by Dominique MaddoxAugust 10, 2023 Selling a Restaurant0 comments

Selling your Restaurant: What should you know?

Are you selling your restaurant in today’s market? What should you know about selling a restaurant before you start? The Restaurant resale market is much different from the housing resale market. Only 2%-5% of Restaurant Buyers inquiring about restaurants for sale will purchase a restaurant.

Dominique Maddox of EATS Broker thinks restaurant owners are shocked to know the following data:

– Only 30%-40% of restaurants listed for sale will sell to a new buyer.

– Selling a restaurant is like a slower cooker, not a pressure cooker. The process can take 6-8 months when selling a restaurant.

– The Landlord is the KING/QUEEN of the transaction. Without a lease or purchase of the building, a transaction cannot close.

– The biggest between selling a restaurant and compared to residential real estate is that people need a house/shelter to live and survive. People don’t need a restaurant but want a restaurant.

EATS Broker describes additional points to consider when it’s time to sell a restaurant:

Confidentiality: When a restaurant is listed for sale, they are put on sites like BizBuySell.com, BizQuest, Business for Sale, Loopnet, and others. The address is not provided to the general public when selling a restaurant without signing a non-disclosure for most listings.

Experienced Restaurant Brokers will request buyers that want additional information on the restaurant for sale to sign a non-disclosure agreement. The Restaurant Broker at EATS Broker will usually pre-screen buyers by requesting a copy of a bank statement, 401K statement, or Letter from the Bank before providing financials and the name of the restaurant for certain listings depending on the listing price.

Broker Commission is paid by the Seller based on the listing agreement signed by Broker and Seller. When selling a restaurant listed under $1 million, restaurant owners should expect to pay a Restaurant Broker 10%-15% of the purchase price. Once the listing price is over $1 million, Restaurant Brokers tend to use a tier commission structure.

A Restaurant Broker does not get paid a commission on the following items:

-Inventory Cost: The items on the inventory listed included meats, dairy products, liquor, wine, beer, dry products, and frozen products. Inventory includes all the items used to make the food or serve the drinks.

-Security Deposits: Any deposits held by the landlord, vendor, supplier, or misc. source a Restaurant Broker does not get paid a commission on.

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

by Dominique MaddoxJuly 12, 2023 Selling a Restaurant0 comments

How to Grade a Restaurant for Sale

How to grade a restaurant for sale is a good question for a restaurant owner. Since Pre-K, most have been taught to judge performance by our grades. Office Buildings in Commercial Real Estate are placed in one of three categories: class A, class B, or Class C.

A building rating is a national benchmark. Each class is typically based on a general combination of factors, including building aspects, location, rents, and misc. Restaurants for sale do not have a grading system.

If restaurants for sale had a grading system, it would include profitable or not, location, longevity, brand strength, goodwill, and employees. When it’s time to list a restaurant for sale, restaurant owners should have a good idea of the grade of their Restaurant in today’s market.

Dallas, Texas, Restaurant Broker Dominique Maddox says, “ I grade all EATS Broker listings for sale. The Class A restaurants for sale will include strong financials, brand name recognition on a local or national basis, a good location, established business, and substantial goodwill.

The Texas Restaurant Broker provides a grading template for owners to review and think about when it’s time to sell a restaurant.

Class A. Restaurants for Sale

Qualify for SBA bank lending-buyer only has to bring 10%-20% down cash payment
They will have clean books and records that show a sizable profit
The tax returns, profit and loss statements, sales tax filings, and POS sales system will all tell the same story.
The location is usually in a prominent place or well-known location.
The monthly rent structure is less than 10% of gross sales.
It has a brand name recognized locally, state-wide, and sometimes nationwide.
Franchise Restaurants for Sale that are performing well
Restaurant equipment and furniture are in good condition

These restaurants for sale usually come with a trained staff and sometimes with managers in place. The lease terms are generally good and can be transferred to a new buyer.

