlord "Gotcha's" to Avoid when Leasing a Restaurant

Posted by Robin Gagnon on Jun 11, 2019 9:11:00 AM

The team at We Sell Restaurants have told you for years that the landlord is not your friend.  Need further proof?  Here are examples of scenarios that you absolutely want to avoid when leasing a restaurant. 

leasing a restaurant-1As Restaurant Brokers, we focus on key fundamentals in the lease transaction.  These include, "What could pull down the value of the business?”  After all, we are selling businesses generating income.  Any clause in the lease unfair to the party leasing a restaurant affects the value and simply may not be fair.  With those thoughts in mind, here are four lease clauses anyone leasing a restaurant should have their Restaurant Broker examine and attempt to negotiate in lease assignments or new leases.  These include: 

  • Relocation/Redevelopment Clauses
  • Radius Clauses
  • Acceleration Clauses
  • Forced Removals.

Relocation/Redevelopment Clauses.  These are the clauses in a lease that allow a landlord to move a tenant within the same center (relocate) if the landlord is redeveloping for a different tenant.  For example, Jodie’s Bakery has been on the corner of the shopping center for three years and has established a great clientele.  An unrelated tenant, like Publix, comes in and says, I’ll take 35,000 square feet of your shopping center but we require the corner location and the other empty space.  Under a relocation clause, the landlord will have the option to move the tenant into a “comparable” new space and pay for it.

Does this affect Jodie’s Bakery?  Yes.  There will be an immediate impact on the business.  Jodie has no control over where the business moves, and Publix operates a bakery department right where her old business was standing.  Any tenant coming looking at a redevelopment or relocation clause should have a strong restaurant broker in their corner working to strike this language.  We focus on this as we work to preserve the value of the business over the lifetime of the lease. 

Radius Clauses.  This is a clause in the lease that states the restaurant owner may not operate within a certain radius of the shopping center.  In return for the ability to lease this space, the landlord is going to “lock-out” the tenant from any other space within an x-mile radius. This is an inherently unfair clause for the tenant. 

Business may shift away from the corridor he’s currently in and just half a mile west, where he’s now prohibited from locating.  A new shopping center may open and offer him a great deal to come on board and he would not be able to open a second location.  A competitor may offer to sell out his location but if it’s within the radius cited in the lease, he could not do so.  This is a landlord clause open to negotiation and a bully tactic on the part of the landlord.  It should be negotiated as part of the lease assignment because it affects the value of the business in the future and it is fair to ask.

Acceleration Clauses.  An acceleration clause is a clause that allows the landlord to “accelerate” the rent due in the event the tenant defaults.  These clauses have been held to be illegal in many states and landlords know this but still sneak them in as an intimidating factor to a tenant.  If the tenant defaults on a lease in his second year of a five year lease, under an acceleration clause, the landlord could make a claim for the entire amount of rent for the next three years, a much bigger obligation.  This makes a business less valuable and increases risk to a buyer.  We Sell Restaurants works to eliminate this clause where possible.  

Forced removal clauses.  These are dangerous clauses because they often bury language related to the assets.  A clause may include language like this, “At the end of the term or at the time of a forced removal, the tenant must vacate the premises and relinquish all furniture, fixtures and equipment.”  That means the tenant would lose any claim to his own assets.  Another dangerous piece of language within this clause may say, “Tenant shall restore the shell…”  That means the tenant must take everything out and it back to a cold grey shell or white box condition.  This could be very costly to a tenant and there are cases where they have had to spend many thousands of dollars to restore a location to its prior condition. The fix to this language proposed by most is simple at the outset but very costly later.  You simply insert the following language (subject to attorney review), "Notwithstanding xxx (removal clause), landlord will not require removal of improvements."

