Buying a Restaurant

3 Common Mistakes Restaurant Buyers Make

What are the Common mistakes restaurant buyers make when buying a restaurant? The answer is complicated but simple at the same time. There are several common mistakes that potential restaurant buyers should be aware of when deciding to buy a restaurant.

The Restaurant Broker at EATS Broker provides some of the most common mistakes restaurant buyers make based on his experience of selling restaurants for eleven years.

1. No Business Plan– The restaurant industry is a lifestyle with financial obligations. Restaurant buyers should have a clear and comprehensive business plan for the restaurant, which should outline their vision, strategies, and financial projections.

Restaurant Buyers should consider how the restaurant operations affect their current lifestyle, whether the spouse supports the decision, and whether they can afford any hardship from the restaurant.

Restaurant Business Broker Tip: The benefit of buying an established restaurant is that the current owner has done the hard work to get the restaurant up and running. Restaurant buyers are provided with Profit and Loss statements and tax returns to understand the strengths and weaknesses of the restaurant operations.

2. Financials ready– It’s common practice for Restaurant Business Brokers to have interested buyers sign a non-disclosure agreement and request proof of funds for certain restaurant listings for sale. This is not always the case. It really depends on the restaurant listing.

When selling a restaurant that is a Franchise, an EATS Broker will request proof of funds that meet the franchisor’s financial requirements, ranging from $100,000 to over $1,000,000. Buyers can send a copy of a bank statement, 401K statement, or letter from a banker.

Potential restaurant buyers who request information on restaurants for sale that don’t have proof of funds ready to send will not be taken seriously by a Restaurant Brokerage.

Restaurant Business Broker Tip: When buying a restaurant, the landlord will request financial information for the new lease or lease assignment approval.

If the restaurant is a franchise, proof of funds will be needed for Franchise approval. When inquiring about a restaurant for sale, buyers should have proof of funds ready to be shared to get more information on the listing.

3. Not understanding restaurant numbers: Restaurant buyers who understand how to analyze a profit and loss statement or tax return usually make better decisions. Restaurant buyers who understand food, labor, and rent costs compared to sales make decisions on financials and usually not emotions.

Restaurant Business Broker Tip: Research the expected ratios for food cost, labor cost, and rents for the restaurant segment you have an interest. Ask the restaurant broker or seller questions if you see odd ratios.

To avoid the three Common Mistakes Restaurant Buyers Make, prospective restaurant buyers should conduct thorough due diligence, seek professional guidance, and develop a well-thought-out business plan.

Additionally, it’s essential to understand the restaurant industry, local market conditions, and the specific challenges and opportunities associated with the restaurant they intend to purchase.

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

Buying a Restaurant with SBA Lending. Things to Know

Buying a Restaurant with SBA lending is a great opportunity for buyers to finance up to 90% of the total acquisition cost. Restaurant Acquisitions are eligible for Small Business Administration (SBA) 7(a) loans, but the process can be time-consuming and requires many supporting documents.

The restaurant buyer’s and the restaurant seller’s financial documents must be approved for bank lending. Both parties have different duties during the due diligence process for SBA bank lending.

Buyer Documents required for SBA lending:

-Last three years of personal federal tax returns and W-2’s

-Copy of Asset Purchase Agreement or Letter of Intent (LOI)

-Business Plan

-SBA Form 1919-collects information about the applicant

-SBA Personal Financial Statement is known as form 413

-Professional Resume

-Credit Authorization for the lender to obtain a credit report

-Business license and registration

-Copy of current commercial real estate lease(if not buying the building)

-Collateral-is needed for most loans but not all

-Proof of Buyer’s Equity Injection 10%-20% required-can be gifted funds if it doesn’t have to be paid back to the original source.

*Depending on the buyer, SBA will only require a 10% equity injection from the buyer. This injection can be made in various ways. The buyer can provide the entire 10% equity or 5% seller financing and 5% buyer down payment.

Seller Documents required for SBA lending:

-Recent three years of business federal tax returns

-Current Profit and Loss Statements and Balance Sheets

-Broker’s Price Opinion or Confidential Information Memorandum

-4506T form-request for transcript of tax return directly from the IRS

-Bank statements can be requested

The U.S. Small Business Administration (SBA) doesn’t provide business loans, but partially guarantees loans that banks and other lenders make to small businesses. By partially guaranteeing the loan, they will eliminate some risk and encourage lenders to make loans to small business owners.

Buying a restaurant with SBA lending is

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

5 Benefits of Buying an Existing Restaurant

The 5 Benefits of Buying an Existing Restaurant have many positive attributes. The current restaurant owner has built a proven business model, established a client base, and gone through the headaches of the initial building-out phase of the restaurant space.

The harsh reality of the restaurant industry is that 60% of restaurants will close their doors in three years. How to improve your chances for long-term success, the Restaurant Broker suggests not going broke on the build-out.

