Buying a Restaurant

Steps for first-time restaurant buyer

What are the Steps for first-time restaurant buyers? This question EATS Broker gets multiple times weekly for buyers inquiring about restaurants for sale. Many interested buyers looking at restaurants for sale opportunities will be first-time restaurant buyers.

Many buyers are shocked about the difference between buying a home compared to buying a restaurant. The buying process from purchasing a home to purchasing a restaurant has completely different steps.

The restaurant sales transactions can be more complex where the smallest detail can make the difference from selling a restaurant or a restaurant for sale not selling.

Dallas Restaurant Broker Dominique Maddox says, “I enjoy educating restaurant buyers about the process of buying a restaurant. A big part of my job responsibilities is to educate and help buyers through the restaurant buying process.

The Restaurant Broker at EATS Broker provides a Five Step-by-Step overview of the First time Restaurant Buyer process:

1. Research online:Restaurant buyers can get an idea of the inventory available on restaurants for sale in the local market on BizBuySell.com. The site is the internet’s largest business-for-sale marketplace.

Individuals interested in buying an existing restaurant can get preliminary information on the site like price, income, EBITDA, cash flow, gross revenue, rent, and year established.

2. Have documents ready to show– When buying a home, the buyers will contact the bank and get pre-qualified before contacting a Real Estate Agent.

Many buyers are shocked when a Restaurant Broker asks for proof of funds before providing the name, address, and financials of a restaurant for sale.

Restaurant Brokers Golden Rule of Thumb

-If the listing is a franchise or over $100,000, a Restaurant Broker will want to see proof of funds (bank statement, 401K, or letter from bank). The franchise requires a certain amount of liquid funds before approving a potential franchisee.

The landlord will want to see proof that the new tenant can afford the lease. There is no need to provide financials to a buyer that can’t qualify.

-The bank statement, 401K statement, or letter from the bank should be within 60 days; close out your account number because a Restaurant Broker will only need to see your name and amount.

3. Contact a Business Broker

A majority of the restaurant for sale are listed by a Business Broker or a Restaurant Broker. Buyers are required to sign a confidentiality agreement to access more information about the listing for sale.

A select number of restaurants for sale brokers will provide more information instantly once the non-disclosure is signed. Unfortunately, a large number of the listings will require a buyer to provide proof of funds.

Once non-disclosure is signed and proof of funds, the buyer will get a copy of the package. The package will have the name, photos, financials, details about the lease, and the restaurant’s location.

4. Visit the restaurant

A restaurant buyer gets to visit the restaurant as a customer. Some buyers will want to skip this step and schedule a meeting with the owner to ask questions and tour the kitchen area.

The Restaurant Broker at EATS Broker Tip:

A restaurant buyer should come to the seller-buyer meeting provided with questions. A buyer will learn more about the business and its long-term potential by asking the right questions.

5. Evaluate and make a buying decision

During this step, a restaurant buyer will evaluate the information they have received from the seller. The buyer will decide whether to make an offer and the contingencies needed to feel comfortable. The buyer will start the due diligence process if the purchase agreement offer is accepted.

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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.

What is a Cloud Kitchen? What should you know?

A cloud kitchen is a commercial kitchen, sometimes called a “ghost kitchen,” used for delivery-only or pick-up restaurants. New restauranteurs and current restaurant owners are expanding menu offerings and increasing delivery orders by opening cloud kitchens.

The popularity of ghost kitchens has increased over the years. Today consumers ordering food online might be shocked to find out they have ordered from a ghost kitchen restaurant.

Ghost kitchen restaurants can be open for a fraction of the price versus a brick-and-mortar location. Cloud kitchen restaurants are considered a low-risk method to grow a restaurant business and menu selections. They handle the logistics and fulfillment while the restaurant owner only has to worry about the cooking.

Dallas Restaurant Broker Dominique Maddox says, “ cloud kitchens are opening opportunities for new or current restauranteurs to open restaurant concepts with less capital investment and risk.

Ghost kitchens are a popular business model providing a solution for restaurant owners to expand delivery areas and increase pick up orders”.

