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 [email protected]. Visit our website at www.EATSbroker.com.
