Advice for Buying a Restaurant and Selling a Restaurant

Should I draft a Quarterback or Receiver to sell my business? This restaurant broker has an opinion on the topic.  What's yours?

It's the time of year when football fans are glued to the TV listening to sports commentators talk about NFL prospects waiting to be drafted. This highly speculative event is where players realize their lifetime dreams of being drafted into the "league." Team owners a lot of money each year for their scouting department to evaluate the talent of potential players. They make this investment with one goal in mind. Which player can help their organization WIN? The right draft pick can help a team WIN and increase the value of an organization.

The NFL draft puts a dollar value on each player position and the market value for each position is different. The team with the number #1 pick wants to get the most production and value for their pick. This is very similar to a seller that wants to sell their restaurant. They are choosing from a lineup of players (or brokers). Their challenge is to find the one who can help them WIN and increase the value of the transaction.

Quarterbacks are a highly specialized positions that can change the fortunes of a team. This position requires owners to pay a premium salaries. Kirk Cousins just signed a 3-year, $84 million dollar averaging $28 million a year and it’s ALL guaranteed! The highest paid Receiver only makes $17 million a year. Why would an owner pay a Quarterback 165% more than the top Receiver?

The answer is very easy. It’s called Value. That can be defined as “the regard that something is held to deserve; the importance, worth, or usefulness of something.” A Specialized Restaurant Broker is like a Quarterback. They bring more value than a generalized agent that is a "jack of all trade" selling anything from a day care center to a beauty salon.  Making the wrong choice to sell your restaurant would be like drafting a Receiver that would not help you WIN.

Certified Restaurant Brokers quarterback the sales transaction from the beginning to the end. They communicate with the seller, buyer, bank lenders, landlords, CPA’s, Franchise, closing attorney, and sometimes vendors. Restaurant Brokers are valuation specialists and understand the cash flow and add backs of a restaurant situation. They understand the deal making process and know when an audible may have to be called to get the deal closed.

I played football at Morehouse College in Atlanta, Georgia and I did not get drafted to the NFL. On the other hand, I have restaurant sellers draft me every day to quarterback the sales transaction of their restaurants. I’m honored to represent these sellers and give them an opportunity to pursue their new life ambitions.

When it’s time for you to sell your restaurant make sure you draft the right person to represent you. It's not fantasy football and the right pick is critical.  The right draft pick can be the difference between selling your business for the most money in the shortest period of time or waiting while the clock runs out on the field. Get the guy that can score a touchdown each and every time!

The Restaurant Brokers have been bullish on restaurant sales since very early in 2017 and our predictions have been spot on with reports from the marketplace.  BizBuySell is confirming our findings, stating that the first quarter of 2018 brought "record-breaking sales prices and transactions"  for  business sales.

2018 Versus 2017 Results

Asking prices, count of restaurants on the market and selling prices all rose in the first quarter of 2018 versus 2017 acording to the latest tracking data released by BizBuySell.  In their report, "small businesses sold for the highest sale prices since they started tracking data in 2007."  That's a decade ago!  Selling prices were up 3.4 percent increase from last year at this same time.  Asking prices are up as well.  Their report says that the median asking price of sold businesses also hit a record high.  The number was $262,000, a 4.8 percent increase over 2017.

There were a total of 2,678 businesses sold in the first quarter of 2018. This represents a 13.1 percent increase from this time last year and the most businesses reported as sold in a quarter since BizBuySell began collecting this data. What about restaurant sales?  Restaurants represented 21% of all businesses sold.  From our internal data, as the largest restaurant brokerage firm nationwide, we can confirm that transactions, asking prices and selling prices are all up from last year.  Restaurant transactions were up 7.65 nationwide in the first quarter. 

Drivers of these Results

What's driving the change?  It's the Trump effect and specifically, the tax bill.  Small business owners are listing businesses they previously held back on because they know the tax consequences are less when it sells in 2018.  Simultaneously, small business confidence is at an all time high.  The tax bill has made a number of buyers and seller realize that their efforts will put more money in their pocket so small business ownership is looking good to them.  

The strong stock market has also contributed to the boom in restaurant sales.  Many buyers rely on 401K savings and fund acquisitions through rollover products.  Now that their savings have seen a 20% to 25% bump in the last year, they are feeling flush with cash and ready to invest in themselves. 

Will it Continue?  Only if the Tax Bill Remains Unchanged

What do the trends look like?  Here's the quarter by quarter graph released by BizBuySell showing the sale price versus asking price since 2014.  You'll see that the first quarter of 2018 has the highest point on the graph.  The restaurant brokers fully expect this trend to last for the year with one caveat.  Should the Democrats take back control of the House or Senate, putting them in a position to reverse the tax package, as they have pledged, expect these numbers to tumble significantly.  

For now, the tax package has not only spurred tremendous growth in sales, it is also paying for itself, a little discussed fact released by the Congressional Business Office or CBO last week.  Last June, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3% — a significant upward revision. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%. The CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts. The CBO report also makes clear that this faster-growing economy will offset most of the costs of the Trump tax cuts.   BizBuySell surveyed business owners and and nearly half of them (more than 48 percent) believe the tax changes benefit small businesses.  Less than a quarter (24 percent) found it harmful. 

