Advice for Buying a Restaurant and Selling a Restaurant

What is a Restaurant Broker Selling?

Posted by Robin Gagnon on Apr 16, 2013 7:01:00 PM

restaurant brokerIt’s a simple fact of life that no one goes to school and studies to be a restaurant broker.  Very few school children surveyed on the “Career Day” at school would answer that this is what they want to be when they grow up (though teacher, doctor and veterinarian would surely make the list).  Restaurant broker is a term most people don’t even know and if they do, they aren’t sure what they do and what they sell.  That’s why the name of our firm is “We Sell Restaurants” so it’s perfectly clear to anyone meeting us what we do for a living.  Here’s a full lesson in what those of us selling restaurants for a living are actually doing.   

First, we sell jobs.  That’s right.  When we list restaurants like my recent Which Wich franchise multi-unit property with more than $300,000 of existing cash flow on the books – that’s a job.  It’s a career change for a lawyer who’s always dreamed of being in the deli business.  It’s a perfect role for a stay at home mom tired of juggling children and ready to juggle some serious cash flow.  It’s a “do-over” for the corporate refugee that’s been dreaming about leaving the business world where you’re rewarded for doing the most hours in a day instead of doing the most productive things on the job.  A cash flow rich business is a job to someone buying and that’s why they want to know exactly where every dollar is coming from and make sure it’s all on the books when they make the purchase.  

When restaurant brokers sell cash flow, it’s sold at a premium, or a “multiple” of the cash flow.  Generally speaking that will range from 2 times cash flow (on the low end) to 3.5 times cash flow (on the high end).  That can vary widely depending on the number of units, whether it is six figure earnings or something smaller, the time of year a buyer is purchasing and saturation of concepts in the market place among other things. 

Secondly, restaurant brokers sell assets.  That’s right.  If a restaurant isn’t making money, then we’re selling plain old used equipment so that the next guy can hopefully improve upon what the last fellow did.  That’s just used equipment.  We’re not like the big equipment re-sellers with used restaurant equipment for sale.  Their inventory is in a warehouse or showroom.  It has to be delivered, assembled, and then hooked up by a plumber or electrician.  A restaurant broker has the used equipment all constructed and ready to go in a single location so you can turn the key and start operating tomorrow. Buyers looking at asset sales should only worried about whether the equipment runs, not what kind of cash flow is being generated from it.  

Asset sales are perfect for guys with experience who want to put their concept into a new location.  When restaurant brokers sell assets, they are generally marketed for about 20 cents on the dollar versus the original investment.  That means that a buyer is paying very little but he’s not assured any cash flow.

A restaurant broker has two things for sale but at the end of the day, is only paid when a transaction takes place.  Restaurant brokers are compensated for their knowledge and their time is a precious commodity.  They are one part deal maker, one part hand-holder and one part bully who force everyone to the closing table including landlords.  They are pitching clients to landlords one minute and telling sellers to take a deal the next.  They are multi-taskers who don’t stop until the deal is done.  All those parts make up something pretty special in an environment as tough as this one.   Next time you meet a restauranrestaurants for salet broker, say something nice.  They might need to hear it that day.

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Topics: buying a restaurant, restaurant broker, selling a restaurant