The Restaurant Brokers at EATS Broker compares Cloud kitchen restaurants vs. Brick and Mortar restaurants:

Capital Investment( upfront cost)  Cloud Kitchens- $30,000 vs. Brick and Mortar $100,000-$300,000

• Staff required 

Cloud Kitchens 2-6 employees vs. Brick and Mortar 10-30 employees

• Time required to open

Cloud Kitchens 2-4 weeks vs. Brick and Mortar 4 months-1 year

• Real Estate and Location

Cloud Kitchens- 200-300 sq. ft. vs. Brick and Mortar 1000-5000 sq. ft.

Cloud Kitchens-delivery hotspot with low cost and low traffic.

Brick and Mortar- high price, need prime location, good locations can be hard to find.

• Breakeven Point 

Cloud Kitchens- 6 months – 1 year vs. Brick and Mortar- 2 years-5 years

Critical takeaways for Cloud Kitchens/ Ghost Kitchens

They provide excellent delivery and pick up opportunities

Allows restauranteurs to experiment with low risk

Allows restaurant owners to build multiple concepts out of one kitchen

Cuts costs for front and back of house labor costs

The kitchen features an exhaust hood, three comp sinks, prep sink, hand sink, and grease trap.

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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.

Exit Planning for Restaurant Owners

Exit planning for restaurant owners is a process that should start before a restaurant has opened. The harsh reality of restaurant ownership is 80% close within five years. If you are going into the restaurant industry knowing that it will be time to exit within five years, why not plan in advance?

EATS Restaurant Brokers finds that restaurant owners’ lack of exit planning can create liabilities when selling a restaurant.

Dallas Restaurant Broker Dominique Maddox says, “exit planning for restaurant owners should start once a restaurant is open. The common mistake is that restaurant owners fail to plan an exit until they have to sell a restaurant. An exit strategy should allow the restaurant owner to sell a restaurant with limited liabilities”.

EATS Restaurant Brokers-Exit Planning MUSTS:

1. Books and Records-keep clean, excellent, and organized books and records. The restaurant buyers in today’s market are educated and can analyze a restaurant owner’s numbers and expenses for red flags. The best way to sell a restaurant is to have clean tax returns; restaurant owners will have to pay taxes on reported gains.

Restaurants that don’t count cash payments, pay employees under the table, or don’t report most sales on tax returns to save on taxes will sell for less on the open buyer market.

EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check to confirm current sales tax filings.

2. Build-out expenses– The initial cost for a restaurant build-out can range from $50,000-$1,000,000for a restaurant space ranging in space between 1000-7000 sq. ft. Potential restaurant owners should analyze if it’s wiser to find a second-generation restaurant space to convert to their concept or build out a white box location.

A restaurant has previously occupied a second-generation restaurant space. In a white box location, the restaurant owner is installing everything needed to open a restaurant. The restaurant space has plumbing, electrical, refrigeration, and initial build-out done.

The person that benefits the most from a restaurant owner building out a first-generation restaurant space is the landlord.

Example: Restaurateur pays $300,000 in build-out expenses before opening the doors to a new restaurant. The restaurant owner estimates the restaurant should make a profit of $50,000 per year. The restaurant owner has to wait six years to get the build-out cost expenses back $300,000/50,000= six years!

EATS Restaurant Brokers Tip: Don’t go BROKE on the build-out.

3. Restaurant’s Transferability- All restaurants for sale are not good listings because they lack transferability.

Ex.1 A chef-driven restaurant for sale depends on the performance of the chef. If an owner/operator is also the cook, these types of restaurants are difficult to sell. Most restaurant buyers are not looking at buying a restaurant to be a chef; they want a skilled chef in place.

Ex.2 Some restaurants for sale, the landlord, owns the equipment. Restauranteurs that lease restaurants that come fully equipped only own the business and goodwill; they have limited assets to sell.

This type of arrangement can make it difficult for a restaurant owner to sell in the future. Asset purchase agreements between buyers and sellers have the restaurant equipment being sold listed on the contract.

EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check for UCC liens on equipment or business.

EATS Restaurant Brokers biggest take-aways from this blog are listed below:

1. Good Books and Records help restaurants sell for the highest and best price
2. Don’t go broke on the build-out expenses and have to wait 3-10 years trying to get the initial investment back.
3. Make sure to have a restaurant/system that can transfer to a new restaurant owner.
4. Own the equipment in the restaurant

To learn more about EATS Restaurant Brokers consulting services or receive a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.