Another option is to simply have the landlord waive his right to the assets.  This is critical in certain states (like Texas) where a landlord can lock a tenant out with just 5 days-notice for non-payment.  If a lien waiver is in place, a lockout is prevented since the landlord will essentially be subject to theft by conversion if he locks the tenant out from his own property.  It is much easier to get language such as this negotiated up front when leasing a restaurant than try to negotiate it on the back end of a troubled lease term with late payments. 

An agreement with a landlord for leasing a restaurant can be as simple as a few pages and run to many hundreds of pages. It is not something to be taken lightly, but rather should involve the services of those familiar with the process and the clauses landlords will use to their advantage. 

Check out our many options for leasing a restaurant online at this link or by clicking below. 

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Topics: Leasing a Restaurant

Selling a Restaurant?  A Quick Guide to Restaurant Valuation

Posted by Robin Gagnon on Jun 7, 2019 5:26:59 PM

If you’re selling a restaurant, the number one thing to get right is the pricing.  How do you arrive at valuation? At one time, novice restaurant brokers often tried to use sales to value a business. This pricing technique was largely abandoned in favor of income valuation. If you plan on selling a restaurant business, your broker should know how to calculate its value using this methodology.

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How It Works

Income valuation determines the benefit to a future owner by calculating the restaurant's discretionary income. It works well regardless of the specific business type. For example, you may use it to find the value of a pizzeria, pub or Mexican restaurant.

Several financial figures are needed to calculate the fiscal benefit that a restaurant for sale provides. You can find them on the seller's tax return and profit/loss report. The bottom line is that a high discretionary income normally yields a higher selling price.

Importance

Restaurant brokers should possess thorough knowledge of this method and understand how to perform the necessary calculations. This is true because lenders depend on income valuation to determine if they should supply financing on a restaurant for sale. An SBA-affiliated bank will expect sufficient discretionary income as well as a 20 percent down payment.

Knowledgeable buyers also employ this assessment when comparing restaurants and determining how much money they ought to offer. They can avoid taking excessive risks by selecting eateries with desirable valuations. This strategy helps them choose businesses that represent wise investments.

The Calculation

It's not hard to learn how to calculate a restaurant's discretionary income. To get started, enter the net earnings. Add owner-benefiting expenses like the seller's family's health insurance, vehicle costs and salaries. Next, you should add loan interest as well as all expenses that aren't paid in cash. These costs include amortization and depreciation.

The resulting figure is the discretionary income, also known as the "owner benefit." To find the business value and a suitable selling price, you'll need to multiply this number. Separately multiply it by both 2.5 and three to calculate the estimated price range.

Business Potential

Some agents and buyers spend a lot of time discussing the "potential" of a restaurant to achieve greater success. It might have numerous seats, new equipment or a high traffic count. While it makes sense to choose a location with the capacity for growth or improvement, this concept shouldn't affect the establishment's price. If you’re selling a restaurant, you don’t get the benefit of the new buyer’s work to improve the business. 

Sellers ought to be paid for their business development contributions rather than the building or location's potential. When buying a restaurant, you should benefit from your ability to cut expenses or attract more customers, not the former owner. Buyers and agents mustn't allow business potential to cloud their judgment and inflate prices.

Variations

Many factors can cause businesses to sell at the low or high end of the above-mentioned range. For instance, a popular franchise or top-notch bookkeeping may help a restaurant sell at three times the discretionary income. Some kinds of restaurants demand higher prices during certain seasons.

On the other hand, an establishment might only be worth 2.5 times its owner benefit if the area has too many similar restaurants. Don't forget to request a pricing explanation from the restaurant broker; ask about the information and methods used to determine the price.

Avoid brokers who cannot explain their pricing techniques when selling a restaurant.  The International Business Broker Association certifies knowledgeable brokers as a Certified Business Intermediary.  A professional with a finance degree or work experience in the finance sector may also possess a thorough understanding of effective pricing methods.

The income valuation technique offers a reliable way to take the guesswork out of restaurant pricing. Selling a restaurant is a math problem with a correct answer.  A strong broker will be able to provide you with the appropriate valuation.