Business Confidence Rules

The restaurant brokers aren't the only ones discussing business confidence.  The NFIB or National Federation of Independent Business group surveyed its members in February.  In their  Small Business Economic Trends Survey, they reveal that "small business owners are showing unprecedented confidence in the economy."  These results are spilling over to unemployment numbers which has fallen to 4.1 percent, the lowest since the dotcom boom back in 2000.  That is also affecting small business owners and of those surveyed by BizBuySell, 60 percent plan to hire more staff and 57 percent plan to raise compensation.  

 All of this economic growth is pushing those interested in small business ownership to seek opportunities like our restaurants for sale, especially since the businesses themselves are performing better. 

Cash Flow Trends

Restaurants for sale like the ones we represent are priced based on cash flow.  The businesses sold in the first quarter of the year reproted higher earnings.  That is the trigger for rising valuation and ultimately, higher selling prices.  The median cash flow of businesses sold in Q1 increased to $120,000, a 2.3 percent increase over the same time last year.  This is still a minor raise that would not dramatically affect pricing but we expect to see this trend continue up as well.  Businesses selling in 2018 are reflective of 2017 earnings.  As trends strengthen this year, this will be factored into the valuation of transactions later in the year.  

Are more sellers putting their businesses on the market?  Yes.  The report found an increase of 6.9 percent in businesses listed.  The restaurant brokers continue to believe the time has never been bettter for selling.  Between small business confidence, the number of buyers in the market and continued favorable lending trends, 2018 is the year to sell your restaurant.

As a Restaurant Broker dealing with dozens of franchise resale opportunities every single day, I am often asked why restaurants fail.  Here are the candid and all too real answers about why restaurants fail. They can be summed up in three ways.  

Reason Number One - "If you build it, they will come" is not a business model, it's a movie. 

Restaurants fail because grown men and women believe that "if you build it, they will come." That single line from the movie Field of Dreams is the number one reason we see those operating great franchise brands failing in the market.  The operator believes it's enough to open the door, put up the sign and sit back and wait for the business to happen.  

They refuse to acknowledge that the business world has expanded far beyond the four walls of the store and now requires the active pursuit of customers.  They do not want to take a hard look at their catering line and decide they have to invest to develop this all important way to add top line sales and ultimately, bottom line profit. They don’t want to acknowledge that people would rather stay home than dine out and fail to sign up for delivery services.  Lastly, they believe that investment in the brand name of the franchise is enough.

Restaurants fail because owners believe that a franchise brand is their lifeline and a guaranteed path to success.  It is not.  The brand is the starting point for developing the business. It's up to the business owner to grasp that fact and grow the business. 

Reason Number Two:  Restaurant Ownership Is a Hands-On Business 

The second reason why restaurants fail is that owners in countless other fields see the business model as one they can operate on an absentee basis.  In most cases, this is just not a viable option.  Many restaurant buyers contact me and insist they can operate while pulling down a full time job or from many miles away or even from out of state. 

A restaurant buyer last month made an offer on a business in Florida while he and his wife lived in Missouri.  He did not reveal, until very late in negotiations with the seller, that he intended to stay in Missouri for two more years.  He seemed incredulous that the franchise brand would not approve him to operate a brand from hundreds of miles away.  His plan was to give the current manager a minority stake in the business and let him keep running it. 

Is a minority stake for managers a good idea?  Absolutely.  This can lock in front line people to contribute their best and stay in place.  It is not, however, a guarantee that manager will not leave, not like the new owner, fall in love with someone moving out of state or continue to run the business well, knowing the owner is thousands of miles away. 

Most franchise brands require an ownership stake in the operations of the business.  They want to see a family member with equity in the business at the helm if you're not running it.  Otherwise, if you want to operate as an absentee owner, get ready to add your business to the list of restaurants that fail.

Reason Number Three:  Failure to Grasp the Basics -- It's the Numbers

The third reason restaurants fail, in this restaurant broker's opinion, is an underlying failure to understand the three key financial variables required to manage for success:  food cost, labor cost and occupancy cost.  These three items drive the lion's share of the monthly profit and loss statement.  Food costs and labor costs have to be closely managed on a day to day basis (refer back to Reason Number Two in why restaurants fail).  Now you see why absentee ownership is a bad idea. 

Food costs mean managing the portion size to exactly what is laid out in the brand requirements.  It also means control over ordering.  Your inventory ages and when it ages, it results in waste.  Control over food costs mean managing what goes out the front door and what ends up in the dumpster at the back door.  This and labor cost, are the single most important variables to control 

In today’s high tech world, failure to exercise control over labor is just inexcusable.  It is very easy to see in advance the number of meals that have to be prepared.  Any POS system is going to tell you what you did for a Tuesday at lunch last year, last week, last month and yesterday.  Absent any unforeseen event like weather, tourist influx or natural disaster, any owner should be able to plan the schedule and labor correctly to maximize results and minimize costs.  For that reason, failure to grasp this basic and control it within acceptable financial reasons contributes, along with food costs into why restaurants fail.