Pros and Cons for a Restaurant Asset Sale

The Pros and Cons of buying or selling a restaurant as an Asset Sale can be a Win-Win situation for both parties. In an asset sale, the seller retains possession of the legal business entity name and stocks, and the buyer only purchases the company’s assets.

The assets include equipment, leasehold improvements, Goodwill, trade secrets, trade name, telephone number, website address, social media accounts, and lease assignment.

Dominique Maddox, a Dallas Restaurant Broker and Founder of EATS Restaurant Brokers, says, “there are only two ways to provide a restaurant valuation, selling a paycheck or selling as an Asset Sale.”

Restaurant Valuation – Two Methods

1st Selling a restaurant that is profitable with good books and records. The restaurant buyer can anticipate receiving a paycheck from the restaurant ownership. For example, restaurant nets a profit of $100,000 a year, the restaurant buyer can expect to receive that income.

2nd Selling a restaurant that is not profitable, open for less than 2 years, has terrible books and records is an Asset Sale. They are priced pennies on the dollar. A quick way to spot a restaurant for sale that is an Asset sale is to look at the cash flow or EBITDA. If these numbers are missing or show a $0, chances are good the restaurant for sale is an Asset Sale

Pros and Cons of buying or selling a restaurant as an Asset Sale

 Pros for Restaurant Seller

• Can close quickly (if franchise training is not required)
• Requires cash buyer-don’t have to worry about lending
• Can ask the landlord to be removed as lease guarantor
• No longer has to worry about restaurant ownership

Pros for Restaurant Buyer

• Will receive the equipment free and clear of any UCC liens
• Easy to convert to a new concept
• Saves thousands of dollars on build-cost
• Can benefit from Goodwill like previous owners Google Reviews, website, and social media followers.
• Buying a restaurant for pennies on the dollar
• Transfer cost fee is less than the original new store franchise agreement cost
• The majority of Asset Sale deals are restaurants that are still open and have employees.

Cons for Restaurant Seller

• The listing price is usually a lot less than build-out expenses.
• A more significant number of restaurant sellers will take a loss to get out of restaurant ownership.
• Harder to sell a restaurant that is not profitable or shows a small amount of profit.
• Cash buyer required because banks will not finance an unprofitable restaurant for sale.

 Cons for Restaurant Buyer

• Buying a restaurant that might not be profitable is risky
• Buying opportunities can be challenging to price correctly
• Lease Assignment is agreeing to the previous owner’s lease terms and obligations,
• Becoming a guarantor on the lease

Asset Sales can be a perfect opportunity for existing restaurant owners to expand or for new restaurant owners to save money on opening a new restaurant.

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 by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.

Restaurant Sellers vs. Restaurant Buyers-Different Mindsets

Restaurant Sellers vs. Restaurant Buyers have different mindsets when it involves buying or selling a restaurant. When a restaurant owner decides to sell a restaurant, the primary goals are to get the highest sales price, highest net proceeds, remove the lease as a guarantor, and close quickly.

A restaurant buyer’s focus differs slightly from the sellers and is directly focused on the terms, conditions, and stipulations on an Asset Purchase Agreement.

An asset purchase agreement between a buyer and a seller explains the terms and conditions related to purchasing and selling a restaurant‘s assets. The Asset Purchase Agreement will automatically satisfy the restaurant owner’s needs when filled out correctly. The agreement will document the listing price and closing date.

The restaurant buyer needs to confirm that they are comfortable with the conditions and terms of an Asset Purchase Agreement before signing and setting up an escrow account. The escrow deposit is a good faith deposit that can range from $10,000-$50,000. The buyer’s deposit is protected by the stipulations documented in the purchase agreement.

Dallas Restaurant Broker Dominique Maddox says, “restaurant buyers should make sure they have a trained Restaurant Broker prepare an Asset Purchase Agreement on their behalf. A Restaurant Broker knows the stipulations to add that give the buyer’s escrow deposit the most protection.”

EATS Restaurant Brokers has encountered several buyers that have lost their escrow deposit because they had an untrained Restaurant Broker prepare an agreement for them.

