by Dominique MaddoxJanuary 29, 2020 Buying a Restaurant, Selling a Restaurant0 comments

3 differences between Business vs Real Estate Brokerage

Most would agree when it’s time for you to buy a home you look for a real estate broker. When you are considering to sell or buy a business, with or without real estate attached, you look for a business broker or if you are selling or buying a restaurant find a Restaurant Broker. Both transactions require the transfer of assets but the difference in the closing process, forms, skill sets, time investment, county regulations, licenses required, and involved professional parties are enormous.

Dominique Maddox, an experienced Restaurant Broker of 8 years and former Realtor for 2 years, identified 3 differences between Business vs Real Estate Brokerage. A brief review here will help you, whether you are considering buying or selling a business, to understand the differences.

EATS Broker provides 3 differences between Business vs Real Estate Brokerage

1st Coming up with a Listing Price-

Residential Real Estate professionals have comparable sales information provided on various websites to use as information. Business Brokerage sales usually remain confidential and the general public does not know the sales price. A Real Estate Broker can choose comparable properties to come up with a listing price. Business Brokers have access to data regarding comparable sales, however with the data, coming up with a sales price can be confusing.

Find below EATS Broker methods to price a restaurant:

Asset-Based Approach

The buyer pays the seller an amount based on the opportunity to benefit from the existing business and build-out. Most Asset Sales are restaurants that show little profit or not profitable, open for less than 3 years, or books and records are not clean. This is also known as the replacement method and only accounts for equipment and items buyer can remove once they leave space and goodwill. Walk-in cooler, hood systems, and any fixture remain the landlords. This method seller gets pennies on the dollar for equipment and initial build-out cost.

Income Approach

This approach determines an expected level of cash flow for the business using a restaurant’s record of past earnings. This approach will require the seller to provide Profit and Loss statements, tax returns once under contract with a buyer, and sometimes sales tax filings. This method helps the buyer understand the Earnings before interest, tax, depreciation, and amortization (EBITDA) which is a measure of a company’s operating performance. This method is preferred by bank lenders to qualify a business for lending and nets the highest sales price.

Gross Revenue Approach

This method is the most uninvolved that solely relies on a percentage of annual gross sales to determine the value and is not accepted by bank lenders. Restaurants usually will use a 15%-30% of gross sales to arrive at a listing price. The gross revenue method is not a reliable indicator of the value of a restaurant. This is because revenue does not mean profit; likewise, an increase in revenue does not necessarily translate into an increase in profits.

2nd Confidentiality– Real Estate Agents use multiple forms of advertising from individualized web pages, large signs in front of the property, social media marketing, video tours, displays in magazines and newspapers to get the word out. They host broker tours and open houses to invite the public to view the property, everything to get the word out. Business Brokers understand providing the client’s information to the general public could cause harm to the business. They use specialized business brokerage sites, and pre-approved buyer’s ability to purchase before providing a business name. Business Brokers protect the seller’s privacy by requiring an executed Non-disclosure Agreement (NDA) also called a Confidentiality Agreement (CA) before providing the name of the business for sale. EATS Broker require a Bank Statement, 401K statement, or letter from banker before providing financials on most listings.

3rd Agency– In most real estate transactions, different brokers will represent the buyer and seller even if both brokers are members of the same firm. Brokerages will usually teach Real Estate Agents not to represent both parties. This is a BIG difference in Business Brokerage, in fact, most Non-disclosure Agreement (NDA) also called a Confidentiality Agreement (CA) has dual agency language written. This means the Business Broker is acting as an intermediary, negotiating with both the seller and the buyer to create a satisfactory deal for both parties. Real Estate transactions can be handled with standard contracts. There are no standard contracts for business purchases, and the final agreement can look much different than the initial offer.

Getting the keys to a new home or business can be exciting, just remember they are two different processes. Make sure you have the right expert to get the job done!

For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com

by Dominique MaddoxJanuary 24, 2020 Buying a Restaurant, Restaurant news0 comments

Restaurant Industry effect on everyday life!

The Restaurant Industry has a profound and impacting effect on our everyday lives. Everyone has a story about a restaurant, it could be where they worked, 1st date, prom date, celebration dinner, or many other reasons. I believe I have one of the best careers in the world as a Restaurant Broker, I work with restaurant owners and buyers within an industry that has a massive economic impact in our world.

The Restaurant Industry has allowed 60% of adults to work in a restaurant at some point during their lives. According to the National Restaurant Association, 1 in 3 Americans got their first job experience in a restaurant. Restaurants are the top employers of teenagers in the economy. 1 in 3 employed teens works in the restaurant industry. Restaurants employ more women managers than any other industry.