Class B. Restaurants for Sale

Will not qualify for SBA bank lending.
It shows a profit, but it could be a minimal profit margin.
Clean Books and records
The location sometimes is outside of a highly visible area or desirable area.
The rent percentage could be high, 10%-15% of gross sales
Restaurant equipment and furniture are in good condition
Franchise Restaurants only

-High remodeling cost associated with the transfer

Class C. Restaurants for Sale

Not profitable
Books and records are not organized and show errors.
Restaurants open for less than a year
Restaurants that overspent on the initial build-out cost and want to sell within two years.
Aggressive yearly increases on the lease
The surrounding area can be underdeveloped, less desirable, or not safe
Restaurant equipment and furniture may not be in the best looking condition or need repair

Next time a person thinks about selling a restaurant or buying a restaurant, they should take a minute to think about the EATS Broker grading system and the grade for the Restaurant for sale.

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

by Dominique MaddoxJune 22, 2023 Selling a Restaurant0 comments

When it’s time to sell a restaurant, do you have an Exit Strategy?

When it’s time to sell a restaurant, most restaurant owners don’t have an exit strategy. Some Restaurant Owners think they can sell their Restaurant anytime, like a residential property. The hard fact is that only about 20%-30% of restaurants listed on the market will sell.

Restaurant owners with a plan when it’s time to exit, are usually more successful than those without. An exit strategy consists of clean books and records, updated-looking restaurants, understanding the lease, and knowing the status of the PPP loan, Economic Injury Disaster Loan (EIDL), an SBA loan.

Dallas, Texas, Restaurant Broker Dominique Maddox says, “The lack of exit strategy planning for restaurant owners is common. Most restaurant owners plan to sell a restaurant once an unexpected event triggers them”.

When it’s time to sell a restaurant: Two essential factors to consider:

Do you have an SBA loan, and your restaurant sale proceeds will not cover the balance?

Restaurant Broker advice: Contact your SBA lender to let them know you are selling your Restaurant. Find out your options if the sale proceeds will not cover your loan balance. The lenders usually agree to drop the lien on the assets when the Restaurant is sold to a buyer.

The remaining balance Restaurant owner would have to pay back like a personal loan and would be a personal guarantor on the remaining balance.

Example

Balance owed $200,000.

Sell the Restaurant for $125,000 and receive $112,500 after Broker’s Commission.

Personal Guarantor for $200,000 – $112,500 = $87,500

Do you have an Economic Injury Disaster Loan (EIDL)?

The EIDL loan cannot be forgiven, and the payments usually begin 30 months after the disbursement date. Even if the Restaurant closes, the lender can claim and sell your personal assets. The lender can claim the assets of any individual that signed the loan documentation as a personal guarantor.

Restaurant Broker advice: Know the balance of your EIDL loan. Contact an experienced Restaurant Broker for a complimentary restaurant valuation. Knowing the restaurant valuation will help the restaurant owner understand the potential value of the Restaurant and if it makes sense to try to sell the Restaurant.

by Dominique MaddoxApril 5, 2023 Selling a Restaurant0 comments

4 Worst Decisions when selling a Restaurant

Do you plan to sell a restaurant? What are the worst decisions when selling a restaurant? EATS Broker will provide an inside look at why some restaurant sellers can be disappointed when it’s time to sell a restaurant.

Did you know only 20%-30% of the restaurants listed on the market will sell to a new owner? With the odds stacked against a restaurant owner for success, there are strategies to use to increase the chances of success when selling a restaurant.

Texas Restaurant Broker Dominique Maddox says, “I always ask a restaurant owner before providing a restaurant valuation, how much do you think your restaurant is worth? The response I receive helps me understand the mindset and expectations of the restaurant owner”.

EATS Broker turns down several potential restaurant for-sale listings because of 4 reasons:

Overpriced Restaurant for Sale-Over pricing a restaurant for sale lowers the chances of a

restaurant selling. Buyers are more educated than ever regarding restaurant valuations and multiples used to create a listing price.