Buyers can learn a lot from the successes and failures of the current restaurant owner. Buyers can ask questions about the restaurant industry without going thru the growing pains.

Dallas Restaurant Broker Dominique Maddox says, “Buying an Existing Restaurant is a cheat sheet to success. The Restaurant Owner provides sales data, vendor relationships, landlord relationships, and stories of success and failures”.

EATS Broker provides a list of benefits of Buying an Existing Restaurant:

1. Employees: An operating restaurant will have trained employees, including cooks. Employees will usually transfer will the sale of the restaurant.
2. Customers: Established Customer base that is familiar with the concept
3. Cash Flow: Restaurants with a positive cash flow provide a paycheck for the buyer.
4. Time to open: Some buyers want to buy an existing restaurant to convert to a new concept.
5. Vendor Relationships: The restaurant owner will provide a list of current vendors. Buyers can decide to use the same vendors or find an alternative.

Buying an existing restaurant eliminates some of the build-out time, stress and anxiety that come along with the process.

EXTRA Benefit 

Bank Lending: A bank will be more willing to lend to a buyer purchasing an existing restaurant than a start-up restaurant concept.

To learn more about EATS Broker consulting services or receive 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

10 Ten Interesting Facts about the Restaurant Industry

It’s easy to find interesting facts about the Restaurant Industry. The National Restaurant Association publishes a Restaurant Owner Demographics Data Brief every year. After reading the March 2022 Data Brief, the Restaurant Broker at EATS Broker picked ten interesting facts.

1. Hawaii (64%), Texas (59%), California (58%), Georgia (55%), Maryland (54%), and the District of Columbia (54%) have the highest proportion of restaurants that are owned by minorities.
2. 63% of adults have worked in the restaurant industry, making it the nation’s training ground
3. 41% of restaurant firms are owned by minorities – compared to 30% of businesses in the overall private sector.
4. 9 in 10 restaurants have fewer than 50 employees
5. 7 in 10 restaurants are single-unit operations
6. 19% of restaurant firms are Asian-owned, 14% are Hispanic-owned, and 9% are Black- or African-American-owned.
7. 9 in 10 restaurant managers started in entry-level positions
8. 2023 Employment Forecast: 500,000 new jobs for total food service employment of 15.5 million
9. 2023 Sales Forecast: $997 billion
10. Restaurants employ more minority managers than any other industry.

Dallas Restaurant Broker Dominique Maddox says, “The U.S. restaurant industry has an enormous impact on how it affects people’s lives. I worked as a Sous Chef at the Alaska Club in Anchorage, Alaska, and as a waiter at Boniface Bingo. I’m forever thankful for my experience working in the Restaurant industry”.

Are you hungry for more exciting facts about the Restaurant Industry? According to Zippia.com:

-45.5% of restaurant owners are women, and 54.5% of restaurant owners are men

-46% of Restaurant Owners are over 40, and 28% are between the ages of 30-40

-49% of Restaurant owners earn a bachelor’s degree

-The average Restaurant Owner is 39

-The most common foreign language among restaurant owners is Spanish at 44.9%. The second-most popular foreign language spoken is French at 10.2%, and Thai is the third most popular at 7.9%.

To learn more about EATS Broker consulting services or receive 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

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.

Why are Asset Sale Restaurants HOT right now

Asset Sale Restaurants are HOT right now because several restaurant owners that need to sell were not profitable in 2022. What is an Asset Sale when it comes to selling a restaurant? An Asset Sale is a restaurant that is not profitable or makes minimal profits.

An Asset Sale is priced for its Furniture, Fixtures, and Equipment (FF&E). Restaurant owners can expect a listing price of 20%-30% of the original cost. Restaurant owners are shocked when they discover that the walk-in cooler, hood system, and other fixtures are not included on their equipment list. Fixtures belong to the landlord and are not sold to the new buyer.

Usually, an Asset Sale will return Restaurant owners only pennies on the dollar of their original investment. Asset Sales prices typically range from $50,000-$300,000 or more. Restaurants with significant leasehold improvement or a good location are easier to sell.

Texas Restaurant Broker Dominique Maddox says, “An Asset Sale is an excellent opportunity for a new buyer to save money on opening a new restaurant. Franchise brands have started looking for second-generation restaurants and Asset Sale restaurants to save money on the build-out cost of opening a location.

Asset Sale Restaurants for sale are piling up on the market, and buyers have a number to sort through to find the right opportunity. When selling a restaurant that is an Asset Sale, the Restaurant Broker must tell the correct “Restaurant Story” to the potential buyer.

