Ten brutal truths that kill 80% of restaurant listings before they ever close.

You’re done. You’re burned out. You’re ready to cash out. You call a broker, tell them your sales and profit, and they say, “Great! We’ll get you X times earnings or this price point easily.”

You breathe a sigh of relief. The end is in sight and your restaurant is ready to sell….or is it?

Whether you’re in a franchise or you’re a proud independent, there are ten brutal truths that the Certified Restaurant Brokers at We Sell Restaurants are willing to share to keep restaurant owners from discovering - usually too late – that they literally have nothing to sell

These aren’t lessons only for independent owners or just for franchise restaurant sellers. These rules apply across the board. It’s better to know up front than work with a broker, put it out into the universe, attract the buyer and go into contract, only to have it fall apart at the last minute. Read this article first and learn the ten brutal truths about whether you actually even have anything to sell.

Let’s start with lending. No fluff, just the hard truth. Today, the buyer who can write a seven-figure check in cash is a unicorn. Everyone else needs an SBA 7(a) loan or unsecured lending. Luckily, we can help with both. However, in particular, SBA underwriting can become the grim reaper of restaurant deals.

Here are the Ten Brutal Truths that Kills Restaurant Deals Before They Close.

Brutal Truth 1 on Why Your Restaurant Can’t Sell: You Don’t Have a Real Lease

That choice you made to go month-to-month without renewal means you effectively have no lease. Instead, you have a ticking time bomb. There is no single more critical element of gauging whether a restaurant is sellable. You must study and understand all the renewal requirements under the lease. When the lease states that notice must be given 180 days before renewal, that is not a joke. You must give notice to remain in compliance with the lease and have access to the renewal options. Without it, those options at 2% annual increases, can evaporate before your eyes and the landlord can charge 5%, 12%, 20% or whatever they want.

The other reason your deal will go up in smoke is that a long-term lease is a requirement of all SBA lending. The SBA rule is straightforward. You must have a minimum of 10 years remaining (including options) and the landlord must sign a collateral assignment. The reality of your situation is that without a lease, there is no SBA loan and that locks out 95% of the market looking at cash flow positive businesses.

Other lease scenarios that will keep you from selling is if you are in a sublease scenario where you may not control the original lease terms or ability to reassign it.

Answer honestly to avoid this brutal truth: Do I have more than 10 years left on a transferable lease and a landlord willing to sign SBA collateral assignment?

Avoiding the Massacre:

The pros at We Sell Restaurants have pro tips for avoiding just this situation. Here’s what you should do. When it comes time for renewal, indicate you want to renew while also carefully studying the assignment clause in the lease. At this point you might approach the landlord and let him know you’ve had a good five years, but you may want to consider selling. Feel him out and if possible, get his terms for assignment in writing as part of the renewal. For example, language that says, a new tenant with more than 3 years restaurant experience and a net worth of more than $500,000 and liquidity of $100,000 is subject to automatic assignment. Or something that states a franchisee of the brand that is approved will be automatically assigned the lease upon sale. This is your time to get ready but the worst thing you can do is ignore the renewal option, go month-to-month and hope the landlord will offer the space at the same terms to the new buyer. You have no leverage and a buyer will never pay for historical P&L results if the doors can be padlocked in 31 days.

Brutal Truth 2 on Why Your Restaurant Can’t Sell: The Bank Owns All the Furniture, Fixtures & Equipment

If the bank financed the deal and there’s time left on the loan, the bank gets the proceeds, not you. SBA lenders require values on equipment and if the appraisal comes back with nothing owned, it quickly defeats your valuation, and the pricing evaporates.

Brutal Truth 3 On Why Your Restaurant Can’t Sell: Your Landlords Owns the Furniture, Fixtures and Equipment

You got $600,000 in Tenant Improvement or TI money and signed a turnkey lease five years ago. Unfortunately, the landlord wants to recover that investment so Exhibit B of your lease says everything reverts to landlord on expiration or transfer. The SBA appraiser value on those items: $0.

This also occurs when you acquire a space that previously repossessed from a restaurant tenant and the landlord took over the equipment. When he offered you a lease, he didn’t sign over the rights to the equipment to sell. He offered you the option to lease them as part of the space. You don’t own them and can’t convey them to someone else.

In both cases, the reality is that you don’t own anything, not the hood, the walk-in, the tables, or even the POS system. Your asset list is some used pots, pans, and smallwares worth $12,000 on Craigslist. You’re trying to sell a business with no hard assets.

Brutal Truth 4 On Why Your Restaurant Can’t Sell: You’re a Franchise and the Brand Disappears the Day You Sell

Sellers often want to advertise a restaurant as with or without the brand ignoring the very real legal entanglements of a franchise agreement. Most franchise agreements have multiple clauses that will tie up the transaction including a de-branding clause. That means that all trade dress has to be removed upon change of the franchise. The sign comes down, the branded tables go away, the design of the bar which is iconic and specific to the brand must be torn down or changed to de-identify it. The specialty oven or equipment that produces the cookies in record time has to be removed as it’s part of their trade secrets. The online app that created 20% of the sales is gone. Suddenly, you’re not selling the results of the past, you’re selling a very uncertain future. That’s before you face some form of legal action in liquidated damages from a brand counting on you to operate for ten years.

The bank is clear in this situation. SBA appraisers now routinely write: “Historical earnings were generated under franchisor trademarks and systems that will not transfer. Post-closing, the business will operate as an independent concept with no national marketing, app, or brand recognition. Goodwill value = $0. Translation: You’re selling a lease and some used equipment. That’s it.

If you want to sell without the franchise name, it’s a good idea to get a read from the franchise first on how they will treat that exit from the system.