The Economic Impact of the Restaurant Industry was projected to total $863 billion in 2019 and equal 4 percent of the U.S. gross domestic product. The Restaurant Industry is expected to add 1.6 million jobs over the next decade, with employment reaching 16.9 million by 2029. This is interesting because 90% of restaurants have fewer than 50 employees, and 70% are single-unit operations.

The 2019 Restaurant Industry Factbook has Consumer Trends by Numbers, EATS Broker has listed some of the most interesting findings:

62% Consumers who say the availability of locally sourced food would make them choose one restaurant over another.
61% Consumers who say they order more healthful options at restaurants than they did two years ago.
58% Consumers who say the primary reason they like locally sourced food in restaurants is that it supports farms and food producers in their community.
55% Consumers who say they would order breakfast items more often if restaurants offered them all day.
44% Consumers who say they placed a food order for takeout or delivery using a restaurant app or website during the past year.
52% Consumers who say they would rather spend money on an experience such as a restaurant or other activity, compared to purchasing an item from a store.
38% Consumers who say they are more likely to have restaurant food delivered than they were two years ago.

by Dominique MaddoxJanuary 21, 2020 Buying a Restaurant, Leasing a Restaurant0 comments

3 Tips for Leasing a Restaurant Space– EATS Broker

3 Tips for Leasing a Restaurant Space

Restaurant leases can be complex and involve negotiations on some very important details to a lease. In general, restaurant commercial leases are generally much longer than a typical residential lease. The restaurant tenant is making a much larger financial commitment.

Regardless of whether you are an experienced restaurateur, franchise concept, or up-and-coming restaurateur, carefully review and consider the lease terms, and the language in the lease.

Even with the difficulty of negotiating lease terms, some restaurateurs try to negotiate with the landlord by themselves without professional representation. This practice sometimes leads to restaurant tenants signing lease agreements they fully don’t understand.

Leasing a restaurant can be a fairly straightforward process if you understand the steps required and seek help from a professional such as restaurant real estate advisors, attorney, contractors, and architects if you have questions. Finding a restaurant space can be the easy part, negotiating the lease terms can be the difficult part.

EATS Restaurant Brokers 3 Tips for Leasing a Restaurant Space

Don’t Call that For Lease Sign

Unless you have experience in negotiating multiple commercial real estate leasing contracts, don’t call that For Lease Sign without contacting a trained Restaurant Broker. The individual who is advertising the commercial real estate space is a trained professional in contract negotiations representing the landlord’s best interest. Once you have called the For Lease Sign directly, you are letting the leasing agent know that you are representing yourself in negotiations.

Why is this important? Once the landlord’s representative starts negotiating with you and sends you a Letter of Intent and then you contact a Restaurant Broker to represent you it’s too late. The landlord will not pay your professional representative a commission and you will be responsible. This will be a personal expense you will incur and have to decide if you want to pay.

Most people don’t know the landlord pays the leasing company usually a 6% commission to lease the space. This commission is usually split between a tenant representative and a landlord representative in a co-op deal.

Be prepared with your documentation

Today’s leasing agents want to know they are working with a quailed tenant before they open the doors to show the space or start negotiating on a lease. The worst feeling as a potential restaurant tenant is to find the ideal and perfect space but you are not ready to move forward. Before you start your restaurant search, you should have the following items ready to present to the landlord if needed.

Business Plan with 3 years forecast
Copy of Menu
Resume or Bio
Proof of liquid assets-Bank Statement, 401K statement, or letter from your bank
Personal Financial Statement
Copy of Tax Returns

Prepare Letter of Intent

The first step of the lease negotiation is the offer to lease, typically referred to as the Letter of Intent (LOI). The Letter of Intent is to facilitate the start of negotiations between the tenant and the landlord. The complexity of the Letter of Intent depends on the person drafting the form, the tenant’s demands, and the landlord’s willingness to negotiate. This documentation should cover the majority of the key points to the lease:

Rent structure
Term of Lease
Options to extend
Permitted Use/Exclusive Use
Rent Commencement Date
Landlords Delivery Condition
Lease Assignment Rights
Tenant Improvement Allowance (TI)
Rent Abatement
Personal Guaranty

For more information on restaurant leasing and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com

by Dominique MaddoxJanuary 15, 2020 Selling a Restaurant0 comments

What is the best time to sell a restaurant?

Timing is defined as the choice, judgment, or control of when something should be done. Most Realtors would tell you the best time to sell a house at its highest price point would be May-August. What is the best time to sell a restaurant? EATS Broker would tell you January is the best time to sell a Restaurant!

The months of November-December are the slowest months for restaurant resales. Buyers are spending more time with their families, wrapping up year-end items, and not worried about buying a restaurant. The number of buyers inquires decline on restaurant listings for sale and spike back during the months of January-April.