What are the WINS for the Restaurant Owner that sells a restaurant that is an Asset Sale

–Selling a restaurant that is not profitable

-Have a chance to get off the lease as the Personal Guarantor sooner than the signed lease expires

-Receive a fraction of the original investment

-No longer have to work in the restaurant

-No longer have to stress about restaurant operations

-No longer have to worry about paying the Restaurant Bills

-No longer have to stress about employee/labor issues

Restaurant Owners, when selling a restaurant as an Asset Sale, you probably will not get the sale price you want. Buyers like buying a profitable restaurant for sale that have solid books and records over an Asset Sale.

The buyer who purchases an Asset Sale is taking a risk if they continue operating the restaurant with the same concept. They will want a discount on the price to take that risk.

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.

Selling your Franchise Restaurant

Are you thinking about selling your franchise restaurant in 2023? We have finished the Holiday season, and now it’s time to get ready to start a new year with new challenges. Some of the most seasoned restauranteurs, managers, and employees exited the restaurant industry in 2022.

The challenges of labor rate inflation, labor shortage, food inflation, and Covid relief funds no longer available will have some restaurant owners ready to sell in 2023. Selling a franchise restaurant has different challenges than selling an independently owned restaurant.

Texas Restaurant Broker Dominique Maddox says, “selling a franchise restaurant is more complex than selling a non-franchise. Regarding Restaurant Franchise Resales, you are dealing with transfer fees, restaurant upgrades required, training requirements, and Franchisor approval”.

Selling a Franchise Restaurant vs. a Non-Franchise restaurant has pros and cons for each transaction. Franchise Restaurants’ popularity keeps growing, and more franchise restaurants are opening daily. Franchise resales usually get more buyer inquiries compared to non-franchise brands.

EATS Broker lists the differences between Selling a Franchise Restaurant vs. Non-Franchise -Pros and Cons.

Selling a Franchise Restaurant: Advantages

• Books and records are usually clean and accurate. Franchise Brands will require Franchisees to have an updated POS Sales System to track sales.
• Restaurant Valuations are usually higher because the multiple ranges from 2.5x-3.25 ex. ($100,000 profit x 2.5 = $250,000 listing price)
• Franchisees benefit from the Franchisor’s trade Name, logo, goodwill, and trademark secrets.
• Landlord approval for a lease assignment or a new lease can be more accessible. Landlords like having franchise brands in their shopping centers.
• Bank lending is more likely to be approved when applying to buy a Franchise Brand.
• Franchisors will provide training support to Franchisees. A Franchise Business Consultant offers ongoing support.

Selling a Franchise Restaurant: Disadvantages

• Franchise Royalties are collected weekly or monthly from the gross sales. Franchise royalties range from 3%-12%.
• National Marketing Fees are collected weekly or monthly from the gross sales. The fee ranges from 1%-5%
• A transfer Fee is required when a current Franchisee wants to sell a restaurant. The fee ranges from $5,000-$50,000, depending on the Franchise Brand.
• Required training for new franchisees can range from 2 weeks-12 weeks. Buyers are usually required to pay for travel and lodging.
• Remodel costs or upgrades can be required before a Franchisee can sell to a new buyer. These costs can range from $10,000-$200,000 or more.
• The Franchisor has to approve the new buyer.
• Preferred Vendors are usually in place, and Franchisees don’t have the flexibility to shop with other vendors.

Selling a Non-Franchise Restaurant: Advantages

• Fewer requirements to get a deal done
• Buyers don’t have extra fees when buying a franchise restaurant, like royalty or marketing fees.
• Don’t have to worry about Franchisor not approving the new buyer
• No training is required before a new buyer can take ownership
• Non-franchise restaurants transactions can closer quickly
• A new buyer can change the concept if the landlord approves

Selling a Non-Franchise Restaurant: Disadvantages

• Books and records have a better chance of not being accurate or don’t exist.
• Landlord approval for a lease assignment or new lease can be challenging if the new buyer doesn’t have restaurant experience.
• Restaurant Valuations are usually lower because the multiple ranges from 1.75x-2.5x ex. ($100,000 profit x 1.75 = $175,000 listing price)
• Training a new buyer is informal and sometimes not enough to ensure the new buyer will be successful. There usually is no ongoing support.
• Non-franchise brands don’t have goodwill and brand awareness.
• Most don’t have systems or manuals for food preparation, operational, staff, or back-of-house procedures.

Which is better depends on the individual that wants to sell a restaurant and the buyer. Both concepts have pros and cons that should be considered when buying or selling a restaurant.

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.

Why do Restaurant Brokers prequalify buyers

Why do Restaurant Brokers prequalify buyers before providing the restaurant name and financials? The answer is simple to protect the confidential information on the restaurant for sale. Restaurant buyers sometimes don’t understand the process of buying a restaurant and what’s involved. Many potential buyers understand they must first sign a Non-Disclosure Agreement (NDA) or confidentiality agreement.

