Challenges to Selling a non-franchise Restaurant
The Challenges to Selling a non-franchised restaurant differ from those selling a franchise brand. Restaurants that are Franchises are out selling independently owned restaurants for several reasons.
How often have you heard someone talk about opening or owning a restaurant? For the most part, our society loves the fantasy of restaurant ownership.
When it’s time to buy or start a restaurant, restauranteurs have to decide to join a Franchise Brand or start a non-franchise restaurant. The owners that prefer 100% ownership will choose to begin in a restaurant that is not a franchise.
The decision to open a restaurant that is a non-franchised restaurant can save a substantial amount of start-up money required for a franchise brand. Instantly restauranteurs save on the following items
–Development Fee ranges from $5,000-$50,000
-Royalty Fees range from 3%-10%
-National Marketing Fees
-Required Training cost
-Restaurant Equipment requirements
-Design requirements
Dallas, Texas Restaurant Broker Dominique Maddox says, “the initial fee to start a non-franchise restaurant is usually lower. When it’s time to exit, the restaurant valuation is generally higher for Franchise restaurants.
EATS Broker challenges to selling a non-franchise restaurant are:
Restaurant Valuations: Non-franchise brands usually will have a lower sales multiple compared to National Franchise Brands. The multiple is based on several considerations:
-Company strength
-Number of units open
-Longevity of brand
-Brand Goodwill
-EBITDA
Restaurant Valuation example:
Non-Franchise Brand: $100,000 (EBITDA) x 2.x (multiple) = $200,000 listing price
Franchise Brand: $100,000 (EBITDA) x 3x (multiple) = $300,000 listing price
Good Books and Records-Non-Franchise restaurants do not have a universal accounting system like most Franchise Brands require. The restaurant owner of an independently owned restaurant doesn’t have any checking their number for royalty and marketing fees.
Owners have the freedom to be creative with their books and records. Unorganized financials hurt when it comes to reselling a restaurant. Non-franchise restaurants with books and documents that are not clean or look fake rarely sell.
Restaurant Broker tip: Restaurant owners should confirm that tax returns, profit and loss statements, and sales tax filings tell the same story.
Buyers may request the following financial documents from sellers:
-Tax Returns
-Profit and Loss Statements
-Sales Tax Filings
-POS Sales Report
-Credit Card Statements
-Bank Statements (this is rarely provided in restaurant sales transactions)
Training and Support-New buyers are on their own to learn the concept, operations, employees, and marketing. The buyer usually completes no formal training before or after the sale transaction.
A training schedule can be agreed upon on the Asset Purchase Agreement, but it’s up to the restaurant seller to coordinate and execute. Once the restaurant is sold, the support usually ends from the previous owner.
Unlike a franchise brand with a training program, vendor relationships, and a support system, non-franchise brands may only have vendor relationships.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Restaurant Broker Dominique Maddox of EATS Broker sells Jimmy John’s franchise
Restaurant Broker Dominique Maddox of EATS Broker sells Jimmy John’s in Benbrook, Texas. EATS Broker represented the seller and buyer for this transaction.
The buyer is a multi-unit owner expanding his territory and ownership in Jimmy John’s. The new ownership group takes over a successful location with sales of over $840,000 in 2022. The seller was an absentee owner ready to exit the business.
Benbrook, Texas, is located in the southwestern corner of Tarrant County, Texas, and a suburb of Fort Worth. Benbrook, Texas, is experiencing growth in the surrounding area. The city of Benbrook is currently contracted to build 10,000 homes and one apartment complex, all within the delivery area of this location.
Texas Restaurant Broker Dominique Maddox says, “the sellers were initially trying to sell their restaurant For by Owner. They eventually decided to hire a Restaurant Broker and allowed my company to get their franchise restaurant sold.
EATS Broker received a 5-star Google review that says, “He went above and beyond at all times. Would highly recommend”. This marks the 12th 5-star Google Review the Restaurant Broker at EATS Broker has received.
Jimmy John’s is an American sandwich chain headquartered in Champaign, Illinois. The business was founded by Jimmy John Liautaud in 1983.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Want to sell your restaurant? What Restaurant Equipment do you own?
Want to sell your restaurant, and it’s time to create an equipment list? What Restaurant equipment do you own as a restaurant owner? This seems easy to answer, but most restaurant owners misunderstand what they own when leasing a restaurant space.
The landlord is responsible for creating a lease to protect their interest when leasing a restaurant space. The restaurant owner is responsible for reading the lease to understand the terms.
Texas Restaurant Broker Dominique Maddox says, “ restaurant owners are shocked when they find out they don’t own any fixtures in the restaurant. The key items in a restaurant like the hood system, grease trap, sink compartments, walk-in coolers/freezers, and misc. Belong to the landlord”.
When selling a restaurant, a restaurant owner must create an equipment list to provide to interested buyers. The Restaurant Broker at EATS Broker requests an equipment list from restaurant owners ready to sell a restaurant before it goes on the market.
Restaurant owners are asked only to provide restaurant equipment that they own. The equipment list and details will differ from restaurant owner to owner, and restaurant owners unfamiliar with the language in their lease usually provide an incorrect equipment list.
A restaurant that is not profitable or closed will be listed as an Asset Sale. Selling a turn-key restaurant fully equipped as an Asset Sale is an excellent opportunity for buyers looking to create their own concept. Restaurant buyers will be curious to know the restaurant equipment involved in the sale.