Restaurant owners are known to list with Restaurant Brokers or Business Brokers based on the Brokers providing the listing price they want rather than what the restaurant is worth. The practice of putting overpriced listings on the market is common.

This strategy increases the number of days it takes for a restaurant to sell, and qualified buyers will avoid the listing because they are educated about the market.

Being unrealistic as a restaurant owner-Restaurant owners have to understand selling a restaurant is like a slower cooker and not a pressure cooker. It takes an average of 6-8 months to sell a restaurant. Only 20%-30% of restaurants listed for sale will actually sell to a new buyer.

Restaurant owners should know they must be ready to negotiate terms with a ready, able, and willing buyer. Every deal is different, and all deals that go under contract will not close.

Books and records-Buyers are interested in the financials when buying a restaurant and want to check and verify its performance. Restaurant owners with books and records that are not clean, organized, and available to provide to buyers usually will not sell.
List for buildout cost– Buyers don’t buy a restaurant based on the buildout cost. One of the worst decisions a restaurant owner can make is to justify the listing price based on the money spent on the restaurant’s buildout.

The restaurant can easily cost $300,000-$1,000,000 to build out the restaurant before opening the doors and making one dollar of profit. Most improvements to the restaurant’s leased space belong to the landlord because they are attachments to the building.

60% of restaurants close within 1-3 years of opening the doors, and 80% close within five years. A restaurant that is not profitable is listed on the market as an Asset Sale, which gets sold for pennies on the dollar.

Restaurant Broker Tip: Restaurant owners are shocked when they learn they don’t own the hood system, walk-in coolers, and other attachments. Whether the restaurant owner paid for the items during the buildout phase doesn’t matter.

**Don’t go broke on the buildout**

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

by Dominique MaddoxMarch 20, 2023 Selling a Restaurant0 comments

Time to sell your restaurant? How to defend your listing price

When it’s time to sell your Restaurant, how do you plan to defend your listing price? This question is excellent for anyone considering hiring a Restaurant Broker or For Sale by Owner.

It’s easy to think of a random number, list a restaurant for sale, and answer buyer inquiries. Selling a restaurant is like fishing; it’s time to make the catch when a customer is interested (a fish bite).

Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers visualize 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”.

The 3 rules of defending your listing price:

Rule #1

Tell your Restaurant Story: The number one question buyers ask a Restaurant Broker when inquiring about a restaurant for sale is, why are they selling? Once this happens, it’s time to tell the Restaurant Story.

The Restaurant story is the message/description of opportunities that should be provided to the buyer. Buyers want a background of the Restaurant’s current and past operations, growth opportunities, and why the restaurant owners are selling? It’s time to sell the “Sizzle” of the Restaurant to the buyer.

Each Restaurant will have a different Restaurant Story, but the core of the stories will be the same. They will include the total expense of the rent, labor, and cost of goods (COGS); these three categories should be 60%-70% of gross sales.

Rule #2

Clean Books and Records make a BIG difference: Good bookkeeping and accounting help the odds of a restaurant selling. Once the seller and the buyer agree to the terms of the Purchase Agreement, the due diligence process starts.

Buyers will request several financial documents to verify the Restaurant’s operations and profitability.

The documents most requested from buyers include:

-Tax Returns

-Profit and Loss Statements

-Sales Tax Filings

-POS Sales Reports

-Franchise Royalty Reports

-Bank Statements

-W-2s for Owner/Operator or manager replacing an absentee owner

When it’s time to sell a restaurant, owners should check and verify all financial documents tell the same Restaurant Story. A Restaurant Owner can make or break a deal if the financials tell multiple stories. Buyers are looking at financials with suspicion and analyzing every line item.

Restaurant Broker Tip: The Restaurant Owner keeping two sets of books and records or cheating the IRS on tax payments will hurt the chances of your restaurant selling.

