Preparing to Sell a Restaurant-What you Should Know
The decision to sell a restaurant is the first step and figuring out how to sell a restaurant is the second step. When preparing to sell a restaurant, what should you know before starting the process?
Baby boomers at record numbers are planning to retire and want to sell a restaurant. The preparation to sell a restaurant can start a year in advance, but mostly it happens unplanned or forced to happen.
What makes a restaurant for sale listing attractive to buyers? EATS Broker explains the key factors that make restaurant for sale listings stand out from the crowd.
What makes an excellent restaurant for sale listing?
- Does the restaurant make a profit?– Profitable Restaurants have a greater chance of being sold than unprofitable restaurants. Only 20%-30% of restaurants listed for sale on www.Bizbuysell.com are sold. Restaurants for sale that show a profit stick out from the crowd and make themselves attractive to buyers.
- Has an excellent Restaurant Story– Part of branding for a restaurant is being able to tell the restaurant’s story. The largest Franchise brands in the world make sure that people understand the company’s story.
The Dallas Restaurant Brokers says, “The restaurant’s story is vital to a company’s success. People relate to stories and remember stories. Independent-owned restaurants need to do a better job of telling the restaurant story. I suggest that any restaurant focus on the following points:
- How did the restaurant get started?
- Family-owned business?
- Where did the recipes come from?
- What makes the restaurant different than other restaurants?
- How is the cooking method different?
- Can anybody operate? When selling a restaurant, it should be set up where anybody can handle the restaurant. Several Corporate America refugees are entering the restaurant industry, and most don’t have restaurant experience. How can you sell a restaurant to an individual that doesn’t have experience?
- Create systems and templates
- The restaurant should be easy to operate
- If the restaurant is a Chef-driven concept, make sure to have a Sous chef and replacement chef for the next owner
- Provide training to the new buyer
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
Read More
7 Most Common Restaurant Sale Deal Killers
The most common restaurant sale deal killers are items that are usually out of the hands of a Restaurant Broker. The process to sell a restaurant can feel like a marathon that many participants will have fatigue and not finish the race.
It’s a known fact in the Restaurant Brokerage industry less than 50% of businesses that go under contract will close. Some Restaurant Brokers might advertise hiring closing rates, which could be possible.
The Restaurant Broker at EATS Broker Dominique Maddox said, “some deal killers can be addressed upfront if they are known; it’s the unknown details that kill deals.
How will the landlord, bank, and Franchisor react to the new potential buyer? Did the seller provide all the details? Over my ten years of selling restaurants, I have seen it all”.
Restaurant Broker list of Common Restaurant Sale Deal Killers:
- Landlord- The landlord is the KING for restaurant sale deal killers. The landlord owns the property, and transactions cannot be completed without a lease assignment or lease. A majority of the landlords are simple to work with because they want a guarantee they will continue to receive monthly rent.
- Bank-When a restaurant for sale can qualify for SBA lending, the chances of that restaurant selling increase drastically. That’s the good news; the bad news is that it takes some serious legwork and patience to get a deal to funding.
Banks have several qualifying requirements a buyer must be able to pass. There are many reasons why a buyer may not qualify for lending. Example credit score, lack of liquidity, no collateral or don’t want a lien on collateral, etc.
- Franchisor: Franchise approval is only an issue with Franchise Restaurants for Sale. Franchise resale listings are popular with restaurant buyers, but the buyer has to get approved by the Franchise.
Franchisors have many requirements before they approve a buyer to become a franchisee. If a restaurant is a franchise for sale, the sale cannot be completed without the Franchisor’s approval of the buyer. Franchise resales require the buyer to travel to the Franchisor headquarters for a discovery day.
The Franchise can schedule training in a different state than the restaurant for sale. Buyers are responsible for paying the transfer fee, travel arrangements, and housing accommodations while attending training. The training time can range from 2-8 weeks depending on the Franchise Brand.
- Restaurant Buyer Expectations: Rule #1 Buying a restaurant differs from buying a home. The majority of buyers that purchase a restaurant are first-time buyers and don’t understand the buying process.