After the Non-Disclosure Agreement (DNA) is signed, restaurant buyers expect instantly to get the name and financials of the restaurant for sale. Buyers sometimes will request a copy of tax returns, profit and loss statements, a copy of a lease, etc. A professional Restaurant Broker should now ask buyers to provide proof of funds once this occurs.

Why do Restaurant Brokers prequalify buyers? The short answer is that only 2% of buyers that inquire about a restaurant for sale will buy. A Restaurant Broker usually must communicate with 60-75 buyers before a restaurant is sold.

Dallas Restaurant Broker Dominique Maddox says, “we prequalify buyers by getting proof of funds in the form of a bank statement, brokerage statement, 401K, or letter from a banker before providing their name, address, and financials on our restaurant listings”.

EATS Broker reasons to qualify a buyer:

• To protect the confidentiality of the listing agreement, limit the number of buyers with the information on the listing.
• Ensure the buyer has enough liquid assets to be approved by the landlord.
• Ensure the buyer has enough liquid assets to be approved by the Franchisor.
• To confirm, buyers can put down 10%-20% for SBA lending

Protecting the confidentiality of our client’s listing is a top priority at EATS Broker. Once the buyer signs the non-disclosure agreement and submits proof of funds, we provide the name and financials of the restaurant for sale.

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

Bring your own bottle (BYOB). Is it good for restaurants?

Bring your own bottle (BYOB) policy can be good for restaurants, but it also has some significant downsides. If a restaurant has a BYOB policy, customers are allowed to bring their alcoholic beverage of choice to the restaurant. Strict licensing requirements and high taxes on alcohol sales have made the idea of restaurant owners to offer a Bring your own bottle (BYOB) popular.

Dallas Restaurant Broker Dominique Maddox says, “BYOB restaurants and bars are popular in Texas; this is a practice not commonly seen in Georgia, where I relocated from last year to Dallas, Texas. The concept of providing customers the freedom to BYOB is growing in cities like Philadelphia, Boston, Phoenix, and Dallas Fort Worth”.

EATS Broker provides a list of the pros and cons of owning a BYOB restaurant:

Pros:

-Does not require a state license to serve liquor (restaurant owners may have a beer and wine license). Restaurant owners can save money by not paying for a full liquor license.

-Can charge a corkage fee, usually, $3-$10 is the average cost, but the cost can go up to $20-35 depending on the city and state.

-Buyers tend to spend more money on food and desserts

-Customers like the freedom to bring their drink

-Can charge for glassware or mixture to compliment their drinks

-There are no statewide BYOB laws in Texas

-Less storage space is needed in the restaurant for liquor inventory

Cons:

-Liquor and cocktails are high-profit margin items on the menu

-When it’s time to sell the restaurant, BYOB concepts can be hard to resell to a buyer that prefers to have a full liquor license.

-Buyers can take advantage of the policy and order minimal food

-The server’s/waiters tips might be affected by lower check averages

-Customers can complain about the corkage fee

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.

How to sell a restaurant? Tell your Restaurant Story

To sell a restaurant, one must first tell  “The Restaurant Story” to the buyer that they believe and want to be a part of the story moving forward. Restaurant buyers want to know the story of the Restaurant and the owner. The “Restaurant Story” explains why, how, and opportunities for continued success to the buyer.

Most restaurant buyers will purchase a restaurant based on the opportunity to make a profit and the Restaurant Story. The most complex restaurants to sell are locations that are losing money or buyers don’t can’t relate to “The Restaurant Story.”

Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers view themselves as part of the story. An experienced Restaurant Broker will explain the Restaurant’s financial, staffing, liabilities, food cost, and startup story to interested buyers”.

EATS Broker “Restaurant Story” Kit Includes:

–         Restaurant’s startup story explains:

1. Why was the Restaurant started?
2. How was the Restaurant started?
3. Who began the Restaurant?
4. Success stories
5. Failure stories-includes opportunities to improve business

–         Financial Picture– Restaurant Profitable or not

–         Liability Picture– Lease terms, franchise terms, UCC lien search, and financing liabilities

–         Staff Concerns

1. Labor Cost and why?
2. Full-time vs. part-time?
3. Legal workers or paying under the table?
4. Employee benefits and perks
5. Longevity of staff members

–         Food Cost Concerns

1. Food Inventory Cost and why?
2. Food ordering system

Franchise Restaurants

– Royalty Fee and Marketing Fee

– Transfer Fee

– Required Training Time

– Store upgrades required by Franchisor

– Franchise has first right of refusal to buy (sometimes)

– Training location

– Years left of Franchise Agreement

Before a Restaurant Owner contacts a Restaurant Resale Specialist for a restaurant valuation or tries to sell by themselves, they should be ready to tell their Restaurant Story!

To learn more about EATS Broker consulting services or receive 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.