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 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market, We Sell Restaurants is selling plenty of businesses that are losing money, proving that this thinking is out of date.    

Summer Neon Tropical Music Album Cover

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. New Call-to-action

Blog Byline Robin

Topics: Selling a Restaurant

New call-to-action