Advice from a Restaurant Broker Who Specializes in Selling Restaurants
As a restaurant owner, deciding to sell your business is one of the most significant financial and emotional decisions you’ll ever make. Selling a restaurant is not just a business decision; it’s an essential economic and legal transaction that requires preparation, strategy, and professional guidance. The process is more complex than simply finding a buyer; it involves navigating intricate legal, economic, and logistical hurdles.
At EATS Broker, we know the restaurant business inside and out. To help you prepare, here is the essential knowledge you must have before putting up the “For Sale” sign or listing with a Restaurant Brokerage.
As a restaurant brokerage, EATS Broker has helped owners successfully exit their restaurant businesses while maximizing value and minimizing stress. This blog outlines the essential things every restaurant owner should know before selling a restaurant.
- Know Your Numbers — Buyers Don’t Buy Stories, They Buy Financials
Understanding Your Restaurant’s Value: Key Financial Terms
To negotiate effectively, you must understand how professional buyers and restaurant brokers value your business. The valuation method often depends on the size and structure of your restaurant.
Most restaurant owners overestimate their restaurant’s valuation because they are emotionally and financially invested in the business. Restaurants are typically valued using Seller’s Discretionary Earnings (SDE) or EBITDA, depending on the company’s size.
Essential Restaurant Valuation Terms to know:
Seller’s Discretionary Earnings (SDE) is the primary valuation metric for most small, owner-operated restaurants (often referred to as “Main Street” businesses) with sold values up to $2 million. It represents the total financial benefit an owner-operator receives from the company.
Earnings Before Interest, Taxes, Depreciation, & Amortization (EBITDA) – This is a standard metric used for larger, investor-focused businesses (“Lower Middle Market” with sold values of $2 million to $50 million). It shows the operating performance regardless of financing or accounting decisions.
EBITDA + 1-time expenses – nonrecurring income = (Adjusted EBITDA). This is the proper valuation metric. It “normalizes” your financials by adding back nonrecurring business expenses (like a one-time repair) or subtracting nonrecurring income to show a buyer what the business is truly expected to earn year after year.
Formula Example:
• EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
• Adjusted EBITDA = EBITDA + One-Time Expenses – Nonrecurring Income
• SDE = EBITDA + 1 FT Owner Salary + Discretionary Adjustments
• Which Segment Are You In?
Market Segment Typical Sale Price
Main Street $0 – $2 Million
Lower Middle Market (LMM) $2MM – $50MM
Your financial statements are the foundation of your restaurant’s value. Buyers, banks, landlords, and restaurant brokers will all request:
Documents Needed:
• Profit & Loss Statements (Last 3 Years)
• Tax Returns (Last 2–3 Years)
• Equipment List & Asset Inventory
• Payroll & POS Reports
• Copy of the Lease & Any Amendments
• Business Licenses & Permits
• POS Sales Reports
• Sales Tax Filings
• Balance Sheets
• Credit Card Statements
Time kills deals. Sellers who are organized sell faster and for more money. Those who scramble for documents during due diligence often lose buyers.
Restaurant Broker Tip: If you are an owner-operator, SDE is likely the most relevant term, calculated as EBITDA plus one full-time owner’s salary, adjusted for any discretionary items.
- The Lease Can Make or Break the Deal
In a restaurant sale, the lease is often the most valuable asset and the trickiest part of the restaurant sales transaction. Landlords have become increasingly cautious, making lease transfers more complex than ever.
Key Lease Challenges:
• Assignment and Subletting Clauses: You must thoroughly review your lease’s specific language regarding transferring the lease (assignment) or subletting the space. The process is defined here.
• Landlord Approval: The Sale is contingent upon the landlord approving the new tenant (the buyer). Landlords often lack the incentive to facilitate a smooth transfer because they may prefer negotiating a new lease at higher current market rents. A polished application package from the buyer is essential to satisfy cautious landlords.
• Personal Guarantee Release: This is critical. Many sellers are shocked to learn that their personal guarantee on the lease may not automatically terminate upon Sale. You must negotiate your release, or you could remain financially liable for the buyer’s rent payments long after you’ve closed the deal.
Key Lease Questions to review right now:
• Does your lease allow assignment or subletting?
• Is there a transfer fee?
• Are you personally guaranteeing the lease?
• Can you be released from your personal guarantee?
Restaurant Broker Tip: Do not underestimate the complexity of the lease transfer. You need professional expertise to understand your rights and effectively leverage your position with the landlord. Commercial landlords have become stricter, making lease assignments and landlord approvals a significant hurdle. Many landlords prefer negotiating new leases with higher rent, rather than approving a transfer to your buyer.
- Legal & Due Diligence: Preparing for the Sale
The entire transaction will be governed by a complex legal document called the Asset Purchase Agreement. Preparing for the due diligence process before you go to market will minimize delays and increase buyer confidence.
Critical Legal Components:
• Asset Purchase Agreement (APA): This core document legally defines everything being sold—the assets (equipment, furniture, inventory, intellectual property) and the liabilities (which liabilities the buyer is and is not assuming). EATS Broker only handles deals in which the buyer receives the equipment free and clear of liens. The Escrow Attorney will conduct a UCC lien search to confirm that no liens exist on the equipment list before closing.
• Due Diligence: The buyer will scrutinize every detail of your operation. This includes verifying payroll history, analyzing all your licenses and permits, and ensuring all pre-closing liabilities (like outstanding vendor bills) are addressed. Due diligence mitigates risk for the buyer and, when successful, validates your business’s value.
Expect the buyer to ask for the following documentation outside of your financial information:
- Payroll history
- Licenses and health inspection reports
- Vendor agreements
- Tax liabilities & sales tax records
- Alcohol permits
- Vendor payment history
• Consulting Agreement: This is a standard, often necessary agreement in which you, the seller, commit to consulting with the buyer for a set period after closing. This ensures a smooth transition of operations and knowledge transfer, which is valuable to the buyer. Restaurant Franchise resales usually don’t require any commitment from the seller after the closing. The buyer does the franchise training provided by the Franchisor.
Restaurant Broker Tip: A proactive approach to documentation is key. Get your books in order and be prepared to disclose everything.
- Don’t Try to Sell Your Restaurant Alone-Your Next Step
Selling a restaurant is a full-time job that requires expertise in finance, law, and real estate. Don’t go it alone. By partnering with an experienced restaurant broker, you gain the leverage and knowledge needed to navigate complex lease negotiations, ensure an accurate valuation, and secure a smooth legal closing.
Ready to sell your restaurant? We’re here to help. General business brokers don’t always understand restaurants. EATS Broker specializes only in restaurant sales, giving you the advantage of industry expertise, buyer connections, and knowledge of the transaction pitfalls that most owners never see coming.
Would you like me to connect you with more information on the benefits of working with an EATS Broker?
Final Thought — Timing Matters
The best time to sell a restaurant is when your books are clean, your lease is strong, and buyer demand is high. Even if you’re not ready to sell today, preparing early protects your equity and gives you options.
Thinking About Your Exit?
Let’s schedule a confidential call to discuss your restaurant’s value and next steps.
404-993-4448
[email protected]
visit www.EATSbroker.com for more information on how to buy or sell a restaurant.
EATS Broker – Restaurant Brokerage Firm
Specializing exclusively in selling restaurants across the U.S.