The last large variable in costs are the occupancy costs and this is the rent number.  Once that number is determined, it’s very difficult to change.  Getting the cost right up front and not inflating sales estimates are the only way to keep from getting into an occupancy cost over 10% which starts highly impacting profitability.  There is generally no way to renegotiate a lease mid-stream.  Landlords have you locked in with personal guarantee.  You will have to sell yourself out of this problem by getting the top line sales results up.

Overall, there are many reasons why restaurants fail.  In this restaurant broker’s experience, however, the three above are the main reasons we see otherwise successful opportunities take a turn for the worse.

Looking for franchise resale opportunitities  Visit us online at wesellrestaurants.com or follow the link below to view our listings.

Most of us take a hard look at our homes and we will try to make it look as good as we can for the upcoming months. Why not do the same for your restaurant? If you’re thinking of selling your restaurant, here are some of the major areas to focus on from the restaurant brokers. These are the major areas and ideas for your Spring cleaning.

Dining room, Patio, Kitchen

When it comes to selling your restaurant, you need to look up, down, and all around. When is the last time you really cleaned your dining room floor? I don’t mean just mopping it. What about steam cleaning, rebuffing, re-waxing or even replacing a tired surface. You may not look down, but your customers do.

A continuation of the dining room floor are the base boards. When selling your restaurant, no detail is too small. Take a moment and wipe down the baseboards?

For a larger project, consider touching up paint on walls, a fresh coat of paint maybe even a new color? HGTV is filled with stories of a “before” and “after.” Many of these are just fresh paint colors that can have a huge impact.

Don’t forget to look up. That A/C leak from last year that stained a few of your ceiling tiles is a constant reminder of failed equipment. Don’t let a restaurant buyer focus on these negative items if you’re selling your restaurant. Look up, fix the ceiling tiles and, how about those ceiling fans? Please don’t tell me the last time you dusted them was last Spring.

Look at your décor. Change out old faded artwork or posters. You can do better. New pictures, new TV screens, new table covers; all are easy and simple (low cost) ways to bring Spring in the air.

Your kitchen is the engine every buyer wants to see. When is the last time you pulled out your kitchen equipment and steam cleaned the entire space and equipment? Have you gone to your storage area and disposed of any items no longer in use? Consider updating to newer technologies or upgraded equipment for the upcoming busy season. New equipment may cost now but make a huge difference to your bottom line this year if the food cooks faster or the temperature is stable.

Patios are often a huge plus for restaurants but to require upkeep. That area if visible from the road could also be the first look in your establishment for many customers. Make sure you have a picture-perfect patio area. Adding water or fire elements to your patio could also make a very positive impact on your business. Your patio, seen from the road, can be a billboard for you.

Menu Spring Cleaning

When selling a restaurant, the focus is on profitability. When is the last time you took a hard look at your menu? Adding and/or deleting items, pricing adjustment, seasonal specials, promotions, LTO’s. Be very strategic here. An outside consultant or food vendor can help with this. This is a big part of your business. If you can bring up your loss leaders or trade non-selling items on your menu for more profitable and sellable items what are you waiting for? Status quo is very easy and comfortable but if your sales are not going up, you are losing marketing share.

Staff Spring Cleaning

When selling your restaurant, you want the best possible crew. Do you need to provide additional training to the current team? Should you roll out a new incentive package for the team to participate in? You can host team building activity to set the tone and expectations for the busy season ahead. Whichever you decide to do here do not overlook or skip staff spring cleaning.

You spend a tremendous of time in your restaurant and sometimes it is very difficult to step out be candidly honest with yourself about the appearance. When selling your restaurant, that first impression may seal or sink the deal.

A quick Spring cleaning can go a long way. Any changes small or big will be noticed by your team and your customers. That new paint smell or new air freshener in your bathrooms will soon become the smell of new customers and new profits.

Wondering about the best way to sell a restaurant? Here are some of the common approaches along with the pros and cons.

Commercial Real Estate Agent

One common approach to selling your restaurant is to find a local commercial real estate agent. This seems like a good starting point. They know the local market. They are familiar (or should be) with lease rates and they are licensed and in good standing. These are all the positive points. Is this the best way to sell your restaurant?

Compare this information with these less favorable reasons to list with a local commercial real estate agent. First, a local commercial real estate agent does not have access to a ready database of buyers in the market to buy a business. He or she typically deals with those in the market to buy a cash flow property generating a return, but these are generally people that want to be landlords rather than operators. Secondly, an agent like this is often using marketing tech

niques tied to the location like Co-Star or LoopNet. They aren’t familiar with the national marketing sites, featured listings, costs and methods to draft and market a confidential transaction. Lastly, a commercial real estate agent has comps and models for doing valuation on real estate property but frequently lack the training and skills to do a valuation on a business. It’s simply not their core expertise. For all these reasons, using a commercial real estate agent is not the best way to sell a restaurant.

General Business Broker

In seeking the best way to sell a restaurant, talking to general business brokers is a great approach. They are familiar with valuation methods, are sometimes credentialed (i.e. have a C.B.I. or Certified Business Intermediary status). They represent customers in the market to buy a business and understand how to market businesses for sale which is very different from traditional real estate. All of these are positive reasons that using a generalized business broker may be the best way to sell a restaurant.

Unfortunately, the term “general business broker” is the first clue that they may not be the best way to sell a restaurant and here’s why. A general business broker sells everything from manufacturing plants to liquor stores; from day care centers to dry cleaners. Throw a restaurant in the mix and he or she will sell that as well. That’s where the break down occurs. The analysis of the financials is best understood by someone who has sold dozens of restaurants that year, not someone selling one in 100. The ability to interact with buyers and answer questions they have related to infrastructure (is there a grease trap? How long is the hood?), and others posed by buyers is much more difficult when they are trying to remember or learn multiple industries. That’s very different from the granular level someone specializing the field will understand it. Lastly, remember the old saying that a “jack of all trades is master of none?” That applies to this instance. Based on their very generic approach to selling businesses, a general business broker is not usually the best way to sell a restaurant.

For Sale by Owner

On option for selling your restaurant is the “for sale by owner” route. Is this the best way to sell a restaurant? This is for you to gauge independently based on your situation. There are definitely risks to selling on your own. One issue is dealing with the confidentiality of the business. Who and how do you tell the world you’re for sale while keeping your employees from learning? How do you price it? What about marketing? For sale by owner is a tricky proposition that could actually cost more than it saves. We recommend avoiding this course of action unless you have a ready buyer already identified. Even in that case, it’s a good idea to bring a broker in for representation and to cover the basics.

Specialized Restaurant Broker

In this writer’s opinion, a restaurant broker, specializing in the field exclusively is the best way to sell a restaurant. Why is this the best choice?

A Restaurant Broker is both focused and expert in the industry. They are valuation specialists and understand the cash flow and add backs of a restaurant situation. A Restaurant Broker is working with clients every single day who have one single interest and that is buying a restaurant. In the case of our firm, We Sell Restaurants, we have more than 70,000 people in our database all looking for a restaurant for sale. They don’t come to us for day cares or dry cleaners, they have one mission.

A specialized brokerage firm has the depth and breadth of knowledge that is unmatched by either a commercial broker or a general business broker. For these reasons, they are the best way to sell a restaurant if you’re seeking to sell for the most money in the shortest period of time.

Do you have questions about selling your restaurant? Visit us online or give us a call today.

What was on the mind of restaurant buyers in early Spring of 2018?  We can tell you.  The market made a turn from established franchise restaurants for sale to independent concepts and lease locations.  In a surprising twist, only one franchise restaurant for sale location made it onto the top ten list published by the restaurant brokers each month.

We measure the top ten by looking at all the activity on our listings including signed confidentiality agreements, agent outreach by buyers and views on our site and other national websites.  The results are recapped below.

Topping off the list this month was a breakfast and lunch restaurant for sale in Coral Springs.  The low cost of entry and excellent rent for the market drove buyers to request additional infomation on this gem.  We suspect that Franchise Partner and Certified Restaurant Broker Ken Eisenband will have this one in contract shortly.  

Listing ID:6003 Restaurant Broker Ken Eisenband       Breakfast and Lunch Restaurant for Sale in Coral Springs with Low Rent Lease: Expire November 30, 2018, plus option Monthly Rent: $1166 Inside Sq. Ft. 900 Outside Sq. Ft. Price:$59,000 City:Coral Springs  . Ken Eisenband  (561) 350-3365 Our second most popular listing for the month was a money-making monster out of Savannah Georgia.  Three existing units are generating strong sales and even better -- earnings of more than $200,000.  This listing got our restaurant buyers clicking, calling, emailing and viewing like crazy.  Bring your offers on this one.  Six figure earnings are rare and those that exceed $200,000 are like unicorns --  you've never seen one!   Listing ID:6035 Restaurant Broker Eric Gagnon       Three Franchises for Sale - Multi Unit Opportunity earning $200,000++ Lease: Dec 2022 |Dec 31, 2024 | Nov 2020 plus 2 5yr options Monthly Rent: $3591.91 | 2504.59 | 4356.25 Inside Sq. Ft. 1200 |1225 | 1394 Outside Sq. Ft. Price:$749,000 City:Savannah | Savannah | Pooler  Eric Gagnon  (404) 800-6704 Dave Duce reports that Austin Texas is booming with development and restaurants are changing hands quickly.  One of his latest listings, a fully built out restaurant that's turnkey ready in the city was number three on the top ten list of restaurants for sale this month. Listing ID:6012 Restaurant Broker Dave Duce       Fully built-out restaurant for sale available in West Austin Texas Lease: 5 years Monthly Rent: $5860 Inside Sq. Ft. 2144 Outside Sq. Ft. 200 Price:$160,000 City:Austin  Dave Duce  (512) 773-5272 Any restaurant for sale listing priced under $100,000 is sure to get strong activity and this one in Pompano Beach definitely made the cut for that reason.  The current concept is Pizza and Italian and any restaurant buyer could pick this one up and keep it exactly the same or connvert to a new concept.  Listing ID:5995 Restaurant Broker Ken Eisenband       Pizza and Italian Restaurant for Sale in Broward County is Turnkey Lease: Expires on October 31, 2018 plus 5 year option Monthly Rent: $5400 Inside Sq. Ft. 2500 Outside Sq. Ft. 0 Price:$89,999 City:Pompano Beach  Ken Eisenband  (561) 350-3365 A fully equipped and built out restaurant for sale in Cobb County Georgia, home of the new Atlanta Braves stadium got lots of looks, calls and signed confidentiality agreements.  The low price, coupled with unbelieveable rent, make this a candidate for re-branding.  Restaurant broker Dominique Maddox is the contact point for this restaurant for sale priced at under $50,000. Listing ID:6034 Restaurant Broker Dominique Maddox       Diner for sale in Cobb County. Rated number #1 on Yelp! Lease: Expires May 2018 Monthly Rent: $1350 Inside Sq. Ft. 1500 Outside Sq. Ft. Price:$49,995 Dominique Maddox  (404) 993-4448 Broward County and Italian restaurant for sale opportunities go hand in hand!  Thi Oakland Park beauty has monthly rent of just $2404 and is listed for under $200,000.  We expect offers soon on this well-priced business with below market rent for the area.  The restaurant for sale includes both indoor and outdoor dining options, unheard of for this rent. Listing ID:5910 Restaurant Broker Ken Eisenband       Italian Restaurant for Sale in Broward County returns over $117,000 to owner Lease: Expires November 30, 2021 plus five year option Monthly Rent: $2404 Inside Sq. Ft. 1200 Outside Sq. Ft. 300 Price:$199,000 City:Oakland Park  Ken Eisenband  (561) 350-3365 When we say Bar for Sale and Metro Atlanta, the numbers fly!  Restaurant Broker Steve Weinbaum listed this opportunity for just $100,000 and it easily made it into the top ten for the month.  The monthly rent is excellent and this is in Atlanta central.  This bar for sale is a great opportunity that will not last.  Listing ID:5983 Restaurant Broker Steve Weinbaum       Metro Atlanta Area Bar for Sale - Great Rent Rate Includes Utilities! Lease: four years remaining Monthly Rent: $4300 includes CAMS and Utilities Inside Sq. Ft. 2586 Outside Sq. Ft. n/a Price:$100,000 City:Atlanta   Steve Weinbaum  (770) 714-4552 The Atlanta marketplace and Restaurant Broker Steve Weinbaum grabbed a lot of listings for the top ten including this restaurant for lease opportunity in Roswell Georgia.  The location is ideal.  The infrastructure is in place to convert to virtually anything and best of all, there's no out of pocket!  Bring your ideas, your menu, your financial statement and your business plan for this lease space and open your dream restaurant today. Listing ID:5079 Restaurant Broker Steve Weinbaum       Restaurant for Lease in Roswell GA Lease: To Be Negotiated Monthly Rent: $3,492 with CAMS Inside Sq. Ft. 1600 Outside Sq. Ft. Price:$0 City:Roswell  Steve Weinbaum  (770) 714-4552 A second restaurant space for lease in Roswell Georgia drove lots of looks and phone calls as well.  This one, also offered by Steve Weinbaum is a larger space at 4,250 square feet and the rent is negotiable.  The current rental market is very tight with limited availability so it's no wonder the Restaurant Brokers are getting so many looks on these listings. Listing ID:6023 Restaurant Broker Steve Weinbaum       Restaurant space for lease! Endcap Unit in Booming Roswell Georgia Lease: negotiable Monthly Rent: $Negotiable Inside Sq. Ft. 4250 Outside Sq. Ft. patio Price:$0 City:Roswell  Steve Weinbaum  (770) 714-4552 The last of the most popular listings for the month was another restaurant space for lease.  This indicates the market is ready with entreprenuers looking to develop their own concept.  This location in Pompany Beach requires less than $20,000 in key month and represents a great opportunity for catering and delivery with an easy to manage 1,200 square feet. Listing ID:6053 Restaurant Broker Ken Eisenband       Restaurant Space for Sale in Pompano Beach is Ideal for Catering & Delivery Lease: Negotiable Monthly Rent: $1453 Inside Sq. Ft. 1200 Outside Sq. Ft. Price:$19,990 City:Pompano Beach  Ken Eisenband  (561) 350-3365 The top ten delivered some surprising results this month.  Most of the focus was on independent concepts or restaurant space for lease.  That tells us the marketplace is flourishing with those ready to take the risk on their own concept.  It's also a reversal from many months where we see franchise restaurants for sale drive the results of the top ten.  Whether you are in the market for your own concept or plan to buy an existing restaurant for sale, check out our many listings online at wesellrestaurants.com or by clcking any of the links on this page.

Every would-be restaurant franchise owner dreams of opening the next big franchise winner but the likelihood is low. Here the Restaurant Brokers advice for getting the best deal when buying a restaurant franchise.

What are the odds of building a successful restaurant from the ground up and lasting three years? According to a hospitality management professor who studied failure rates, it’s less than 40%. A professor at Ohio State University authored a study that found 57% of all newly opened franchises didn’t last beyond 36 months. That’s only slightly better than independent restaurants that experienced a failure rate of 61%.

Does this mean you should avoid buying a restaurant franchise altogether? No. An open and operating unit for sale represents a great value if you know when to buy and how much to pay. This article lays out the pitfalls of buying a restaurant franchise. Our full series will teach you our three rules for buying a restaurant franchise every buyer should know.

The books and records of an established restaurant franchise for sale are the true picture of its earnings. If you want a business that’s beaten the odds of surviving the three year mark; look at buying a restaurant franchise that’s three years old with repeated years of earnings. If a brand gets your attention because you’re a raving fan, are convinced it’s the next big thing or the food gets high marks, by all means pursue your dream. If you want to pursue that dream while making the most money, the Restaurant Brokers will teach you our “Rule of Three” for buying a Restaurant Franchise.

Here’s the typical story of a new operator. The restaurants brokers have seen this exact scenario hundreds of times. A new owner learns of a concept and is instantly excited about the potential and ready to build from scratch. A new build out for the simplest sandwich concept can easily cost the new operator $350,000 or more. Add in full service, specialized equipment, or a large space and this can quickly top the million dollar mark – before you open the door and make the first dollar.

Eager to experience his success, our hypothetical entrepreneur is sure he’s on the way to making millions. A simple review of the math however shows he’s paying franchise fees of more than 8%, marketing fees of 2%, and rent of 10 - 12% all before he buys the food and serves his first chicken wing and beer at an average check price of $12.00. After that first tough year or so he calls a restaurant broker to ask how much his business is worth. He’s not happy to learn that with a money losing operation, the most he can expect is about 25% of what he’s invested or roughly $125,000. That’s if he has a good franchise concept and a strong site.

A smart restaurant buyer picks up the pieces of the franchise and becomes owner number two. He’s still losing money but he only paid around $100,000 so his cost to acquire is much lower and the debt service is either very low or zero because he paid cash.

Our new entrepreneur is in year two so his sales are beginning to catch up with his fixed costs. By working hard at the business and operating it himself, he can probably go from losing money to making money. By the way, both owners have paid the franchise many thousands of dollars in royalties and marketing fees this entire time even while they lost money.

Another year into the business, this smart buyer realizes he didn’t get such a great deal after all. He’s in the black but when he adds up the time in the business against his return, he’s making less than the federal minimum wage. He calls the restaurant brokers to list the business. Sales have developed to the point that all fixed costs are covered and he’s in the black. With add backs, he’s earning $35,000 or so a year. Priced at three times earnings, it goes on the market for $115,000 and he nets $99,000.

This is when buyer number three steps in and hits his stride on this offering. He gets the deal when he is buying the restaurant franchise. The business is now valued on earnings, not hype. The sales cycle has matured and all costs are covered. Buyer number three has a real opportunity in his hands. He owns a good franchise brand. Sales are still growing and he is operating in the black. Since he didn’t overpay, the cost of repayment is minimal and the business can easily service the debt. While the first two buyers are telling their friends why they would never buy a franchise restaurant, the new owner has never been happier. This business cycle of these restaurant owners demonstrate why you should follow the Restaurant Brokers Rules of Three in Buying Franchise Restaurants.

Rule #1 -- Restaurant buyers never want to be first or second to own. Number three’s the lucky winner.

Rule #2 -- Buy close to the start of year three for the best opportunity. Sales are still trending up and it’s making money. Best of all, there’s still opportunity.

Rule #3 -- Never, ever pay more than three times owner benefit (that’s the amount of earnings plus take home pay for a manager or owner). Hold to that rule no matter how great a pitch you get from the franchise or the owner. Opportunity is a lottery ticket but none of us like the odds.

To see the Restaurant Brokers complete list of franchise restaurants for sale, visit this link online. 

In the market for a restaurant franchise?  Curious about how much money it takes?   Here's a recap from a recent article in Entreprenuer Magazine on those that require either the smallest amount of capital to launch or the least amount of cash on hand.  The good news -- half of all baby boomers and 16% of Millenials have the nest egg needed to start today!

The path to business ownership feels a little more secure when you buying a restaurant franchise for sale versus a start up concept.  But how much money do you really need?  You may be thinking, “I can’t afford to become a franchisee, it requires hundreds of thousands to millions of dollars up front to join the brand.” While this is true for franchising giants like Taco Bell who requires $1 million all the way up to $2.5 million to become a franchisee, it is not a reflection of all of the franchises for sale in the restaurant industry. Read on as the Restaurant Brokers break down some of the least expensive franchises for sale.

• Jimmy John’s – Jimmy John’s is taking the sandwich and sub world by storm due to their delicious menu offerings and their signature “Freaky Fast Delivery Service”, and it’s no wonder their franchises for sale are a hot topic. However, if you think that their popularity means that these franchises for sale are unattainable, think again. The franchise fee is a low $35,000, and you’ll need to prove liquid assets of only $80,000. The magazine Entrepreneur named this franchise as one of the top five best franchises to own, which is no surprise: in 2016 the average Jimmy John’s owner took home nearly $122,000.
• Ben and Jerry’s – $100,000 is the magic number when it comes to the amount of liquid assets Ben and Jerry’s franchises for sale require to get into the game. You can join this Vermont born brand of franchises for sale for a franchising fee of just $37,000. With fun flavors like Cherry Garcia, Phish Food, Chunky Monkey, who wouldn’t want to dip into this affordable brand of franchises for sale?
• Cold Stone Creamery – The second brand of frozen decadent treats to make our top five list of most affordable franchises for sale is Cold Stone Creamery. This giant has more than 1,000 locations across the county, as well as locations in 30 other countries! You will need to produce proof of liquid assets in the amount of $100,000 to enter into these franchises for sale opportunities, and come up with the low $27,000 franchise fee.
• Little Caesars – For over 60 years, Little Caesars franchises for sale have been scooped up by entrepreneurs ready to serve up no fuss carry-out pizza and side items! It’s no surprise that in these six decades more than 4,500 locations have popped up across the globe. Little Caesars requires $100,000 in liquid assets, and if you’re a veteran you will be able to take advantage of the reduced franchise fee! Invest in one of the Little Caesars franchises for sale and you’ll be saying “Pizza, Pizza!” while you roll in the dough!
• Subway – Subway franchises for sale are king on our list as the brand has locations almost everywhere – over 45,000 locations throughout the world to be specific. This sandwich giant requires $100,000 in liquid assets for new franchisees. Once you purchase one of the Subway franchises for sale, you can expect to join the ranks of the rest of the brands franchisees doing an average sales amount of $490,000 annually!

There you have it, finding affordable franchises for sale CAN be done, and it can be done with worldwide brands!   It looks like the magic number is the hundred thousand dollar mark.  How many people have that much?  A recent Bank of America statistic revealed that even Millennials are beginning to put that much money in the bank.  According to their survey,  "16% now have savings of $100,000 or more, double the amount of young people who had socked away that much in 2015."  Price Waterhouse Cooper says more than 50% of all baby boomers have more than $100,000 set aside.  Are you looking at your savings and ready to invest?  

You an go the route of a new business by purchasing a franchise brand like the ones listed above.  Better yet, you can buy an existing franchise for sale that's already up and running and generating cash flow!  The Restaurant Brokers have an abundance of franchises for sale on our website, including this Subway franchise for sale in beautiful Palm Beach County, Florida or this Ben & Jerry's franchise that's netting six figures toay.  If you’re ready to take the plunge into the franchise world, check out our website by clicking the link below!

The Ten Most Valuable Restaurant Brands Report is Published. The Restaurant Brokers at We Sell Restaurant Review and in some cases, challenge the findings

Brand Finance has released their annual report on the world’s most valuable restaurants brands. The restaurant brokers are sharing their views on the top ten as reported by the group with our own insight. The full report can be downloaded at this link.

Brand Finance, the authors of the report, established their index over twenty years ago, in 1996. They state that their findings “put thousands of the world’s biggest brands to the test every year, evaluating which are the strongest and most valuable.”

Do you agree with their assessment of the best brands? They view brand strength on a series of intangible measure relative to competitors. The criteria for making the list include metrics important to understand if you’re buying a restaurant. The Brand Value component is made up:

Enterprise Value – the value of the entire enterprise, made up of multiple branded businesses. Multi-unit brands like Yum go to the top of this category.

Branded Business Value – Defined by the group as the “value of a single branded business operating under the subject brand.” This is a key metric if you’re buying an existing franchise for sale like many of those offered by the restaurant brokers.

Brand Contribution – This is defined as the overall uplift in shareholder value that the business derives from owning the brand rather than operating a generic brand. Again, this is the difference between owning an independent restaurant for sale versus an existing franchise for sale unit.

What are the top ten most valuable brands? Here they are ranked in order by Brand Finance.

1. Starbucks
2. McDonalds
3. Subway
4. KFC
5. Tim Hortons
6. Domino’s
7. Burger King
8. Pizza Hut
9. Dunkin Donuts
10. Chipotle

Do the restaurant brokers agree with these rankings? While we don’t have access to the underlying data points and we do concede that it is a robust methodology. However, these restaurant brokers would challenge a few rankings based on what we are seeing in the industry.

For example, Subway retained the same rank on this list from 2017 to 2018. This is despite a number of issues we are seeing on the streets which include year over year sales declines at the unit level. This is due to increased competitive pressure in the fast casual world. In addition, the franchisee issues and actions taken in 2017, in these restaurant broker’s opinions, should have affected the overall brand measure. For Subway, we disagree with a number three rank, unchanged from the prior year.

For similar reasons, we struggle with the ranking for Chipotle. The chain has been plagued with a series of missteps and shut downs for reasons integral to their entire business model – their “clean” supply chain. For this reason, in a study of a brand where intangibles are part of the measure, we feel this should have moved them out of the top ten instead of having them retain the prior year performance.

Other overall observations from the restaurant brokers on this list include a notable exception of any of the brands pushing a clean eating or healthy lifestyle. Despite all the media push to make us believe that these concepts are winners, the brands on this list are deep fried basics or fat laden comfort food providers like KFC, Tim Hortons and of course, everyone’s guilty pleasure, pizza.

Should it impact your perspective in buying a restaurant? From a restaurant broker’s standpoint, many of these brands do not often come onto the market so this does support the study’s “best of” findings. Outside of Subway, most of these are only available for new development with existing franchises for sale being bought and sold internally among existing franchisees.

The desire to rank restaurant brands is a never ending pursuit, particularly with so many individuals interested in buying a restaurant. The restaurant brokers recommend you heed this advice like any other and weigh it against all other information when buying a restaurant. Whether a brand is “ranked” #2 or #3 by another survey is not a true measure of a single store operating in your market. It is one of the data points to consider along with store performance, location, and your overall customer experience with the brand.

For more information on existing franchise restaurants for sale, visit this link at wesellrestaurants.com

If you are interested in selling a restaurant, these three tips provide you with a guide for the best results.  These basic concepts can help insure your desired outcome; selling your restaurant for the most money in the shortest period of time. 

Tip #1 – Reveal that Dirty Laundry when Selling a Restaurant

Establishing a relationship of trust with your restaurant broker is a must when you are selling a restaurant. The relationship between you and your restaurant broker should be open and honest with a “no surprise” policy. It is important to make sure your restaurant broker is aware of every negative aspect of your business, so you must pull out all of your dirty laundry and reveal any liability for the sale to be successful.

Although you may feel embarrassed to tell your restaurant broker about a recent liquor license citation, a tax lien in the hundreds of thousand dollars, back rent that is owed to the tune of thousands of dollars, or even a lawsuit that you are facing from an employee, trust us, the restaurant broker has seen it all before. Talk about these issues openly so your restaurant broker can help you resolve the issues and move the deal to the closing table. Remember that the restaurant broker is highly skilled at dealing with these issues and they are equipped to help you through them one by one. It’s only when you attempt to hide issues like that that they become a reason the deal will fail.  Be open, honest and trusting with your broker and he or she should be the same with you. 

Tip #2 – Set Clear Expectations for Communication

Nothing is more disappointing than signing a listing agreement and having communication go silent.  However, remember, that restaurant broker is concentrating on selling your restaurant.  He or she is highly engaged every day with buyers, distributing information, doing calls and sending the would-be purchaser as a secret shopper to visit your business.  If it’s important for you to be looped in on all activity, set these expectations ahead of time.  Ask the restaurant broker what forms of communication they use and establish how you want to receive contact.  Do you want a text each time someone’s “hot” or do you want information weekly whether a buyer is fully engaged or not? 

Ask the restaurant broker to explain their typical style and form of communicating buyer interest to you as the seller.  Some restaurant brokers use high tech systems that automatically notify you by email when there has been an inquiry about your listing. Other restaurant brokers will simply call you when someone responds to the listing. Then there are restaurant brokers who are poor communicators and will never contact you.  By establishing what is important to you, trust is built between you and your restaurant broker.

Tip #3 – Make sure you have a Valid and Enforceable Agreement  

Formalize a listing agreement contract with your restaurant broker. Define exactly what it is that you are selling and which parties are authorized to sign so the deal can move to the closing table. This will help you to avoid any misunderstanding and make the transaction process go a lot smoother.

If there is more than one partner involved with your business, obtain their consent and sign a corporate resolution to sell in advance of the listing agreement. Following this process protects you in the event that one partner is not available or the closing or has a change of heart while everyone else is ready to sell.  Obtain a corporate seal on a document that confirms that all corporate partners have met and agreed to sell the business. Make sure this corporate resolution indicates a vote was taken to sell and designate a partner authorized to sign in the absence of the others. 

Further confirm the validity of your agreement by confirming the legal standing of your corporation.  You can visit the Secretary of State website to check the status of the LLC or corporation on the contract.  Make sure the latest corporate filing has been made.  Confirm your entity is in good standing and has not been administratively dissolved due to non-filing or non-payment.  An entity that is not in good standing cannot be a party to a transaction so this has to be handled before signing a listing agreement or purchase contract.

After following threes three tips for selling your restaurant, follow through on your daily responsibilities.  Run your business at the highest possible level.  Keep it staffed and continue doing the things that deliver a great return for you today. The last thing you want to do is pull back on marketing, staffing or quality while you are on the market.

Then trust the Restaurant Broker to do the job you hired them for.  Wait for the offer to come in and imagine the next step in your life after selling your restaurant. 

Interested in selling your restaurant?  Click this link for a free valuation of your restaurant from We Sell Restaurants.