Once the New Year arrives the Restaurant Buying Season begins and it’s a beauty contest. The number of listings increase and buyers have more inventory to choose from. Restaurant owners should keep one thing in mind. It takes time to sell a restaurant. It typically takes 6 to 9 months to sell a restaurant, but for planning purposes, you should plan for a year.

Fierce competition with the number of restaurants for sales on the market makes the restaurant listing package extremely important. The decisions Restaurant Owners make in January can have a big factor in if the restaurant sells or fails in selling in 2020.

EATS Restaurant Brokers provide 3 Tips for Selling Your Restaurant in January

1.Tax Return numbers are important when selling a restaurant:

Restaurant owners can deduct legitimate restaurant expenses against the revenues they take in. Restaurants, however, have some unique expenses that they can deduct against their taxable income. The most common deductions include food costs, server and kitchen labor, operating and advertising expenses, and capital expenses.

I have seen some very interesting deductions that are not restaurant-related. The most-odd deductions have been $10,000 Hawaii Trip for Restaurant research, luxury car for marketing, food cost for a personal family reunion, and private school tuition for kids.

These expenses save the Restaurant Owner liabilities on taxes owed but devalue the business for resale. The first line item most buyer looks for when reviewing a Tax Return or Profit and Loss statement is the Net Income. Writing off non-restaurant expenses on the restaurant’s books and records actually hurt the chances of the restaurant selling.

Restaurant Brokers Tip: Pay the IRS upfront on total sales with limited deductions, to increase your chance of selling on the back end for maximum profits. Consult your CPA or Tax Professional on ways to increase your chances of selling your restaurant.

January is the perfect month to list a restaurant because you haven’t completed your tax returns for the previous year. This is a great time to review your past tax returns with a Restaurant resale specialist for a valuation. This strategy can help you talk with your CPA or Tax Professional on how to file your upcoming tax return. The difference of writing off $10,000-$50,000 of unnecessary expenses, could cost you $30,000-$150,000 on resale value using a 3x multiple.

2.Use a trained Restaurant Broker

When someone gets sued usually the first task, they accomplish is to hire a lawyer to represent them legally, explain the court process, and to be a consultant. Lawyers will usually charge a retainer fee or consulting fee to address your concerns. Why do people hire a lawyer and not represent themselves in court? The obvious answer is that lawyers are trained in law and the general public is not.

One of the most common statements in Restaurant Brokerage is that operating a restaurant is much different from selling one! Restaurant Brokers are trained in real estate and business brokerage professionals. Restaurant Brokerage professionals are specialists in the field of restaurant resales and restaurant consulting.

The best part of hiring a Restaurant Broker is no upfront fees in most cases. EATS Broker only earn a success fee when the restaurant is sold. We know how to locate the buyers in the market and understand the restaurant resale process.

3.Clean up the restaurant and books and records

January is a perfect time for restaurant owners to focus on any tax liabilities, suspended licenses, lawsuits, claims, UCC liens, or landlord default payments owed. All this information is important to know and to be working on before your restaurant is listed for sale. The closing attorney does a UCC lien on the restaurant equipment and will require a sales tax clearance letter from the seller to conduct a closing.

Cleaning a restaurant and fixing broken equipment could make the difference to a buyer with so many restaurants for sale on the market. The primary factor of what a restaurant will sell for is determined by its earnings, or owner’s cash flow, and the market multiple. Using these tips can help a restaurant owner sell in 2020.

January-April is the restaurant buying season if you are a restaurant owner who wants to sell this year, you should be listed on the market now. Restaurant sales decline in the summer when the home buying season is hot.

by Dominique MaddoxJanuary 10, 2020 Buying a Restaurant, Restaurant news0 comments

3 Common Reasons Why New Restaurants Fail

Have you ever noticed a new restaurant opening and the next thing you know the restaurant is closed? Every year, a countless number of brave entrepreneurs open restaurants with the idea in mind of being successful. Some individuals have restaurant experience, but a great majority of new restaurant owners don’t have experience. Working with some restaurant owners I sometimes wonder did they do their research before opening the restaurant?

The truth about the restaurant industry is that a new restaurant is more likely to fail within the first three years of opening the doors than succeed. According to a study performed by H.G. Parsa, Professor of Hospitality Management at Ohio State University, her study indicated that an average of 57% of new start-up restaurant businesses fails within the first three years after opening.

Professor Parsa found that the highest failure rate for new restaurants occurred during the first year when about 26% of the restaurants failed. Approximately 19% of new restaurants failed in the second year, and approximately 14% of new restaurants failed in the third year. Among franchised chains, the failure rate was 57% over the three years; and among independent restaurants, the failure rate was 61% over the three years.

