By Restaurant Broker Dominique Maddox, CBI, CFE
Founder & President, EATS Broker
www.EATSbroker.com
Restaurant Broker Tips for Turning a Loss Into an Opportunity
Is your restaurant not hitting its stride? Are the liabilities stacking up faster than the reservations? The conventional wisdom—to “wait it out” and turn the business around before selling is a myth that can cost you thousands. In today’s dynamic market, you can absolutely sell a restaurant that is losing money, and often, you should sell it now.
In today’s restaurant market, buyers are actively searching for 2nd-generation restaurant locations, used equipment, and conversion-ready spaces they can quickly brand with their own concept. A restaurant that is losing money still has value, but it must be marketed as an Asset Sale rather than a cash-flowing business.
At EATS Broker (www.EATSbroker.com), we specialize in these high-stakes sales, often referred to as Asset Sales. The key is understanding what you are truly selling and how to package it for the perfect buyer.
What is an Asset Sale, and Why Sell Now?
A restaurant losing money for the current operator is sold as an Asset Sale. You are not selling a cash-flow positive “job” or income stream; you are primarily selling the used equipment, the Location, and the lease opportunity. Used equipment is usually sold for pennies on the dollar of new equipment.
The Critical Timing Factor
When a concept isn’t working, time is your most expensive enemy. Every month you delay, more rent accrues, and your financial hole deepens. The most critical aspect of this scenario is speed. An asset sale is your fastest path to:
- Stop the Bleeding: Immediately halt mounting operational losses.
- Eliminate Lease Liability: Get out of the burdensome long-term lease obligations.
- Quick Turnaround: Move the deal to a close before you run out of capital.
Why Asset Sales Help Restaurant Owners Exit Quickly
- Stops monthly losses before they stack up. The landlord will lock the tenants out of the property if they get too far behind in rent. The landlord will then market the Location to new tenants, fully equipped.
- Helps owners avoid future lease obligations. Landlords require personal guarantors on the lease; restaurant owners should understand the commitments they have under the lease and how to get out of them.
- Gives buyers a faster path to opening a new concept. Building out a new restaurant space, the unknowns are the challenges that can drive up build-out costs. Taking over a location that already has a hood system, walk-in cooler, grease trap, plumbing, etc., saves money.
- No business financial performance is required from the sellers, as it will be redefined under a new concept. Sometimes, if a company is losing money, the buyers will keep it the same; in this case, the financials will need to be provided to the buyers for review.
- Buyers can rebrand and reopen in weeks, not months, if converting to a new concept. If they keep the idea the same, they don’t have to close.
Restaurant Broker Tip: In many cases, selling an asset sale NOW is better than waiting for bankruptcy or lease default.
The Power of the “Second-Generation Restaurant Space”
One person’s loss is another’s strategic advantage. Creative restaurant buyers are actively seeking second-generation restaurant spaces that were once operational restaurants. Why? Because they offer a shortcut to success that drastically reduces the initial investment and time-to-market.
Benefit for the Buyer: Why It Saves Time and Money
Existing Infrastructure All the “bones” are there: grease traps, hood systems, ventilation, plumbing, and restrooms. Installing these from scratch in a new space is the most expensive and time-consuming part of a build-out.
Permitting & Zoning The Location is already zoned and permitted for restaurant use, which eliminates months of regulatory hurdles and uncertainty.
Equipment Transfer: Acquiring your used equipment (even if it’s “used”) saves them the cost and lead time of ordering new, which is a significant capital expense.
Quick Concept Conversion: A buyer can purchase your assets, rebrand, adjust the menu, and have their new concept open in a fast turnaround time, often in weeks instead of months (or a year) for a new build.
Restaurant Broker Tip: By emphasizing your Location as a valuable, turn-key second-generation restaurant space, you instantly make your asset sale a beautiful business opportunity for an ambitious new owner.
Maximizing Value: The Asset Sale Checklist
Even without positive cash flow, your business has sellable value. Sophisticated buyers need proof of that value. Prepare the following documentation to maximize your return and attract a serious buyer:
- 1. The Equipment List: This is the most critical document. Develop a comprehensive list of all Furniture, Fixtures, and Equipment (FF&E) that transfers with the sale. Include model and serial numbers for significant assets valued over $5,000 (like ovens, walk-ins, and POS systems) to prove their residual value.
- 2. Lease Documentation: Provide a full copy of the current lease. Buyers are purchasing the right to take over this lease. Highlighting an under-market lease in an up-trending market is an opportunity that can and should be factored into the pricing equation. Crucially, the successful sale of your assets and the transfer of the lease are what get the seller out of the ongoing lease obligations.
- 3. Financial Data (Sales): While they aren’t buying current profitability, buyers need insight into the Location’s potential. Be prepared to provide at least two years of monthly sales data. This proves the history of customer traffic and revenue capacity in that physical space, even if your concept failed to capitalize on it.
- 4. Ongoing Obligations: Provide copies of any remaining obligations that the buyer will be assuming, such as POS rental agreements or equipment leases.
- 5. Franchise Disclosure Document (FDD)-When selling a restaurant that is a franchise, the buyer will want to know the terms of the franchise agreement.
Two Types of Restaurant Sales
Restaurant Situation : What You’re Actually Selling : How It’s Priced
Cash-flow Positive job / income Based on SDE or EBITDA
Losing Money Assets + Location Based on equipment & lease
Both can sell, but they require different marketing strategies.
How Much Is My Restaurant Worth If It’s Losing Money?
You may not be selling cash flow, but you are selling something valuable:
- Location
- Lease terms
- Equipment
- Build-out cost avoidance
- Market potential
Even if today’s concept failed, the space may be perfect for another menu, brand, or operator. One restaurant’s failure is another owner’s opportunity.
Ready to Sell a Restaurant That’s Losing Money?
If your restaurant is struggling, don’t wait until the lease or debt becomes unmanageable. You may have more value than you think — but timing is critical.
Let’s talk confidentially about your options.
Visit www.EATSbroker.com
Or email [email protected]