Buyer fatigue and misunderstanding is a fundamental reason why some transactions fall apart. The buyer should educate themselves about the buying process and work with a Restaurant Broker thru the process.
- Restaurant Seller Expectations: Restaurant sellers can misunderstand the restaurant sales process. Sellers have to understand that everything is negotiable for a buyer’s offer (except rent terms). Restaurant owners have to be willing to negotiate, provide supporting documentation, be patient, and be trustworthy.
Restaurant sellers have to understand if the documentation they provide to a Restaurant Buyer during the due diligence period doesn’t check out, the buyer might want to submit a counteroffer and renegotiate.
- UCC liens: A UCC-1 financing statement is a legal form that a creditor files to give notice that it has or may have an interest in the personal property. Restaurants for sale should have the ability to sell a restaurant that is free and clear of liens.
The closing attorney will conduct a UCC lien search on the business weeks before closing. If a UCC lien is discovered, the restaurant owner will have to pay the fees before closing or at the closing table.
- Time: It’s a known fact in selling a restaurant that Time Kills deals. The longer the process to sell a restaurant, the greater the deal’s chances of falling apart. Buyer fatigue and seller fatigue become an issue if an agreement is dragged out.
Buyer and seller work off a closing checklist, and both parties must work together to meet deadlines.
To learn more about EATS Broker consulting services or to receive 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.
Read More
Step by Step Process to Buy a Restaurant Franchise
The Step by Step process to buy a restaurant franchise for sale can be a complex process with multiple guidelines, requirements, and documentation to read. Did you know the top restaurant brands have a Checklist that potential franchisees have to complete before they can purchase a Franchise Restaurant Resale?
The Restaurant Resale Specialist at EATS Broker will share information on the step-by-step process to buy a restaurant franchise resale.
Restaurant Broker 6 Steps to Buying a Restaurant Franchise Resale:
Step 1: Asset Purchase Agreement
When buying a restaurant for sale that is a franchise, it’s considered a resale/transfer. The buyer and seller will agree to terms on an Asset Purchase Agreement. Once both parties have signed the agreement and the buyer has deposited the escrow, the approval process with the franchise brand starts.
Step 2: Contact Franchise for Approval
- Submit an inquiry by:
- Inquiries are made online by visiting the company’s website to submit an inquiry
- The buyer will have to fill out a Contact Us form; information usually asked includes:
-Franchise State
-Timeframe for opening
-Liquid Capital to invest
- The Franchise will reach out to potential candidates for an initial conversation
Step 3: Initial Conversation with Franchise
- The Franchise Development Team will reach out to discuss your interest in the brand. This initial call is an excellent opportunity for buyers to ask questions about the brand.
- This conversation usually covers the following topics.
– The buyer’s background
-Familiarity with the Brand
– Current Financial Situation; Liquidity and Net Worth Requirements
-Time frame to buy/open
- Restaurant Franchise Resales-buyers will let the Franchise know that they are buying a Restaurant Franchise Resale and are currently under contract with the seller and the location.
***Most franchise brands Net Worth Requirements are lower for Restaurants for sale than new restaurant openings.***
Step 4. Complete & Submit Required Materials
- Items required for the franchisee approval process:
- Completed Application For a Franchise
- Prospective Franchisee Business Plan
– Plans should include an executive summary, operating plan, marketing, advertising plan, and financials.
- Signed Franchise Disclosure Document (FDD) Receipt
- Validation Documents
Step 4. A
Signed Franchise Disclosure Document (FDD) Receipt
- You will receive a PDF copy of the Franchise’s current FDD for signature.
- The Franchise Disclosure Document should be signed and returned to Franchisor.
- You must receive this Disclosure Document at least 14 calendar days before you sign a binding agreement with or make any payment to the Franchisor or an affiliate in connection with the proposed franchise sale.
- The FDD summarizes a company’s history, business experience, assistance, support, franchisee’s obligations, training, fees, estimated initial investment, financial performance representation, franchise agreement, and other essential information.