The Restaurant Broker at EATS Broker creates an equipment checklist to consider:
Items Restaurant Owners should keep off an equipment list because they are attached to the building:
-Walk-in coolers
-Walk-in freezers
-Grease traps
-3 compartment sinks
-Hood system
-HVAC systems
-Tankless water heater
***Leased Items should not be added either***
-Fountain Drink Dispenser
–Dishwasher
–POS System
-Refrigeration, if provided by the vendor
This blog was written to help restaurant owners create an equipment list that reflects what they own and can be removed from the building. Next time when making an equipment list, restaurant owners should ask themselves do I own this equipment?
For more information on the restaurant market and other available consulting services or complimentary restaurant valuations, contact Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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What are the most demanding Restaurants to Sell
The most demanding restaurants to sell fall into three categories. Chef-driven restaurants, BBQ restaurants, and unprofitable restaurants or new openings. All three types of restaurants present considerable challenges when it’s time to sell a restaurant.
The cold hard fact is that only 30%-40% of restaurants listed for sale will sell to a new buyer. Some restaurant concepts are much easier to sell than others, depending on the skill level required.
Restaurant owners can improve their chances of selling if they understand the obstacles they will face while selling a restaurant.
Texas Restaurant Broker Dominique Maddox says, “ when a buyer is thinking about purchasing a restaurant for sale, they should think about an exit strategy. Concepts like pizza restaurants, sub sandwich restaurants, or ice cream concepts have a large ready, able, willing buyer pool looking to buy.
Restaurant Broker list of challenges to selling a restaurant in each concept:
Cons: Chef-Driven Restaurants: Are usually started by a trained Chef
-The majority of restaurant buyers looking to purchase are not trained, Chefs
-The restaurant is usually branded with Chef’s name and goodwill
-Some locations don’t have a trained Sous Chef
-The consistency of the food can be a problem
-Most will not have recipes documented
Cons: BBQ Restaurants:
–The skill level required to produce an excellent product can be high
-Some cultures don’t eat pork products, so they would not be interested in buying a BBQ restaurant
– Everybody does not want to be a pit master
-Time required to cook meats
– Most will not have recipes documented unless it’s a franchise
Unprofitable restaurants or new openings- The most common phrase from Restaurant Owners is, “I just want my buildout cost or original investment back” it sounds good, but it’s not that simple.
Cons: Unprofitable Restaurants
-Not making money-buyers mainly want profitable restaurants
-Can be considered risky
-Buyers are more cautious when buying restaurants that are not profitable
-Most times, limited books and records are provided
-The new buyer will assume lease obligations
-Buyer is purchasing used equipment and leasehold improvements
Cons: New Buildout-open less than one year (Seller usually doesn’t get original build-out cost back when selling)
-Tenant is usually responsible for obtaining a Certificate of Occupancy (CO)
-Many restaurant owners go over the original buildout cost
-Can take an extended time to open depending on supply and demand for supplies and contractors
-The “unknown” cost associated with a new buildout
-Tenants can be responsible for the following build cost before opening the doors
Installing a Hood System
Installing a Grease Trap
Installing new plumbing
Installing sinks
Building out bathrooms
Building outside seating
Installing walk-in coolers
-First, all Restaurant Sellers should understand that the landlord owns all leasehold improvements that are fixtures.
-Restaurant Valuations for new build-out locations is a challenge for a Restaurant Broker
**These restaurant segments were chosen from past experiences after 11 years of being a Restaurant Broker and specializing in selling restaurants only.**
For more information on the restaurant market and other available consulting services or complimentary restaurant valuations, contact Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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Buying an existing restaurant to convert to a new concept
Buying an existing restaurant to convert to a new concept is an excellent way for a non-experienced restaurant owner and an experienced restaurateur to become a restaurant owner. The new buyers benefit from the hard work the current owner has experienced to build out the restaurant, open the restaurant, and maintain the restaurant.
An existing restaurant can be purchased to keep operating as the current concept or converted to a new one. The buyer who plans to convert an existing restaurant space to a new idea thinks about the deal differently than a buyer who keeps the concept the same.
Dallas Restaurant Broker Dominique Maddox says, “buying an existing restaurant for sale and converting to a new concept saves time to open the doors and money on the build-out cost.” It takes out some of the unknown cost that is usually associated with new restaurant openings”.
Restaurant Franchise Brands are buying Asset Sale Restaurants and converting the space to a new franchise opening for a fraction of the price of a completely new build-out.
Buying an existing restaurant doesn’t come with a checklist. EATS Broker Checklist provides a list of items to consider when purchasing an Existing Restaurant.
Converting Restaurant to New Concept: 10 THINGS TO CONSIDER
-Does the size of the kitchen work for your concept?
-What kitchen equipment currently installed will you use?
– Does the size of the grease trap work for your concept?
-Parking available for customers
-How long is the hood system?
-How much does new signage cost?
-How much will be painting the walls cost?
-Does the HVAC system work correctly?
-Can the new concept support the current lease and rent structure (rent should be only 4%-8% of total sales)
-Will the landlord approve the lease?
Items to have ready for the landlord to review:
Business Plan with three years forecast- Tell your Restaurant Story and why your new concept will succeed.
Personal Financial Statement
Copy of Menu-
Resume or Bio-explain how our past work experience will help you in the new role.
Proof of liquid assets-Bank Statement, 401K statement, or letter from your bank
Copy of Personal Tax Returns
Restaurant buyers that want to buy a restaurant and convert an existing restaurant to a new concept can see that a restaurant space has potential but needs the right idea!
For more information on the restaurant market and other available consulting services, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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