Brutal Truth 5 on Why Your Restaurant Can’t Sell: You’re Independent, but Your Concept Is 100 % Tied to This Exact Box

You have a gorgeous build-out, killer location, and lots of earnings. On the flip side you have zero trademarks, no manuals, no delivery infrastructure, and no second location. Move it 200 yards and sales drop 60%. This returns to the point about the value of the lease but sellers who fool themselves into thinking that the “brand” can pick up and move somewhere else are selling the stuff of dreams. Buyers (and banks) know it. They’ll pay for the lease and the stuff, but not for “your brand” which in their opinion, is unproven.

Brutal Truth 6 on Why Your Restaurant Can’t Sell: The Liquor License Isn’t Transferable

As Certified Restaurant Brokers, we’ve seen multiple variations of this issue. In some instances, the liquor license is in someone else’s name like the landlord, or a prior owner and it was never properly transferred. In others, counties are more carefully looking at citizenship status and won’t transfer a license they no longer view as viable when they do a citizenship check on the seller. In yet other instances, the city is under a moratorium and aren’t processing new licenses. Whatever the issue on a liquor license, it can create a reduction in the value of 30–50 % overnight since alcohol sales contribute to both the concept sales and profitability.

Brutal Truth 7 on Why Your Restaurant Can’t Sell: Someone Else Still Has Liens on Everything

UCC or Uniform Commercial Contract liens can be places by suppliers, former owners who did seller financing, franchisors, food suppliers, or most commonly, the SBA (regular liens and EIDL loans). These prevent the business from transferring until arrangements are made. They also remain subject to personal guarantees. Strong Certified Restaurant Brokers know how to do workouts to transfer or remove liens as needed to get to the closing table, but you need to reveal them up front. Don’t be surprised if a savvy broker does a soft lien check before listing the business to avoid the costs of creating a listing that is simply unsellable. You are better off to disclose the encumbrance up front.

On any liens, proceeds at closing go to the lienholder first, not to you.

Brutal Truth 8 on Why Your Restaurant Can’t Sell: Working Capital Requirements Kill the Deal at the 11th Hour

In a high interest rate environment, with more risk than ever, banks want to see 6–12 months of working capital baked into the structure. If you do any form of receivables, this balloons to cover the risk from collections which is not uncommon for bakeries who do large catering events paid after the fact or for those catering schools or venues that settle one a month. Your loan suddenly needs additional cash the buyer doesn’t have.

This can be avoided up front by clearly calculating the needs of the business and writing in the working capital request in the loan. This increase the deal size and may then need to be offset by some form of seller financing for the SBA to fund the deal.

Brutal Truth 9 on Why Your Restaurant Can’t Sell: Sales and Earnings are in Total Freefall after a Great Year

Sellers are aware of the current sales and earnings trends and there are literally no surprises out here. However, Certified Restaurants Brokers are routinely provided with dated P&L’s for valuation purposes while the seller ignores the current trend. What happens?   A buyer is interested at $100,000 cash flow from 2024 but the store is break even or losing money in 2025. Suddenly, all bets are off, the lending isn’t possible, and everyone’s time is wasted. If your trend is in freefall, you owe it to everyone in the deal to pony up the truth. It will be revealed in due diligence and the price reduction required may make it unsellable.

Brutal Truth 10 on Why Your Restaurant Can’t Sell: You Hire the Wrong Firm

Here’s the last and final reason your restaurant can’t sell. You hire a generalist, not a specialist to sell the business and they don’t nail you down and ask you the brutally tough questions above to discover if your restaurant will sell.

While the truth is never easy, it’s always best to understand your full options up front. Brutally honest restaurant brokers will not feed you hope as a strategy. Instead, they will provide realistic outcomes about the value of your business and viability for transfer.

To learn if your restaurant can sell, honestly answer these questions:

1. Do I have over 10 years left on a transferable lease and landlord willing to sign SBA collateral assignment?
2. Do I own my furniture, fixtures and equipment free and clear from all lien holders? Have I run a UCC search?
3. Does my landlord own my furniture, fixtures, and equipment?
4. If franchised: Do I have written franchisor approval to de-brand and what is the cost? Am I prepared to admit goodwill is $0?
5. If independent: Would this concept survive being moved across the street?
6. Is the liquor license fully transferable with no contingencies?
7. Are there any prior SBA/EIDL or other liens that eat the proceeds first?
8. Can the deal absorb the new working-capital requirements without collapsing?
9. Am I trending comparable to last year and if not, have I worked with a Certified Restaurant Broker to adjust the price accordingly?
10. Am I hiring a specialist and being honest with them about the prior brutal truths?

The brutal truth is that if you have two or more “No” answers, you do not have a business to sell right now. You have some used equipment, and a story about how good it used to be.

The market isn’t slow. Instead, it’s honest for the first time in 15 years. Buyers and banks have finally figured out what savvy brokers have known forever. Only good listings get to the finish line.

So, before you sign a listing agreement and have a broker invest thousands marketing a business that won’t sell, get brutally clear on what you actually own and what an SBA underwriter will actually finance.

Because discovering all of this, six months from now, after your listing has gone stale, is a very expensive lesson, and frankly, unfair to the broker who is dedicating resources, including time and money to the listing.

If you can answer “Yes” to every question above, congratulations, you’re in the top 8–10 %. The phone will ring about your listing, and it will ultimately sell.

Everyone else: let’s talk about fixing the holes first, or about an orderly wind-down that preserves your dignity and your credit. To evaluate your restaurant’s ability to sell in today’s market, fill out this form, and contact the Certified Restaurant Brokers at We Sell Restaurants.