Thinking about selling a restaurant?
What should you know today if you are thinking about selling a restaurant? The restaurant resale market has drastically changed from January 2020 to now. The Covid-19 pandemic has reset the restaurant market for available restaurant lease spaces, restaurant price valuations, and increased buyer’s negotiating power.
Dominique Maddox a Restaurant Broker and Founder of EATS Broker says, “ Restaurant owners have to be honest with themselves about the value of their restaurant in today’s market. The Covid-19 pandemic reduced the 2020 restaurant valuations based on 2019 sales numbers for a majority of restaurants.
Some of the buyer’s offers I receive today to present to sellers would have been offensive and considered low in January are now being accepted by sellers in July and August.”.
Financial Books and Records– buyers have an enhanced curiosity regarding the restaurant sales Pre-Covid and Post-Covid. Restaurant Buyers will still request 3 years of income statements, sales tax filings, and POS sales reports.
The most requested information now is monthly sales reports for 2019 and 2020 to compare, and sales information for 2020 thru July. Sellers should have these documentations prepared before listing the restaurant for sale.
Bank Lending– banks are lending in today’s market but they are requiring much more information from buyers and sellers. The newest requirement is a plan for recovery from the pandemic if the restaurant was negatively affected. Pre-Covid banks did not require a semi business plan for recovery and guidelines from seller’s.
Buyer’s negotiating power– savvy buyers are mindful of the economy and challenges restaurant owners are facing to keep the doors open. The buyers looking for restaurant resales are optimistic about the economy recovering. They understand restaurant price valuation has been reduced due to a reduction in sales.
A handful of restaurants that showed a strong profit in 2019 and were listed to sell in 2020 are now shutting down the business and filing for bankruptcy. Other restaurant owners are trying to sell to get out of the lease obligations. Sellers whose cardinal intention is to get out of the lease are settling for lower prices to remove the stress of the lease payments.
Thinking about selling a restaurant contact EATS Broker. 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
Read More
How should I sell my Restaurant?
How should I sell my restaurant is a question most restaurant owners will have to deal with before exiting their business. Similar to residential real estate owners, restaurant owners have multiple options to choose from. Each option has pros and cons, but which one is actually better?
Today’s internet has tons of information on selling a restaurant, how to do a valuation, and ways to market a restaurant for sale. Some people think they can actually become experts in Restaurant Brokerage overnight.
Dominique Maddox a Restaurant Broker and Founder of EATS Broker says, choosing the right option to sell a restaurant makes all the difference. Only about 30-50% of all restaurants listed for sale on the market will actually sell, the best way to increase your odds of selling a restaurant is working with a trained professional in restaurant sales.”
Restaurants for Sale by a Restaurant Broker– Restaurant Brokers are specifically trained in the Restaurant Resales process. On a daily basis, they view restaurant owners’ profit and loss statements, negotiate lease terms with landlords, work with banks for SBA approval, and work with Franchise Restaurant Resales.
Pros:
-Expert in Restaurant Sales Industry
-Knowledgeable about the Restaurant Sales Process
– Understands industry specifics and comparable financial data for specific restaurant concepts
-Has experience working with buyers thru the Franchise Approval Process
-Has resources and vendors to help during the buying process
-Has forms and documents for an Asset Purchase Agreement
Cons:
-Will require an exclusive listing agreement for 6-12 months
-Commissions range from 10%-15%
Restaurants for Sale by a Business Broker- Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held businesses in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation, and generally assist with the business sale.
Pros:
-Trained on Business Brokerage
-Have knowledge of business valuations
Cons:
-Jack of all trades-sells everything ranging from a gas station, laundry mat, hair salon, and etc.
-Not specifically trained in selling restaurants
-Most do not understand the usual cost in restaurants for food cost, labor cost, rent cost, and normal add-backs.
Restaurants for Sale by Owner (FSBO)- For Sale by Owner, or FSBO, is the process of selling a restaurant without the representation of a broker or agent. Restaurant owners may employ the services of marketing or online listing companies or market their own restaurant. Typically, they represent themselves with the help of a lawyer.
Pros:
-No Broker Commission to pay
-Have 100% control of the sales process
-Can dictate listing price with no logical reason
Cons:
-Emotionally attached to the sale of the restaurant
-Most Owners will overprice restaurant for sale
-Do not understand the sales process of a restaurant, UCC lien search, Sales Tax Certificate, and lease obligations
-Do not have the right paperwork to write an Asset Purchase Agreement, Amendment to change the contract, escrow docs, or any other document related to the closing.
Franchise Restaurants for Resale by Franchisor-The Franchisors are in the business of maintaining open locations and getting new franchisees to build out new restaurants. Franchisors are not in the business of resales. Franchisors have started to try helping current franchisees sell their franchise when they want to exit the business.
Pros:
-Franchisors have the power to approve any potential new franchisees
-Franchisors have the sales information for restaurants
-Receive customer inquiries seeking to join the franchise
Cons:
-Do not have a dedicated department for franchise resales
-Are not trained on doing restaurant valuations based on profit and loss statements, tax returns, or an Asset Sale
-Conflict of interest
-Too much time required for franchise resales
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
Read More
What is a Pocket Listing Agreement?