A restaurant buyer should make sure to cover the basics of a Purchase Agreement:

• Due Diligence Period
• Landlord Approval Stipulation
• Bank Lending Approval-if lending is needed
• Escrow Deposit Amount
• All UCC liens should be removed from Equipment
• Sales Tax Clearance letter supplied by the seller before the closing date
• All Equipment should be in working order
• Franchisor Approval stipulation-if restaurant is a franchise for sale
• Who pays for the Transfer Fee?
• Who pays for restaurant remodels if required by franchise?
• Closing attorney contact information
• Restaurant Equipment included in the sale
• Inventory- paid outside of purchase price or included in offer price

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

Commercial Lease Assignment: What should you know?

What should you know about a Commercial Lease Assignment before signing the lease? The lease assignment can be short and brief, but it has a tremendous impact on the capability of a restaurant owner selling a restaurant in the future.

When buying or selling a restaurant, it is essential to evaluate the strength or weakness of a commercial lease assignment language.

A restaurant owner that wants to sell a restaurant can easily be stopped by the language in their lease that covers the possibility of a lease assignment to a new tenant.

What should you know if you are negotiating a lease assignment language for a commercial lease? This blog presents a brief breakdown of some of the key points involved in a lease assignment.

When a tenant’s lease interest is assigned to a new tenant/buyer, this is called a lease assignment. The current tenant has already agreed to terms with the landlord; once the new tenant signs the lease assignment, they are now responsible for the lease terms. The landlord’s standard practice is to keep the previous tenant on the lease as a guarantor and add the new tenant.

Most negotiated leases will contain a provision requiring that landlord’s consent to an assignment is necessary, but such approval will not be unreasonably withheld. The tenant will likely also try to include the landlord’s obligation to not unreasonably delay or condition its consent, according to Attorney John G. Kelly.

Dallas Restaurant Broker Dominique Maddox says, “Selling a restaurant has multiple tasks/assignments that have to be completed before restaurant ownership is transferred. Practically every commercial lease will have detailed requirements for the assignment process.

Landlord approval for a lease assignment is a critical part of the selling process. The majority of restaurant owners are clueless about the provisions in their lease for a lease assignment”.

EATS Restaurant Brokers list language to know in a commercial lease regarding a lease assignment

Assignment Fee:

This fee is payable to the landlord before a tenant can transfer the rights to a commercial lease. The amount is usually not negotiated between landlord and tenant, most leases landlord input whatever number they want.

The assignment fees usually range from $0-$10,000 (listings for sale under $2 million); it really depends on the landlord and the language in the lease. The lease assignment fee majority of the time, is paid by the seller.

EATS Restaurant Brokers tip: Read the lease before signing and know how much the assignment fee will cost you.

Financial Qualifications:

 Landlords have several different qualifying metrics a tenant should pass before getting approved for a lease. The lease assignment language should not be as strict as the current lease for a new tenant because the business is up and running, usually generating sales.

Depending on the landlord, EATS Restaurant Brokers has seen lease assignments that automatically approve a new tenant if they keep the lease space the same franchise brand. But also seen lease assignment language where the new tenant has to have as much or more liquid assets as the previous tenant. This can be an unreasonable requirement if the first tenant is financially well off when signing the original lease.

Renewal Option

The renewal option gives a tenant the right to extend a commercial lease expiring in the future. Lease options are usually extended by 3 years, 5 years, or 10 years.

Renewal options should have specific language on the conditions required for a tenant to extend an expiring lease. Many leases need a tenant to give 90-180 days’ written notice to confirm if the tenant plans to extend the lease.

Restaurant owners who are trying to sell a restaurant and lease are about to expire might think they will just have the new buyer sign the tenant.

If the window to provide a landlord with a written notice has expired, the landlord has the right to refuse to agree to a lease assignment.

EATS Restaurant Brokers Tip: The restaurant owner should know how far in advance written notice to extend the lease is required to the landlord.

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

Independent Owned Restaurants-How to Build Value?

As an Independent Owned Restaurant, how do you increase restaurant value for resale besides good food and environment? Independent Owned Restaurants for sale usually sell for less than Franchise Owned Restaurants.

Franchise Restaurants for sale provide a potential buyer with systems, training, and brand awareness to customers; these are non-tangible items that improve resale value.

The best time as a non-franchise restaurant to start thinking about organizing and operating your restaurant like a franchise is at the very beginning. Start thinking about training manuals, required training time for a position, social media presence, and misc.

60% of Independent owned restaurant operators will fail within three years of opening the doors for business. 80% will close within 5 years. The reality of opening a restaurant is you should always have an exit plan.