Step 4. B
Validation Documents:
- Documents are required for financial validation with your application. The necessary documents can include depending on the Franchisor:
- Photocopy of your ID
- Last 3-6 months of your bank statement – including Checking and Savings
- Pay stubs, W-2s for 2-3 years, or other proof of Income.
- 401Kor other retirement account statements.
- Authorization for Franchisor to complete a background and credit check.
- Discovery Day
- Buyer will fly to the headquarters of the Franchisor
- During the visit, buyers are introduced to the leadership team and representatives of every operational department who will train, support, and assist you as a franchisee.
- Face to face meeting with the decision-makers for franchise approval.
- Buyer should understand this is an interview to see if the Franchisor feels the candidate will be a good fit with the brand.
- Final Decision:
- Franchise Development Team member will contact buyer/candidate with approval.
- Franchisor will draft Franchise Agreement with buyer’s business entity information.
- Restaurant Buyer will sign the agreement and send Franchisor Transfer Fee.
- Franchisor will schedule a required training session for the buyer.
The transfer process can’t be completed until the restaurant buyer completes training. The required training depends on the Franchise Brand, which can range from 2 weeks – to 8 weeks.
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.
Read More
How is Selling a Restaurant like Fishing?
Are you asking yourself how is selling a restaurant like fishing? The best fishers in the world know that they are not guaranteed to catch a fish every time they go fishing. The art of selling a restaurant is a process that is not guaranteed to end successfully for the restaurant owner.
If there were guarantees in fishing, they would call it catching. Fishing can be defined as the activity of trying to catch a fish. Selling a restaurant could be described as trying to catch the RIGHT buyer.
When it’s time to sell a restaurant, the owner needs patience, just like if they were going fishing. It can take an average of 6-8 months to sell a restaurant, and only 20%-30% of all restaurants listed for sale will actually sell.
When fishing, bait is used to attract the fish to bite the hook. When selling a restaurant, the lure is the details about the restaurant for sale to attract buyers.
Dallas Restaurant Broker Dominique Maddox says, “ providing a buyer with the cash flow, gross revenue, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and asking price is the bait to attract a buyer.”
While fishing, a person can get a bite from a fish, and the process of securing the fish starts. The restaurant for sale listing can get multiple inquiries from interested buyers before the restaurant is sold.
The Restaurant Broker at EATS Broker knows it takes talking/emailing to anywhere from 60-75 buyers before finding the buyer that will actually buy the restaurant for sale. Only 2% of buyers looking to buy a restaurant will purchase a restaurant for sale.
Once a qualified buyer has signed the non-disclosure agreement and sent proof of funds to qualify for the listing, and decides to make an offer, the process of getting that buyer to the finish line starts.
Just because a fish bites the hook does not mean fresh fish is for dinner. The fishing line can break, get snagged on debris, or the fish just gets off the hook.
Every buyer that goes under contract for a restaurant for sale does not end in a closed deal. The due diligence period for a buyer and seller would be equivalent to a person struggling with a fish on the hook.
Unlike fishing, the wrestling match between the fish and person fishing is usually done within an hour. When selling a restaurant, the due diligence process is usually 10-30 days for deals under $2 million.
The conclusion in fishing is that you catch a fish, celebrate with a delicious meal, or if you don’t catch a fish, you just have stories to tell.
When selling a restaurant after the deal closes, The restaurant seller gets a check at the closing table, and the Restaurant Broker receives a commission. But if the deal doesn’t close, it’s time to go fishing for the next buyer.
To learn more about EATS Broker consulting services or to receive 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.
Read More
How to Get a Restaurant Ready to Sell
The art of getting a restaurant ready to sell really starts with planning and preparation. Restaurant owners planning to sell a restaurant in 2022, should be in the process of collecting and organizing important supporting documents now.
The New Years is a great time for restaurant owners that are considering selling a restaurant to prepare for the sale. January-April is the busiest months for restaurants for sale to go under contract with buyers.
A large number of people are familiar with the process of getting a home ready to sell, but a small number of restaurant owners understand how to get a restaurant ready to sell.
Dallas Restaurant Broker Dominique Maddox says, “ getting all the items required to list a restaurant for sale can be challenging if the restaurant owner is not prepared and organized.
The best advice is to start collecting all your documentation early, so you are prepared when calling a Restaurant Broker for a free restaurant valuation”.
Restaurant Brokers Checklist for selling a restaurant:
A copy of the lease and all amendments
Three years of Profit and Loss statements
Three years of tax returns
A copy of Furniture Fixtures and Equipment-only items owned by the seller
Franchise Disclosure Document (if franchise)
Copy of Vendor/Supplier List
Copy of Employees with pay rates
One year sales tax filings
Pictures of Front and Back of house
The start of a new year brings new excitement to the idea of entrepreneurship and ownership. Corporate Refugees fuel record buyer demand for entrepreneurship. Buyers are paying record-high prices for restaurants that have continued to perform well during the pandemic.
To learn more about EATS Broker consulting services or to receive 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.
Read More
Steps for first-time restaurant buyer
What are the Steps for first-time restaurant buyers? This question EATS Broker gets multiple times weekly for buyers inquiring about restaurants for sale. Many interested buyers looking at restaurants for sale opportunities will be first-time restaurant buyers.
Many buyers are shocked about the difference between buying a home compared to buying a restaurant. The buying process from purchasing a home to purchasing a restaurant has completely different steps.
The restaurant sales transactions can be more complex where the smallest detail can make the difference from selling a restaurant or a restaurant for sale not selling.
Dallas Restaurant Broker Dominique Maddox says, “I enjoy educating restaurant buyers about the process of buying a restaurant. A big part of my job responsibilities is to educate and help buyers through the restaurant buying process.
The Restaurant Broker at EATS Broker provides a Five Step-by-Step overview of the First time Restaurant Buyer process:
- Research online:Restaurant buyers can get an idea of the inventory available on restaurants for sale in the local market on BizBuySell.com. The site is the internet’s largest business-for-sale marketplace.
Individuals interested in buying an existing restaurant can get preliminary information on the site like price, income, EBITDA, cash flow, gross revenue, rent, and year established.
- Have documents ready to show– When buying a home, the buyers will contact the bank and get pre-qualified before contacting a Real Estate Agent.
Many buyers are shocked when a Restaurant Broker asks for proof of funds before providing the name, address, and financials of a restaurant for sale.
Restaurant Brokers Golden Rule of Thumb
-If the listing is a franchise or over $100,000, a Restaurant Broker will want to see proof of funds (bank statement, 401K, or letter from bank). The franchise requires a certain amount of liquid funds before approving a potential franchisee.
The landlord will want to see proof that the new tenant can afford the lease. There is no need to provide financials to a buyer that can’t qualify.
-The bank statement, 401K statement, or letter from the bank should be within 60 days; close out your account number because a Restaurant Broker will only need to see your name and amount.
- Contact a Business Broker
A majority of the restaurant for sale are listed by a Business Broker or a Restaurant Broker. Buyers are required to sign a confidentiality agreement to access more information about the listing for sale.
A select number of restaurants for sale brokers will provide more information instantly once the non-disclosure is signed. Unfortunately, a large number of the listings will require a buyer to provide proof of funds.
Once non-disclosure is signed and proof of funds, the buyer will get a copy of the package. The package will have the name, photos, financials, details about the lease, and the restaurant’s location.
4. Visit the restaurant
A restaurant buyer gets to visit the restaurant as a customer. Some buyers will want to skip this step and schedule a meeting with the owner to ask questions and tour the kitchen area.
The Restaurant Broker at EATS Broker Tip:
A restaurant buyer should come to the seller-buyer meeting provided with questions. A buyer will learn more about the business and its long-term potential by asking the right questions.
- Evaluate and make a buying decision
During this step, a restaurant buyer will evaluate the information they have received from the seller. The buyer will decide whether to make an offer and the contingencies needed to feel comfortable. The buyer will start the due diligence process if the purchase agreement offer is accepted.
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.