In the real estate industry in the United States, a pocket listing or hip pocket listing is a property where a broker holds a signed listing agreement (or contract) with the seller, whether that be an “Exclusive Right to Sell” or “Exclusive Agency” agreement or contract, but which is never advertised nor entered into a multiple listing system (MLS) according to Wikipedia.
Restaurant Brokers will usually require an exclusive listing agreement ranging for 6-12 months before working with a restaurant owner. Why would a Restaurant Broker want an exclusive agreement? Why would a seller want a pocket listing or open listing agreement?
Dominique Maddox a Restaurant Broker and Founder of EATS Restaurant Brokers says, “selling a restaurant as a pocket listing can be challenging. Not advertising a restaurant for sale on the major business brokerage websites puts a restaurant at a major disadvantage of selling. Our firm feels like a pocket listing should only be considered on listings over $2 million listing price”.
Pocket Listing Agreement- How to find them?
The reasons for a seller choosing the option of a pocket listing may vary from the need of privacy, worries of the public finding out, employees finding out, or overall fear. Selling a restaurant vs selling a home as a pocket listing or finding listings has some different challenges.
Residential- real estate agents can easily go on the Multi Listing Services (MLS) to find a list of homes that have expired, canceled, or withdrawn. Knock on home-owners doors, or send a mailer with advertisement to gauge interest.
Restaurants- restaurant brokerage does not have a Multi Listing Service (MLS) to view expired, canceled or withdrawn listings. Restaurants usually will not have an open house or sign in front of the restaurant. Finding the owner is not as easy as knocking on the door.
Restaurant Brokers will usually have clients contact them directly to explore the option of selling a restaurant as a pocket listing.
Pocket Listing vs Open Listing Agreement
The biggest differences between the two are a Broker has signed a listing agreement (or contract) with the seller, whether that be an “Exclusive Right to Sell” or an “Exclusive Agency” agreement or contract. Brokers agree not to advertise restaurants for sale to the public but only offer exclusive buyers.
Open listing can refer to a restaurant for sale whose owner is using multiple Restaurant Brokers in order to find as many potential buyers as possible. The Broker who brings in the ready, able and willing buyer for the restaurant collects the commission. Restaurant Brokers will be reluctant to take on an open listing because of the lack of commitment by the seller to work with them exclusively.
Pocket Listing- Pros and Cons
Pros
– Privately shop the buyer market to find out initial interest
– Chance to test listing price
– Exclusive buyers want to be the first to know about a successful restaurant going up for sale
– Less chance of anybody finding out about sell
Cons
– Not listed on The Internet’s Largest Business for Sale Marketplace
– Finding a buyer can be more challenging
– The lower success rate of selling
– Restaurant Brokers usually pay less attention to these listings
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
Read More
How can I sell my restaurant fast?
Every restaurant owner wants to know, how can I sell my restaurant fast? The art of selling a restaurant is different than selling a residential home. The element they have in common is both a restaurant and a home need preparation before hitting the market for sale.
When selling a home, you can usually expect an offer within 1-3 months before owners start to panic. The average time to sell a restaurant is 6-8 months. Restaurant Brokerage Firms will usually ask for a 6-10-month listing agreement, some companies will require a 12-month listing agreement.
Dominique Maddox an Atlanta Restaurant Broker and Founder of EATS Restaurant Brokers says, “ restaurants with good books and records, goodwill, and location sell the fastest. The best sellers to work with are the ones that prepared their restaurant to sell for the highest and best price.”
EATS Broker provides a checklist of the items to be prepared and available before listing restaurant for sale:
List of fixtures and equipment – only items owned by the seller. Fixtures belong to the landlord. Broken equipment should be repaired before listing for sale. Restaurant equipment that does not work should be removed from the building.
Three years of profit and loss statements– is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. Once a buyer has signed a non-disclosure and qualified financially, they want to see the financials for the restaurant.
Time kills deals and buyer enthusiasm towards buying a restaurant. One of the biggest mistakes a seller can do is list a restaurant for sale and not have financials available for buyer review.
Three years of Federal Income Tax Returns for the restaurant- the tax returns should be the same ones filed with the IRS. Banks will request a Form 4506-T, Request for Transcript of Tax Return before approving a buyer for a bank loan.
The original lease and lease-related documents- besides financing the lease can be one of the most complicated parts of selling or buying a restaurant. Some restaurant owners have never reviewed the language in the lease they signed.
It is important to have a copy of the original lease and other docs associated with the lease, available for buyer review.
A copy of the franchise disclosure document (FDD), if applicable- A franchise disclosure document is a legal document that is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States.
Restaurants can sell quickly but the real fact is that restaurants will take 6-8 months to sell. To improve the odds of selling a restaurant quickly, restaurant owners should treat the restaurant like a home. Prepare the restaurant for the market, collect and gather all docs before hitting the market. Once you do find a ready, able, and willing buyer, all the docs needed for closing are available to share.
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
Read More