When it’s time to sell a restaurant, how does a non-franchise restaurant for sale increase its odds of selling a restaurant to a new buyer?

Dallas Restaurant Broker Dominique Maddox says, “ my suggestions to improve value are create a story behind the establishment, cook from scratch, have fantastic food, and create systems easy to follow.

After ten years of selling restaurants, I have found that non-franchise-owned restaurants for sale that are not unique and organized usually don’t sell.

EATS Restaurant Brokers provides TIPS to improve value! 

1. Story behind establishment: Have a story behind your restaurant; people relate and remember stories. This is one of the best ways to build brand loyalty from customers. Make sure your customers can read your story by posting on the wall, website, cups, etc.

Has the restaurant been passed down from generation to generation? Did a unique passion project inspire the owner to start the restaurant? These are exciting stories that make a restaurant unique. Key take-away people remember stories!

2. Create Systems: The POS system should be updated to record all valuable sales information. POS systems are useful tools to analyze to improve restaurant profitability.

Create Training Manual: A manual with all the training material needed for a new operator is a valuable tool. The manual should have the job descriptions for each position. The manual should describe the process and time requirements for new hires.

3. Unique Food– Do you have a unique cooking style, use exciting ingredients, how is the presentation? Outstanding food and experience will always get customers talking about a restaurant. Word of mouth referrals is the best and cheapest way to grow your restaurant.

Create a unique style of cooking that customers have to visit your restaurant to enjoy. Besides the type of cooking is the taste of food. The best non-franchise restaurants cook from scratch.

Create a menu book that lists all of the cooking recipes, measurements required and cooking time.

The suggestions listed in this blog are intended to help an Independently owned restaurant owner sell a restaurant business in the future. These tips should help the restaurant operator stand out from the competition.

Want more help selling a restaurant? Contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com

What restaurant numbers should YOU know?

What restaurant numbers should you know if you own a restaurant or want to buy a restaurant? Every independently owned restaurant is unique, while franchise concepts have common similarities. How do you compare the two different restaurants if you want to buy or sell a restaurant? Analyzing the Financial and Operational ratios is a great starting point.

What numbers should be significant to a restaurant owner that wants to sell a restaurant or a buyer that wants to buy a restaurant? Some key impact ratios compared to annual sales are food, labor, lease cost, and Sales per square foot.

Dominique Maddox, a Restaurant Broker at EATS Restaurant Brokers, says, “when analyzing Profit and Loss statements to provide a restaurant valuation, I always pay cost attention to the critical impact ratios.

The numbers and ratios can help explain the heartburn or opportunity in a restaurant.”

EATS Restaurant Brokers shares RATIOS to consider list:

Food Cost: Food cost as a percentage of food sales (costs/sales) is generally in the 28% to 32% range in many full-service and limited-service restaurants. Ratios can fluctuate depending on the type of restaurant.

Upscale restaurants can range up to 35%-40%, while pizza concepts can range from 20%-25%.

EATS Restaurant Brokers Tip: Food costs seem to always be higher at absentee-owned restaurants than Owner/Operator restaurants. The employees don’t operate the restaurant like an owner that manages the day-to-day operations.

Labor Cost: Payroll cost as a percentage of sales should not exceed 30%-35% of total sales for full-service restaurants and 25%-30% of total sales for limited-service restaurants. This percentage includes payroll taxes, insurance premiums, and other employee benefits.

EATS Restaurant Brokers Tip: Generally, you don’t want to see management salaries, including kitchen managers, assistant managers, and General Managers’ salaries to exceed 10% of gross sales.

Build-out-cost: The sales-to-investment ratio should be at least 1.5 to 1. This means a minimum of $1.50 in sales should be expected for every $1 of startup costs, according to www.Restaurantowner.com.

This means if you spend $300,000 on a restaurant build-out, the location should be able to generate at least $450,000 annual sales. The best restauranteurs know how to keep build-out costs at a minimum to increase the Sales-to-investment ratio.

EATS Restaurant Brokers Tip: Buying an Asset Sale restaurant is an excellent opportunity to save money on the initial build-out cost.

Rent and Occupancy: The ideal range for rent expense is 6% or less of total sales. This ratio includes costs such as common area maintenance (CAM) and other occupancy expenses.