Rule #3

Repair and Maintenance-The lack of maintenance in a restaurant can hurt the chance of the Restaurant selling to a new buyer. Buyers will inspect the Restaurant and equipment for flaws and repairs needed.

A neglected restaurant appearance or broken equipment gives a buyer a great reason to reduce the offer price. Restaurant owners should focus on the Restaurant’s presentation before listing a restaurant for sale.

These three rules help any restaurant seller defend its listing price when it’s time to sell a restaurant.

by Dominique MaddoxMarch 8, 2023 Selling a Restaurant0 comments

Top 4 Biggest Myths about Selling a Restaurant

Many restaurant owners share the Top 4 Biggest Myths about selling a restaurant. Selling a restaurant is much different from selling other businesses, and many restaurant owners will only sell a restaurant once in their lifetime.

When it’s time to sell a restaurant, a large percentage of restaurant owners have common misperceptions about the process.

Dallas, Texas Restaurant Broker Dominique Maddox says, “There are NO guarantees when selling a restaurant, and every deal has unique stipulations and obstacles that somebody must overcome. Restaurant owners that believe common myths about selling a restaurant are commonly disappointed”.

The 5 Biggest Myths about selling a restaurant are:

Every deal is the same: Restaurant owners that have bought or sold a restaurant in the past sometimes believe every deal process is the same, and this belief is far from the truth. Each Asset Purchase Agreement has several small details that make a big difference.

Things to consider in each deal:

-Selling a profitable restaurant or an Asset Sale

-Selling a Franchise or non-franchise

-The buyer’s profile

-The landlord approval process

-The Franchise approval process

-Bank lending required or cash deal

-E-2 investor requirements

-Closing Attorney involved

-PPP or EIDL payments owed

-Sales Tax Filings

-Equipment repair requirements

I will receive my asking price: When selling a restaurant, everything is negotiable, but the rent amount is owed to the landlord. The negotiation process between the buyer and the seller will determine the terms of the deal.

Restaurant owners can list a restaurant for sale, stating they want to recoup their equipment purchase price, build-out cost, or loan payoff balance, only to be disappointed. The market will determine the price of your restaurant.

Cash buyers are usually more aggressive in their offer price. Restaurant owners should expect offers at least 10% lower or more than the asking price.

Time to sell a restaurant: The average time to sell a restaurant is 150-165 days, but this is only an average. Only 20%-30%of the restaurants listed will sell to a new buyer, and most restaurants for sale will sit on the market and never sell.

Only 2%-5% of the buyers looking to buy a restaurant will buy. Some deals are more like a slow cooker instead of a pressure cooker. Restaurant Sellers want a quick sale, while some restaurant buyers are not ready for quick closing.

The Landlord is your partner: When dealing with a lease assignment approval from the landlord, some restaurant owners think the process is simple. Most owners have not reviewed the lease document they signed when opening the restaurant, and owners usually do not know what requirements are needed for lease assignment approval.

The Golden Rule when dealing with a landlord is that they are not your friend, and the landlord is looking out for their best interest in collecting future rent. If the landlord has a well-qualified restaurant owner as a lease guarantor, why would they approve a lease assignment for a questionable potential tenant?

The landlord can decide if a deal will make it to the closing table. Should the restaurant owner feel comfortable only in leases that don’t require landlord consent or have written auto-approval language for franchises.

Selling a restaurant can be a complex process. Hiring the right Restaurant Broker and understanding the selling process can make all the difference.

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

by Dominique MaddoxFebruary 27, 2023 Selling a Restaurant0 comments

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.

by Dominique MaddoxFebruary 20, 2023 Restaurants sold, Selling a Restaurant0 comments

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.

by Dominique MaddoxFebruary 16, 2023 Selling a Restaurant0 comments

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.

by Dominique MaddoxFebruary 7, 2023 Selling a Restaurant0 comments

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.**