Advice for Buying a Restaurant and Selling a Restaurant

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.

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.

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.

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.”

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 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.   

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. 

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. 

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."

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.

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.

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:

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

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.

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.

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. 

As 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: