Advice for Buying a Restaurant and Selling a Restaurant

5 Surefire Ways to Keep from Selling Your Restaurant

Posted by Robin Gagnon on Oct 9, 2018 1:28:14 PM

Ignore the Broker’s Advice for Listing Price

The first piece of advice to ignore if you want to keep from selling your restaurant is to ignore the broker’s advice for the listing price.  A Certified Restaurant Broker has the experience, the knowledge, comparative analysis and sales to support the listing price he is providing to you. 

This important reliance on comparable sales and lending approvals tells him what the business will sell or lend for in today’s market.  Join this with years of experience and he or she is most often, setting the correct pricing.

5 Surefire Ways to Keep from Selling Your Restaurant

As the seller, you’re relying on what you “need” or “want” for the business. Buyers are not interested in what you need from the sale or what you want for the business.  They are interested in obtaining a business in line with current market conditions for similar businesses with comparable earnings.

When you tell him or her that even though it should be listed at $225,000, you want to list at $270,000, you’re setting up a scenario that will keep from selling your restaurant.  This is the first rule to put in place if you want to delay a sale and set yourself up for disappointment.

Forget about Operations Once Your Business is Listed

Taking your eye off the ball is never a good idea, especially when selling your restaurant.  Just because it’s listed with a Restaurant Broker doesn’t mean the deal is done.  Typically, you have months of waiting before the closing takes place.  It’s not the time to slack off, in fact, it’s time to up your game.  You will have buyers visiting as secret shoppers and determining if they want to move forward. 

We coach buyers to understand that they are always buying a work in progress and any improvements will lead to a better bottom line for them.  However, if last years’ service record was impeccable and you’re shorting people on night shift to save a few pennies, it will show.  That leads to buyer questions.  Buyer questions lead to negotiated deal terms and ultimately, impacts the value of your business.  Keep the operations at the same level as prior to listing your restaurant for sale to get the best offers.

Forget About Driving Sales; They Don’t Matter that Much, do They?

Another surefire way to torpedo a sale and keep from selling your restaurant is to start posting negative sales comps.  Positive sales are a requirement, not a suggestion.  Above all, stop the bleeding somehow, if you start heading into negative sales territory. 

As restaurant brokers, we work with lenders who want explanations or deny loans because of sales trending.  Strong restaurant brokers can help a seller craft the right message about why the trend is dropping and help save a deal.

A better option is to never put yourself in this box unless you’re not that interested in selling your restaurant. Figure out a way, whether through promotions, advertising, delivery, catering or somehow, to get your sales posted in positive territory until the restaurant is sold.

Stop Paying your Taxes

Here’s another favorite if you want to be certain to stop all the momentum for selling your restaurant.  Begin ignoring the tax man and the payments for payroll or sales tax.  If you think these items are not going to surface before the closing, you are dead wrong.  All attorneys preparing closing documents should be doing a UCC (Uniform Commercial Code) lien searches.  That will usually uncover any unpaid debts and liens.  Since taxing authorities are usually the first to file, these liens will show up. 

Any liens will have to be paid out of the closing or settled in some manner before you can sell your restaurant.  The fact that the liens exist also raises serious doubts in the mind of any buyer.  Can you be trusted if you don’t pay your taxes?  What other bills might surface?  Even if a buyer wouldn’t be liable for any unpaid bills, this tactic introduces doubt.  This breeds distrust which leads to deals falling apart.

Pay your bills and pay your taxes if you are selling your restaurant.  Avoid making payments and you’ve set up a surefire way to drum up to lose a deal on top of wasted penalties and interest.  

Be Less Than Honest, About Anything

There’s really nothing you can tell a restaurant broker that he hasn’t heard before.  What they can’t help with is what they do not know.  If a pipe breaks and you close the restaurant for two weeks while it’s in contract, that’s a very material matter that should be disclosed.  If your wife caught you with the night manager in a compromising position, it’s embarrassing and should be no one’s business but your own.  However, if a buyer is likely to hear about it, the broker should know.  Any situation can be managed if the broker is in the loop.  Be less than honest or hide something and it will certainly surface.  That’s another surefire way to keep from selling your restaurant.

There are, unfortunately, many ways to sabotage the sale of your restaurant.  Avoid these for a successful transfer.  Need help selling your restaurant?  Reach out to us at the link below.

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Topics: Selling a Restaurant

Casting Call -- Flip Your Restaurants - Contact We Sell Restaurants Today!

Posted by Robin Gagnon on Oct 3, 2018 1:49:59 PM

A major cable TV network has reached out to We Sell Restaurants seeking restaurants ready for an overhaul.  Are you buying a restaurant or selling a restaurant that's ready for prime time?  This could be the time to get noticed on national TV and have someone else pick up the bill. 

It appears this is a “makeover” or “before and after” type show that will take an existing concept and make a pretty significant change.  We're thinking this is Bar Rescue for restaurants.  Their flyer asks restaurant owners facing these situations to get in touch.   

  • Is your restaurant barely getting by?
  • Are you talented and have mad skills but struggling to bring it all together? 
  • Do you want to rehab your concept and reinvent your restaurant?.

Autumn Open House Photo Social Media Graphic

What do you think?  They want to film for roughly two weeks this fall, and they will invest between $25,000 and $100,000 depending on the size of your restaurant. On the plus side, this seems like a great opportunity for mom and pop restaurants for sale looking for a new design.  We're not sure what the final program will look like, but they are certainly investing in the concept.

What’s the downside?  We don’t know who the talent for the show is yet.  The mysterious flyer leaves that part out of the deal.  What if you’re a long running seafood restaurant in a small rural area and they want to change you into a big city style steakhouse?

Is it work the risk?  We say, go for it!  What’s the risk to have a conversation, send in some photos and see what develops.

What if you’re buying a new restaurant with the help of We Sell Restaurants?  This could be a win for you as well.  You get the experience and assistance of big players who want to make this look as good as possible to air on national TV.  If you’re launching a new concept, this could be the ideal situation to create buzz for your new restaurant and find yourself with a huge PR win out of the gate.

Interested in knowing more?  We are too!  We hope one of our many restaurant buyers or sellers end up on this show and we’ll be cheering for you every step of the way.  Contact the restaurant brokers and we'll put you through the network producing hit shows like these. 

  • Ayesha's Home Kitchen
  • Cajun Aces
  • Cake Boss.

Buying a restaurant and having someone else pick up the bill for the redesign and re-branding sounds like a great idea to us. What do you think?  

If you want us to connect you reach out to this email address and we'll pass along your interest. 

 

Topics: Selling a Restaurant

5 Worst Things to Leave out of a Contract for Selling a Restaurant

Posted by Robin Gagnon on Sep 28, 2018 4:22:57 PM

If you are selling a restaurant there are some items that absolutely must be included in the language of any contract and agreed to by the parties up front.  These  items can mean the difference in getting to the closing table and seeing a deal crash and burn.

The starting point is the price.  Once that’s agreed to, it should be easier, right?  Unfortunately, not.  The brokers at We Sell Restaurants make sure all the following items are covered to keep deals both in contract and moving to the closing table.  That’s why 90 percent of our contracts ultimately close and fund versus an industry standard of less than one in three.

These are the deal breakers that show up at the last minute to wreck a contract. Don’t let it happen to you.  No matter who drafts the agreement, these are the must include, can’t forget, better remember, make sure you have, items that should be part of any agreement.

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The Equipment List –

For those selling a restaurant, you may have forgotten those times your beleaguered restaurant broker begged you, called you, texted you and hounded you for an accurate equipment list.  What he ended up with may not bear a strong resemblance to what is in the store today.  Why does it matter?  When it comes to an asset purchase agreement, the buyer will hold you to the equipment list attached to the contract. 

The equipment list reflects the assets transferring from the seller to the buyer and it must be accurate, or you will be held to account for it when selling a restaurant.

You don’t have two slicers any longer?  Better not put two on the equipment list or the buyer is within his rights to request the second one on the day of closing.  The Ice Maker is leased, not owned?  Better be prepared to pay off the lease on this piece of equipment.  If you have personal items in the store, they absolutely do not belong on the list of assets if you’re not prepared to part with them on closing day.  Bottom line.  If you’re selling a restaurant, get the equipment list right or it will bite you on closing day.

Assignment Fees, Transfer Fees, Attorney Fees –

Landlords often charge assignment fees to transfer a lease to a new party.  These can range from $500 to a percentage of the purchase price, an astonishingly large number.  Who should pay – the buyer or the seller?  If this is not defined in the purchase agreement, it can derail a deal.  A landlord will often not proceed on an assignment until the fee is paid.  This results in delays. Delays result in deals not happening. Don’t let this happen to you.  Make sure your agreement for selling a restaurant includes exactly who pays.  Be clear in the language that the seller will pay 50% and the buyer will pay 50% or the buyer will pay the assignment fee not to exceed $1500 but above all, put in language that addresses this issue.

The same is true for any other fees associated with the deal. This is where our ‘no surprises” rule comes into play. Neither the buyer or seller should find out anything at closing that weren’t aware of early in the transaction.  That means that attorney fees must be defined within the agreement.   The same thing is true for transfer fees if you’re buying or selling a franchise restaurant.  Who is responsible?  What is the amount?  When must they be paid?

Deposits

Every restaurant has some form of a deposit, ranging from a lease security deposit to a utility deposit to the power company.  Landlords will typically never release these deposits but assign them over as part of the lease to the buyer.  Is it the buyer’s asset?  It should not be unless this is determined up front.  Make sure any agreement for selling a restaurant includes a clear determination of who owns those deposits. 

The most common language says something like this, ‘Any and all amounts currently on deposit for the benefit of the Business for utility services, leases, insurance, etc., are and shall remain the sole property of Seller and are not included as part of this transaction.”  If you are selling a restaurant and the agreement doesn’t say something like this, a buyer may challenge you that these are in fact, assets of the business that should convey to the buyer.  That’s thousands of dollars you can miss out on.  Avoid this by inserting language up front that deals with this.

Inventory -- 

In most cases, restaurant inventory is performed by physical count the night before closing and the amount is paid to the seller on top of the purchase price.  Note that I said, in most cases.  If you fail to include this in the purchase agreement, this will generate a lot of ill will that could lead to a buyer without enough funds to close.

Inventory is not a small amount.  We estimate at We Sell Restaurants, that inventory on hand is approximately one percent of sales.  For a sandwich shop generating $500,000 in sales, that means there can be around $5000 of inventory to be accounted for in the closing. 

An agreement between parties buying and selling a restaurant should specifically address how the inventory will be handled.  If it’s to be included, it should have specific language around this function as in, “Seller agrees to leave $3000 of fresh and usable inventory on hand to be determined by physical count.”

Any understanding related to inventory should spell out:

  • Which Inventory is to be included
  • How it will be counted
  • Status of inventory – i.e. fresh, usable, unopened inventory

Escrow -  

The handling of the escrow is the final item that must be understood by all parties when a purchase agreement is written for selling a restaurant.  Under what conditions will the deposit be refunded? What contingencies that fail will trigger a return of escrow?  Who will hold the deposit?  Is there a separate written escrow agreement? 

Having a clear understanding around the escrow deposit is another item that keeps deals on target to close instead of failing apart when selling a restaurant.

Want more help selling a restaurant?  Contact us at this link for a free, no obligation valuation.

Blog Byline Robin

Topics: Selling a Restaurant

Five Top Risks when Selling a Restaurant

Posted by Robin Gagnon on Sep 24, 2018 3:51:55 PM

If you’re worrying about these five things when it comes to selling a restaurant, you’re not alone.  Here’s how to understand the top risks associated with selling a restaurant so you can plan to overcome these risks with strategies that win.

Selling a restaurant is never easy.  For many operators, their business is part of the fabric of their life.  It not only provides the means to financially secure their family, it’s also their connection to the community, a place of friendship and support, along with the place they are satisfied each day with the product of their work.  There are risks, however, when selling a restaurant.  We hope that by helping you be forewarned, you’ll be forearmed and ready to mitigate these risks.

Follow Me iPhone Facebook PostRisk #1 when Selling a Restaurant – Everyone will find out. 

Everyone will find out your business is for sale and employees will get scared and leave.  This is a real risk when putting your business on the market.  How does a strong restaurant broker keep this from occurring?  First, with the signature of all buyers on a legal document called a confidentiality agreement.  This is a contractual agreement not to disclose information that your business is for sale or risk legal action and some form of liquidated damages.

Do confidentiality agreements work?  In our experience, at We Sell Restaurants, these agreements do work to keep most people from sharing this information.  We require both a confidentiality agreement and proof of funds to be submitted to us for any would-be buyer.  That way, we reach a common agreement.  The broker has highly confidential knowledge of the buyer’s financial picture and the buyer has highly confidential knowledge of the business listing.  The risk to confidentiality usually occurs with inexperienced brokers who skip the qualification process and send out packages without both a confidentiality agreement and proof of funds in place.  

Risk #2 when Selling a Restaurant – My employees will leave.

Many sellers are concerned that key employees may leave if they learn the business is for sale.  In fact, many times that key employee is great target buyer for the business.  He or she knows the ins and outs. They have experience that a lender holds in high regard when writing a loan for the business. They may have limited means to invest but in today’s lending market, they won’t need more than twenty percent down in most cases.

In our experience, all employees, not just key employees, are less loyal to the actual seller (sorry to say), than they are to the location, the hours, the pay, the consistency and overall, the idea of the job they already have.  Most employees resist change.  Think about this from their perspective and it helps you overcome this risk in your mind.  For employees, it is riskier for them to find a new role outside the business, than keep the one they have.

Risk #3 when Selling a Restaurant – My Books Aren’t Good Enough for Lending.

As restaurant brokers, we’ve seen it all when it comes to bookkeeping for the industry.  In most cases, sellers are more concerned about getting through the lending process than the actual underwriting team.  While small business owners aren’t always meticulous about record keeping; it is rare to see a business fail this lending test because the qualify is not enough.

A standard chart of accounts for the restaurant business that properly reflects sales, cost of good sold, labor, occupancy and all other costs is difficult to even screw up in today’s world of POS systems capturing sales in real time and 80% of all transactions moving through your bank account from a credit card transaction.  Don’t be so hard on yourself.  In most cases, this risk can be overcome or at the worst, explained away to a good underwriting team.

Risk #4 when Selling a Restaurant – My landlord won’t transfer the Lease

 While few landlords outright deny a lease transfer, many will try and keep the seller on the lease as a guarantor, despite the quality of the new tenant. The way to mitigate this risk is to be sure that the restaurant broker qualifies the buyer in advance and carefully prepares a strong package of introduction to the landlord.  Allowing the buyer to go in cold or set up his own meetings with the landlord is the greatest risk in this process.  Most leases require that if a new buyer is qualified, the lease must be transferred.  Getting out of the guaranty is a little trickier but can be done with the support and guidance of a qualified professional. 

Risk #5 when Selling a Restaurant – My business won’t Sell.

On a scale of one to ten, this is the lowest risk to selling a restaurant depending on the advice you get and the broker you use.  At We Sell Restaurants, we see 90% of our inventory sell and a very active and willing database of buyers. On the other hand, there are major brokerage firms that report as little as 10 – 15 percent of their listings that make it to the closing table. 

If you are selling a restaurant, ask everyone you interview how many restaurants they have sold, not listed, but sold in the last year.  This is one of your greatest assets.  You should put anyone that wants the job of handling this transaction through a thorough vetting. 

These five risks are real, not imagined.  They are manageable, however, if you study this article and plan ahead to mitigate these issues and others that can arise in selling a restaurant.  Above all, choose a professional with knowledge of these risks and others before listing your restaurant for sale.   

Interested in seeing our restaurants for sale?  Click this link for instant access to hundreds of new listings.

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Topics: Selling a Restaurant

The 5 Worst Decisions You Can Make when Selling Your Restaurant

Posted by Robin Gagnon on Sep 10, 2018 12:11:31 PM

Interesting in selling your restaurant?  Here are five the absolute worst decisions you can make to keep the deal from happening, torpedo a would-be transaction and shut buyer’s down cold once they do express interest.  Most people only tell you the sugar-coated version of how to sell a restaurant.  We’re digging into the down and dirty advice from the We Sell Restaurants.  We’ve seen it all, but these five instances are the key reasons a deal gets sidelined and buyers move on.

Ignore the Broker’s Advice for Listing Price

The restaurant broker performing the valuation on your restaurant is relying on comparable sales, multiples based on the market conditions, lending approvals and years of experience to set the selling price.  As the seller, you’re relying on what you “need” or “want” for the business. Buyers are not interested in what you need from the sale or what you want for the business.  They are interested in obtaining a business in line with current market conditions for similar businesses with comparable earnings.

When you tell the restaurant broker that you want a price of $295,000 on a listing valued at $225,000, you are setting up a scenario for disappointment.  Make the decision up front on accepting advice or pay the price in lost months of opportunity and wasted marketing efforts.     

Forget about Operations Once Your Business is ListedThe 5

Taking your eye off the ball is never a good idea, especially when selling a restaurant.  Just because your business is listed with a Restaurant Broker, that doesn’t mean the deal is done.  Typically, you have months of waiting before the closing takes place.  It’s not the time to slack off, in fact, it’s time to up your game.  You will have buyers visiting as secret shoppers and determining if they want to move forward. 

We coach buyers to understand that they are always buying a work in progress and any improvements will lead to a better bottom line for them.  However, if last years’ service record was impeccable and you’re shorting people on night shift to save a few pennies, it will show.  That leads to buyer questions.  Buyer questions lead to negotiated deal terms and ultimately, impact the value of your business.  Decide now that you will keep the operations on track prior to listing your restaurant for sale if you want the best offers.   

Forget About Driving Sales; They Don’t Matter that Much, do They?

Another surefire way to torpedo a sale and keep from selling your restaurant is to start posting negative sales comps.  Positive sales are a requirement, not a suggestion.  Above all, stop the bleeding somehow, if you start heading into negative territory.  Figure out a way, whether through promotions, advertising, delivery, catering or somehow, to get your sales posted in positive territory until the restaurant is sold.

As restaurant brokers, we work with lenders who routinely deny loans because of sales trending or help sellers craft messages about why the trend is dropping. Don’t put yourself in this box unless you’re not that interested in selling your restaurant.

Stop Paying your Taxes

Here’s another bad decision if you want to shut down all the momentum for selling your restaurant.  Begin ignoring the tax man and the payments for payroll or sales tax.  If you think these items are not going to surface before the closing, you are dead wrong.  All attorneys preparing closing documents should be doing a UCC (Uniform Commercial Code) Lien Search.  That search will uncover any unpaid debts and liens.  Since taxing authorities are usually the first to file, these liens will show up. 

Any liens will have to be paid out of the closing or settled in some manner before you can sell your restaurant.  The fact that the liens are there will raise serious doubts in the mind of any buyer.  Can you be trusted if you don’t pay your taxes?  What other bills are out there waiting to surface? These are the doubts raised in a buyer’s mind when taxes aren’t paid.  This tactic is a surefire way to drum up a lot of wasted penalties and interest along with driving away buyers.

Be Less Than Honest, About Anything

There’s really nothing you can tell a restaurant broker that he hasn’t heard before.  What he or she can’t help you with, however, is what they don’t know.  If a pipe breaks and you close the restaurant for two weeks while it’s in contract, that’s a very material matter that should be disclosed.  If your wife caught you with the night waitress in a compromising position, it’s embarrassing and should be no one’s business but if a buyer is likely to hear about it, the broker should know. 

Any situation can be managed if the broker is in the loop.  Making the decision to be less than honest or hide something and it will certainly surface at the worst possible time.  In most cases, it’s another surefire way to keep from selling your restaurant.

There are, unfortunately, many great decisions you can make to help sell your restaurant.  Don’t sabotage the sale of your restaurant and avoid these five decisions for a successful transfer.  Need help selling your restaurant?  Reach out to us at the link below.

 

Topics: Selling a Restaurant

Myths Uncovered About Selling a Restaurant That's Losing Money

Posted by Robin Gagnon on Aug 28, 2018 11:30:00 AM

Selling a restaurant that isn’t making money...is it even possible?  Is certainly is.  Plenty of books written in the marketplace will tell you that if your business isn’t cash flow positive or if the liabilities exceed the assets, then you need to “wait” and improve your business. That’s a myth.  In today’s market, We Sell Restaurants is selling plenty of businesses that are losing money, proving that this thinking is out of date.    

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Selling a restaurant without cash flow means selling a business that is losing money for the current operator.  It may need a concept change, a menu adjustment or yes, even a leadership swap, but this location can be a winner for the next person owning the business.  That’s why it’s a myth that no one will want the business if it’s not earning a return today. After all, one’s man’s trash is another man’s treasure. Even if your restaurant is not making money today, it represents an opportunity for someone else tomorrow.

A restaurant that is losing money is referred to as an “Asset Sale.”  It should be marketed differently than a cash flow positive business but it certainly can sell and most importantly, it needs to sell now.  In fact, that’s the most critical aspect when you have a restaurant losing money.  You don’t have time to waste.  If you concept isn’t working, you need to sell before additional months of rent stack up that you can’t pay or new bills are created.  This scenario is called an asset sale and we will help show you how you can sell your restaurant in this scenario by packaging what you do have for sale in a powerful way to attract buyers. 

Here’s the difference between a cash flow positive business earning a return for any buyer and an asset sale.  A restaurant seller is offering one of two things to would-be buyers:

  • If your business is cash flow positive and generates a living for yourself and your family, you’re selling a job.
  • If your restaurant is losing money, needs a concept change or just isn’t generating enough income to provide for someone else, you’re selling used equipment.

It is a myth that buyers only want businesses with cash flow.  Many creative restaurant buyers just want to take over your space and equipment, then re-brand to their own concept as a shortcut to success.  What is not a myth is their need for information.  While you love your restaurant for what you know, a buyer will want your restaurant for what you can prove.  In the case of an asset sale, it is critical to understand what you’re putting on the market when it comes to getting the most money for your business and selling a restaurant in the shortest period of time.   

The process to prepare an asset sale for marketing are the same whether you decide to sell the restaurant on your own or use the services of a restaurant broker.  This article will prepare you to maximize the return, even if you are selling at a loss.  Today’s sophisticated restaurant buyer is demanding.  Prepare up front for their requests and you will see the transaction move to the closing table more quickly.

Any listing for an asset sale should focus on the following:   

Opportunity:  While we cannot put a specific price on opportunity, it can be considered when marketing an asset sale.  Most buyers want to ignore this item as they want black and white numbers.  However, if you have a restaurant location with an under-market lease in an up-trending market, you do have opportunity to factor that into the pricing.  It is a myth that opportunity can never be priced into the equation.

Equipment List:  The single more important item in listing a restaurant for sale losing money is to develop a strong equipment list.  Pull the list together in either electronic or paper format.  For any item valued over $5000, include the serial numbers.  For any major pieces, include the model number. Selling your restaurant with the equipment is a shortcut to success for someone else.  It’s a myth that this is instantly devalued as restaurant equipment has many years of life.

Financial Data:  Even though a buyer is not purchasing established cash flow, count on them requesting financial information.  At a minimum be prepared to provide sales data by month for more than one year.  That gives them insight into the potential in this location even with a change of concept.

Remember, the buyer is asking you to prove the value of the lease or franchise, the transferability of the lease or franchise along business, along with physical assets they are buying along with any liabilities they are incurring. It is a myth when selling a restaurant to believe you won’t have to show all of the following items that should satisfy most requests.

  • Two Years of sales by month
  • Copy of the lease
  • Copy of the franchise agreement (if you are selling a franchise)
  • List of the furniture, fixtures and equipment that transfer in the sale
  • Copies of any ongoing obligations (POS rental agreements, leases for equipment to be assumed)

With these data points, a value can be determined for the business, attracting a buyer.  The key to selling a restaurant as an asset sale is to quickly stop the bleeding, eliminate any ongoing liability for the lease or franchise and get a deal in contract quickly.  It is a myth that there is no value and no opportunity for selling a restaurant if it’s not earning a return today. 

Interesting in selling a restaurant?  Contact us at the link below. 

 

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Topics: Selling a Restaurant

The 5 Things No One Told You to Ask about Selling Your Restaurant

Posted by Robin Gagnon on Aug 21, 2018 12:56:24 PM

Ready to sell your restaurant and looking for the right resource?  There are plenty of people out there selling businesses.  How do you know which one right for selling your restaurant?  Here are questions to use on broker including the 5 things one every told you to ask before.  

If the broker can’t address these to your satisfaction, odds are, he or she is the wrong fit. Starting with the wrong resource adds delays, time and money to the process.  Most sellers want to sell for the most money in the shortest time.  Ask these 5 things and you’ll know who can get the job done. As a seller, you should apply the process of due diligence on your broker long before they ever sell your restaurant.   

Your Guide to Seeds (1)

The simplest most basic question deals with experience.  Ask the broker exactly how many restaurants they have sold.  Seems easy but it constantly surprises me that sellers don’t require this information.  After all, it doesn’t’ matter how many daycare, dry cleaner, liquor store and car wash properties the broker has handled.  You are interested in how many restaurants he or she has sold.  Why?  A specialist has an inventory of buyers already focused on what you’re selling.  Why go fishing in the wrong pond?  Go where the fish are biting and the bait is your business.  That means a broker who sells lots of restaurants has buyers interested in the food service industry.

Figure out how successful they are at selling restaurants.  After all, it doesn’t matter how many restaurants they have listed.  You want to know how successfully they sell. For that, it comes down to one single metric.  Ask the broker for their closing percentage. No one told you before, but this is a statistic that any reputable broker tracks.  It is a clear measure of their success in selling a restaurant. It’s the count of restaurants sold divided by the count of restaurants listed. 

We were shocked to hear at a recent industry function that only one in three businesses listed by one major franchise brand will make it to the closing table.  Why would you list with someone with a batting average this low?  Anyone who wishes to sell your restaurant should be able to tell you, in addition to the days on market, an average time to closing, along with the percentage of transactions that sell. If they can’t, you’re dealing with a rookie.  While that may be okay in baseball and there are certainly stars among the start-ups, it’s a good plan to work with a seasoned professional who closes 80-90 percent of their deals.

No one may tell you to ask this question but it’s critical.  How many other brokers do you cooperate with and what groups do you belong to?  Industry groups often share listings with one broker working the “sell” side and another working the “buy” side.  Your chances of selling dramatically increase when the listing is exposed to more brokers. Remember, you want the greatest exposure.

Selling your restaurant is not a one-man sport.  What’s the team surrounding your broker and what’s his or her policy on co-brokerage? Is he or she is not a member of the professional organizations that share listings and work with buyers and sellers nationwide, you will decrease your potential to sell your restaurant.

it’s good business practice to ask your broker about their level of education, degrees, industry knowledge and any certifications. While it is not required to have advanced education to sell your restaurant, those with strong industry credentials have dedicated time, money and energy to their education. For many, this commitment to education and follow through puts them in the rank of top producers. 

Given a choice between someone with advanced education and someone without, why bet on the uninformed?  For the brokerage industry, a Certified Business Intermediary designation or CBI is the industry gold standard of knowledge and experience that’s been tested.  Less than 500 individuals worldwide hold this designation so a broker that has these credentials is already at the top of their game.

Lastly, ask a broker how they will be investing in your restaurant for sale?  Where will it be marketed?  Will there be upgraded placement?  Who will receive email blasts on the listing and how frequently?   What are your marketing channels for exposing the business to interested parties?  A marketing plan tells you they have a recommendation and road map for attracting buyers.  Without this, they are simply holding the listing until someone comes in the door looking.

There are clear measurements and ways to quantify the quality of a restaurant broker no one bothers to share.  Now you have them.  Take advantage of these questions to score someone who will get you the most money for your restaurant in the shortest time.

 

Blog Byline Robin

Topics: Selling a Restaurant

Selling Restaurants by the Numbers – Great News – It is Basic Math

Posted by Robin Gagnon on Aug 6, 2018 11:33:35 AM

It’s true.  Selling restaurants is tied directly to basic math and not even tough math at that.  It’s the basics of addition, subtraction and multiplication you learned in fifth grade (at least that’s when this restaurant broker learned it – I’m totally not sure not sure about this common core math they’re teaching now).   

Selling restaurants by the numbers means starting with the profit and loss statement.  That’s why restaurant brokers like ours at We Sell Restaurants will request the latest financial data.  At this point you may be asking, what about sales?  Sales are actually immaterial to the valuation but may impact lending if they are trending negatively for multiple years.  Despite anyone trying to tell you otherwise, understand that sales are not a measure of earnings, they are simply a denominator (remember that fifth grade math again?) in evaluating all expenses as a rate to sales.

Subtraction

Once the profit and loss statement is on the table, the simple math begins.  We begin by subtracting certain expense from the P&L which increases the profit.  Why would we do this as restaurant brokers?  Because selling restaurants by the numbers means we need a clean earnings number without interest, taxes, depreciation and amortization.  That’s commonly known as EBITDA in the in the financial community.  We remove these items or subtract them to state a true earnings calculation for a new buyer. 

Here’s why.  After all, he or she will not have your debt structure so removing your interest makes sense when you consider it from this perspective.  He or she will have a different taxable basis for the purchase which means your depreciation and amortization is also immaterial.  After all, depreciation and amortization are non-cash estimates of a write off of your usable equipment and or intellectual property to allow for repurchase.  They decrease income on your P&L but are never really cash out of pocket to either you or the buyer. selling restaurants by the numbers

Addition

After we do our subtraction, we begin our addition when selling restaurants by the numbers.  We add back the earnings of a single person managing the business on a day to day basis.  That may be a restaurant seller or it may be a manager.  The key here, in selling restaurants by the numbers is that we can ONLY add back one full time salary.  That means a number of scenarios have to be considered.

Before adding back this salary.  A few examples are outlined below to show how this works to recast earnings on this basis or use our basic addition or subtraction skills.

Example 1:  Absentee owner making $50,000 in salary and a Manager in place making $35,000. 

This example of selling restaurants by the numbers creates an addition to earnings of $85,000.  Why is that?  We assume the new owner will come in and take over the roles, responsibilities, and thus the pay to operate the store personally.  The absentee amount is added back because that will also go to a new owner.

Example 2:  A husband and wife work in the store and make a combined amount of $75,000. 

In this case, we can only add back ONE salary.  A new owner cannot take over the roles of two people.  He or she will have to hire someone to do the work of the second operator.

Example 3:  An owner todays works full time in the business and takes no salary.

There is no add back for owner salary.  The same scenario would exist for a single owner/operator.  He could choose to deflect bottom line earnings on the books to salary but the amount of money remains the same.

Multiplication

Now our math expands to multiplication.  This is when we take the previously calculated number of the bottom line P&L minus interest, taxes, depreciation and amortization plus the appropriate owner earnings addback and then we multiple this by a market variable for this restaurant. Now we’ve used all our basic math skills of addition, subtraction and multiplication. 

In selling restaurants by the numbers, everyone immediately asks for the “multiple’ as if it were the answer key to today’s pop quiz in math class.  The answer is not straightforward and it is not a “one size fits all” scenario.  If the business on the market is a franchise or has six figure earnings, the multiplier goes up. If it’s an ice cream store being sold in February, the multiple could go down.  A strong restaurant broker will have access to comps, market level multiples and information to arrive at the right number.

That’s it.  Basic math gets you the answers you need for selling restaurants by the numbers.  Want to know what your restaurant is worth?  Reach out to us online at this link or click below.

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Topics: Selling a Restaurant

Fast Track Selling Your Restaurant – Why a Restaurant Broker is a Good Idea

Posted by Robin Gagnon on Jul 30, 2018 9:50:48 AM

Want to fast track selling your restaurant but not sure where to start?  Read on for these tips from We Sell Restaurant to get what every seller wants from the transaction - the most money in the shortest period.  A fast sale means the services of a restaurant broker and for most sellers, at all costs, avoid trying to do it yourself.  Here’s why.Renewing Vows Social Media Graphic

You’re Emotionally Invested.  You built your business from scratch and watched it grow and prosper.  This is more than a business to you.  It has taken care of your family’s needs for often, many years.  When selling, there will doubtless be moments of regret and emotional attachment even if you are selling for all the right reasons.

Buyers may be Insulting or Augmentative.  It’s human nature.  You’re on two sides of a deal.  A buyer may try to establish fault with your restaurant to justify their offer price.  If a restaurant buyer says something like, “I ate here last night, and service was terrible” when you know your wife was running the front of house, this deal is going nowhere fast.   Selling your restaurant through a third party means they filter this information and work on focus on representing the transaction minus the emotions.  This scenario is a lot different than if you try to sell your restaurant on your own.

Your talent is best used running a restaurant.  A professional restaurant broker’s talent lies in selling the restaurant.  You have taken your dream and managed to make it grow and prosper.  You are likely excellent at sales and operations or taking a turn in the kitchen. On the other hand, satisfying the demands of buyers may not be at the top of your skill set.

A restaurant buyer is going to be focused on the accounting details and bookkeeping records to help them with making an offer. The buyer could care less whether they show up during your busiest time such as dinner on Friday night.   As a result, you will find yourself doing more of what you are less good at and less of what you are very good at which is running the restaurant. 

Restaurant Brokers are Deal Makers.  Remember that just because you received an offer doesn’t mean your restaurant is soldReaching an offer means the buyer and seller agree on is the easiest part of a transaction and is only the beginning of the process.  Buyers and sellers that reach consensus on a price are not difficult to put together.  The tough part is holding the transaction together until closing which is where a restaurant broker can be of tremendous help with seeing the deal through to completion. 

The restaurant broker’s work begins once the buyer and seller agree on an offer.  Shortly after, the buyer will begin to put every element of the transaction under a microscope when the reality begins to hit that he is in the deal for the long haul.  At this point there are numerous opportunities for the deal to collapse post contract which is why it is necessary to have a restaurant broker working with you.

 The restaurant broker is working at reassuring the buyer that the unpaid lien is not a disaster and can be resolved at closing.  He or she is also helping the seller locate two-year old tax returns with a stamp on them from the Internal Revenue Service and assisting the seller with the sales tax clearance letter from the state. 

 On the other side, the broker is working with the buyer when he discovers there is a list of items on the inspection results that need to be fixed and with the seller when he discovers the franchise wants a list of improvements before they will transfer.  The restaurant broker is taking the heat from all parties to the deal and keeping it in check to get them to the closing table.

 Brokers have Access to Contract Forms and Legal Resources

 Preparing a contract can have its own set of issues.  What’s included?  What’s not?  Who keeps the security deposit or pays for inventory or transfer fees?  The last thing you want to do is engage an attorney and have countless costs and fees with no guarantee it will close.  We Sell Restaurants and many other brokers, have forms and documents that can expedite this process at no fee to you.  Why would you want to take the risk of handling this on your own? This is clearly a way to fast track a deal for selling your restaurant.

 Restaurant Brokers have Lending Contacts

 Getting the most money for your business means you frequently need a lender engaged.  The process of lending can be lengthy and confusing for the inexperienced while it’s a daily occurrence for a broker. He or she will have immediate contacts, processes for approvals and support for the forms and information requested by the bank and other parties. For our firm, we can fast track any loan application, gaining approval in generally, less than a week.

A Broker Understand the Franchise Approval Process

 The specialist in the transaction is the restaurant broker.  He or she will have contacts at the franchise level for approval of the new franchisee.  They often have the forms and requirements for approval ready to go as soon as the deal is in contract.  A seller can work with their own brand to make this happen but to fast track a deal, a knowledgeable resource can accomplish in hours, items that will take weeks to accomplish if you’re learning it for the first time. Want to get on the fast track for selling your restaurant?  Use the resources at your disposal.

When reading all the ways a Restaurant Broker can fast track selling your restaurant, it’s no wonder restaurant brokers frequently hear “This deal never would have happened without you.”  Ready to fast track selling your restaurant?  We can help.  Find more information at the link below.

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Topics: Selling a Restaurant

Best Restaurant Social Media Campaign Ever! IHOP goes to IHOB and We Sell Restaurants says...

Posted by Robin Gagnon on Jun 15, 2018 4:33:15 PM

What’s in a name?  For a company like ours, aptly named, “We Sell Restaurants,” we’re pretty confident that a good name is key to not only describing what you’re about but also gaining traction in the market. 

In the news that nearly crashed the internet this week, a familiar brand decided to change their name and their brand focus is one fell swoop.  For the last 60 years, people have known the name IHOP or International House of Pancakes.  On June 4th, they announced that they were “flipping [their] name to IHOb,” much to the consternation of the internet.

In advance of the announcement, jokes abounded about what the b would stand for. IHOP’s own twitter feed drummed up the action with a poll from their followers.  Guesses ranged from butternut squash to barnacles. Many people guessed breakfast, along with other logical choices like bacon and brunch.DfGbx9SVAAA86ag

The social media team at IHOP(B) did an amazing job teasing out the answer.  Their first tweet announced a change was in the work and then primed the social media pump.  From encouraging the speculation on social media, playing coy about guesses, and changing words that start with a p to start with a b, they managed to stage a brilliant online campaign.  They engaged in Twitter exchanges with others (Check out our favorite - the Wendy’s Twitter account) and overall hyped in a way we’ve never seen, as the name change had clearly been in the works for some time.

What did they get for this daring effort?  How about hours of online press, a social media firestorm and more mentions stacked up in a two week period than they probably had in the last year.  It wasn’t just social media getting into the action, traditional media was engaged as well and a quick search of articles finds three pages of online results for articles written in the past 48 hours.  Look at us – we’re writing about them too!  

Some are asking, is it a publicity stunt or is it real?  We don’t know but what we do know is that the tactic got everyone on board from other brands to schools and universities to corporations.  Here’s just a sample of some of the tweets that fueled the storm this week.

Burger King came out on Twitter claiming to be the king of pancakes.  When asked if they’d let IHOP sell burgers on their block, Wendy’s replied “Not really afraid of the burgers from a place that decided pancakes were too hard.”

Whataburger tweeted “as much as we love our pancakes, we’d never change our name to Whatapancake.” Hot Pockets simply tweeted “bot bockets”. Other non-food corporate twitter accounts joined in.  Netflix tweeted “brb, changing my name to Netflib.”

When the dust settles, it will likely be the best social media campaign ever.  Will it sell more pancakes?  The restaurant brokers suspect they will, at least for the foreseeable future. Will they really be IHOB – International House of Burgers?  We don’t see it.  Let’s stay tuned and see what’s in a name for this brand.

Topics: Buying a Restaurant, Selling a Restaurant