Many operators are satisfied with an occupancy cost of 8% or lower. Once a restaurant owner-occupancy cost reaches 10% or higher, the charges start to deduct from the owner’s net profit.

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

Restaurant Seller and Buyer Meeting: Tips for Success

EATS Restaurant Brokers decided to create a Restaurant Seller and Buyer Meeting-Tips for Success checklist. The initial meeting between the buyer and a seller can dictate how the working relationship will be in the future.

The goal of the initial meeting is to familiarize both Restaurant Seller and Restaurant Buyer, view the back of the house, buyers get an opportunity to ask probing questions and review restaurant financials. The most straightforward deals are when the buyer and seller like and respect each other. When the personalities don’t mix, the restaurant closing process could be filled with turbulence.

Dominique Maddox of EATS Restaurant Brokers says, “ The best method to minimize differences in personalities is to keep the deal flow managed by a specialized trained Restaurant Broker. When Restaurant Sellers and Buyers communicate directly without a skilled Restaurant Broker, a deal can crumble quickly”.

EATS Restaurant Brokers 7 Tips for a Successful Seller and Buyer meeting.

1. Buyer and seller should both have face masks on, even if social distancing is done.
2. Walk around the restaurant to get the seller talking and to get the buyer more comfortable. Great way to break the ice between parties.
3. We recommended starting with the back of the house (BOH) to show the kitchen area and cooking equipment. This task can range in time depending on the size of the restaurant and restaurant owner explaining items.
4. Sit down for a meeting- This is a great time to introduce each party to start talking about why one party wants to sell and the buying party to explain the interest in buying.
5. The sit-down meeting allows the buyer to ask questions about the restaurant operations, restaurant equipment, lease, employees, financials, and willingness to negotiate on price.
6. Restaurant sellers should be prepared to explain the Cost of Goods (COGS), Labor, Sales, and potential to increase sales.
7. Buyer should review financials before meeting with the seller. The buyer should come to the meeting with prepared questions to ask the seller.
8. Follow-up questions after the meeting should be directed to Restaurant Broker to share with the seller.

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

How to validate For Sale by Owner sales numbers

How to validate a For Sale by Owner sales numbers can be a challenge for buyers. A For Sale by Owner listing is a person that decided instead of hiring a Restaurant Broker; chose to represent themselves.

People decide to represent themselves as a For Sale by Owner for several reasons: they don’t want to pay a commission, think the restaurant sales process is simple, and lastly, the clueless restaurant owner that educates themselves on Google.

EATS Restaurant Brokers provides 3 Ways to validate For Sale by Owner sales numbers:

1st-Request a copy of Sales Tax Filings–This represents the gross sales amount the restaurant owner reported to the state government. Restaurant owners who keep accurate books and records pay the correct amount owed for sales tax.

Independent-owned restaurants have many restaurant owners who do not report the correct amount of gross sales to reduce their sales tax bill. Restaurant buyers should only look at the amount reported to State Government.

Sales Tax filings amount can fluctuate from state to state. The statewide sales tax rate is 4% in Georgia, but local rates typically vary from 7-8% (4% for state, plus an additional 3 or 4% for local).

2nd-Request a copy of Tax Returns filed with the IRS, confirm tax returns are the correct ones reported to state government. Tax Returns provide vital information regarding the Gross sales and net profit of a restaurant.

Dominique Maddox, a Restaurant Broker for EATS Restaurant Brokers, says, “I would recommend requesting a Request for Transcript of Tax Return(Form 4506-T) form. Filing this documentation allows the buyer or bank to request tax returns directly from the IRS.

I have experienced instances were the tax returns provided to the buyer did not match the tax returns the IRS had on file”.

3rd-Request a copy of the POS Sales report– The POS Sales report can help buyers understand and simplify the restaurant sales breakdown.

4th- Count the number of customers during peak hours– This is the least recommended method for confirming a For Sale by Owner’s financial numbers. Some buyers like to visit and sit around for a while to monitor the customer traffic count and buying habits.

EATS Restaurant Brokers Tips when buying a restaurant from a For Sale by Owner:

• Inspect the equipment during the due diligence period. Confirm that the restaurant owner owns the equipment and is not leasing it or the landlord owns it.
• Make sure the closing attorney does a UCC lien search days before the closing.
• Ask Restaurant Seller to provide a Sales Tax Clearance Letter before closing.

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