A Restaurant Owner should start planning an exit strategy before signing the lease. Thinking about the exit strategy should be as important as planning for the opening. It’s a known fact that 80% of restaurants close within five years of opening their doors or has a change in ownership.
Texas Restaurant Broker Dominique Maddox says, “Most restaurant owners EATS Broker talks with daily don’t have an exit strategy. The main deciding factors in selling a restaurant usually relate to partnership issues, divorce, health, debt issues, lack of sales, money, or just being tired.”
Restaurant Broker lists three critical things to consider when selling a restaurant and planning an exit strategy.
Lease Terms and Conditions-the ability for a restaurant owner to transfer the lease to a new buyer via lease assignment is a critical segment of the resale process. Most restaurant owners don’t understand the lease terms they sign and don’t know the requirement for an exit.
Clean Books and Records-When a Restaurant Broker list a restaurant for sale; we are only selling two things. It’s either selling a buyer a paycheck or used equipment. When buyers purchase a profitable restaurant for sale, they buy a “paycheck.” If the restaurant is not profitable, it’s considered an Asset Sale (used equipment). Profitable restaurants get the highest price valuation.
Reporting Financials to the IRS– It’s a known fact that restaurant owners write off many personal items and non-business related expenses on their tax returns or Profit and Loss statements. This strategy helps restaurant owners pay less in taxes.
Over-aggressive tax write-offs work if a restaurant owner is not trying to sell a restaurant. Restaurant Brokers would recommend that restaurant owners, 2-3 years before trying to sell a restaurant, keep clean and accurate books and records.
Franchise Requirements– When a restaurant owner that owns a Franchise brand wants to sell a restaurant, it’s different from an independently owned restaurant. The following are additional factors for owners to consider.
–Transfer Fee-how much is it?
–Training requirement- how long it the training and where training is conducted?
–Franchise approval process and requirements
–Restaurant Upgrades required- any major updates required soon?
–Franchise years left of Franchise Disclosure Documents (FDD)-how much is the renewal cost?
The Restaurant Business is one of the most demanding business segments to have success for an extended time. The ideal exit strategy helps the Restaurant Owner get into the right mindset about exiting the restaurant business and gives them a timeframe to think about.
Planning for an exit strategy is critical when trying to sell a restaurant. The Restaurant owner should consider what they plan to do after selling the restaurant.
EATS Broker is available to provide free, confidential restaurant valuations for all restaurant owners thinking about selling a restaurant.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or email at [email protected]. Visit our website at www.EATSbroker.com.