Would you be surprised to know 80% of restaurants fail within 5 years of operating the doors? What is behind the high number of restaurant closings. Let me help you understand, find our reasons listed below.

EATS Broker 5 reasons:

It’s ALL About the Money– The most common reason Restaurant Owners tell me they need to sell a restaurant is due to a lack of start-up capital. Opening a new restaurant comes with tons of setbacks, unexpected challenges, and the money disappears quick. Most restaurants take a loss in the 1st year due to the build-out cost and funds required to operate a business. The high failure rate is a big reason landlord require a personal guaranty on leases, to ensure they can collect a rent payment in case the restaurant closes before the lease expires.

EATS Broker Tip: To be honest with yourself and think if I don’t make positive cash flow in the 1st year can my concept survive?

Poor inventory and staff management-The highest percentage of restaurant sales will be used for paying the labor cost, buying and ordering food. Food cost should range from 28%-35% depending on the concept, salary and wages should come in at 20%-23%. Watching these numbers closely can be all the difference between showing positive numbers or taking a loss.

EATS Restaurant Brokers Tip: Know the numbers for your restaurant, you should never be in the dark regarding your food cost % and labor %.

Pick the right restaurant concept- I tell my clients the restaurant business is a lifestyle. Picking the wrong concept for someone’s family lifestyle, beliefs, or capability of operating is a quick way for failure. I would think about are you passionate about the cuisine? How easily can you train employees to operate? Do you relay on highly skilled employees?

EATS Broker Tip: The high failure rate of new restaurants can be attributed in part to a lack of understanding of the restaurant’s market. Do your research before you open a new restaurant?

After 7.5 years of working with one of the nation’s largest restaurant brokerage firms, and now opening a Restaurant Brokerage Firm, I have seen a lot of restaurants close the doors. Regardless of all the planning, the restaurant can fail, but you are increasing your chances for success if you think about the three points covered in this article.

by Dominique MaddoxJanuary 2, 2020 Buying a Restaurant, Restaurant news0 comments

4 Reasons Why Fast-Casual Restaurants are Growing

Reasons why Fast-Casual Restaurants are growing can be attributed to a number of factors. When you think of a Fast-Casual Restaurant what is the first thought that comes to your mind? Why are Fast-Casual Restaurants Growing?

Most people have an idea but don’t know how a Fast-Casual Restaurant is defined. Ask a person to name a Fast-Casual Restaurant and they may have trouble or be confused.

The Wikipedia definition is- A fast-casual restaurant, found primarily in the United States, does not offer full table service, but advertises higher quality food than fast-food restaurants, with fewer frozen or processed ingredients. It is an intermediate concept between fast food and casual dining and usually priced accordingly.

The concept originated in the United States in the early 1990s but did not become mainstream until the end of the 2000s and the beginning of the 2010s. Fast Casual Restaurants have built their popularity by offering healthful food prepared with better ingredients than those at fast-food chains.

According to 10Best.com, the top 10 Best Fast Casual Restaurants are as follows:

QDOBA Mexican Eats

Dickey’s Barbecue Pit

MOD Pizza

Chipotle Mexican Grill

Portillo’s

Panera Bread

Moe’s Southwest Grill

McAlister’s Deli

Five Guys

Au Bon Pain

A restaurant like Chipotle and Panera proved that Fast Casual restaurants could have success in the suburbs. Nowadays a growing number of Fast-Casual restaurants entering into a new market will open in the Suburbs before moving to the bigger cities.

In 2009, there were about 17,300 fast-casuals in the United States with sales of $19 billion, according to the market research firm Technomic. By 2018, the last year for which statistics are available, fast casuals had more than doubled their locations (34,800) and sales ($47.5 billion). Based on an article written by Tim Carmen

EATS Restaurant Brokers provides it’s 4 reasons why Fast-Casual Restaurants are growing so fast.

The counter-service concept requires far fewer specialized employees than your full-service restaurants require. The Owner can save on salaries for Executive Chefs, Sous Chefs, and employees
The improvements in technology and data to track buyer’s buying habits have given the owners and franchises tons of information on buyer’s buying habits.
A better selection of healthful options on menus. The customization of meals, proteins, vegetables, vegan selections, sauces, wraps, etc.
Dress Code requirement-On the weekends I’m dressed in sweats and a sweatshirt. I want somewhere where I don’t have to dress up to enjoy great food. (#4 is my personal opinion)

Thank you for reading my blog. Next time you enter a Fast-Casual restaurant you will know and can say “Hey this is a Fast-Casual Restaurant”

January 2020