Read More
Restaurant Broker- What I like about the business
Restaurant Broker what I like about the business is a blog written from my viewpoint after being a successful Restaurant Resale Specialist for almost ten years.
I’m currently the Founder and President of EATS Restaurant Brokers, a brokerage firm specializing in selling Franchise Resales, independently owned restaurants, bars, and nightclubs.
The problematic fact about being a Restaurant Resale Specialist is that the average time to sell a restaurant is 6-8 months. The harsh reality is that only about 20%-30% of all restaurants listed for sale will actually sell to a new buyer. Most locations will be closed and returned back to the landlord.
The average survival time for a Restaurant Broker working full-time as a Restaurant Resale Specialist is less than 2 years.
You might be asking yourself, what do I like about the business if everything is negative?
My career as a Restaurant Broker started in 2010; I was told during the interview that it would take 6-8 months before I received a commission. I was broke at the time, but I believed in myself, and I was interested in becoming a franchise resale specialist.
Fast forward to October 2021, and EATS Restaurant Brokers is based out of Dallas, Texas. Our company sells restaurants in over 15 states. We hold a Brokers Real Estate License in Texas and Georgia.
EATS Restaurant Brokers and www.EATSbrokers.com, only established in 2019, have quickly become a popular resource as a franchise resale specialist and restaurant broker nationwide.
What do I like about the business as a Restaurant Broker?
- Affect Peoples Lives– People usually want to sell a restaurant because of personal reasons. When a restaurant owner can sell a restaurant, their personal life is generally affected positively.
The restaurant owner’s life can be draining on an individual’s personal life. Sometimes selling a restaurant will help multiple personal issues, but it can’t solve all problems.
On the buyer side, they have just realized the American Dream of business ownership. Buyers come into restaurant ownership with new energy and commitment to be successful. Buyers are fulfilling a life dream, buying for income, having a family recipe, and etc.
- Selling restaurants in multiple states– Every state requires a real estate license to sell real estate or real property but doesn’t for the sale of a business. Currently, 19 states require a Business Broker to hold a real estate license in the state to sell restaurants; most are located on the West Coast.
EATS Restaurant Brokers sells restaurants in Texas, Georgia, Oklahoma, Iowa, Missouri, Indiana, Ohio, Kentucky, Tennessee, Arkansas, Louisiana, Kentucky, North Carolina, South Carolina, Virginia, and Alabama.
- Eating at Various Restaurants– I’m a self-proclaimed Foodie, so I choose the right industry. Part of my job description is to try several different restaurants weekly. When I’m working with a client or trying to become a franchise resale specialist for a Franchisor, I like to experience the food.
This year I flew to Indianapolis, IN, to visit a client that owns a franchise restaurant and drove to Clark County, OH, to meet with another client and enjoyed some great BBQ.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com
Read More
What restaurant numbers should YOU know?
What restaurant numbers should you know if you own a restaurant or want to buy a restaurant? Every independently owned restaurant is unique, while franchise concepts have common similarities. How do you compare the two different restaurants if you want to buy or sell a restaurant? Analyzing the Financial and Operational ratios is a great starting point.
What numbers should be significant to a restaurant owner that wants to sell a restaurant or a buyer that wants to buy a restaurant? Some key impact ratios compared to annual sales are food, labor, lease cost, and Sales per square foot.
Dominique Maddox, a Restaurant Broker at EATS Restaurant Brokers, says, “when analyzing Profit and Loss statements to provide a restaurant valuation, I always pay cost attention to the critical impact ratios.
The numbers and ratios can help explain the heartburn or opportunity in a restaurant.”
EATS Restaurant Brokers shares RATIOS to consider list:
Food Cost: Food cost as a percentage of food sales (costs/sales) is generally in the 28% to 32% range in many full-service and limited-service restaurants. Ratios can fluctuate depending on the type of restaurant.
Upscale restaurants can range up to 35%-40%, while pizza concepts can range from 20%-25%.
EATS Restaurant Brokers Tip: Food costs seem to always be higher at absentee-owned restaurants than Owner/Operator restaurants. The employees don’t operate the restaurant like an owner that manages the day-to-day operations.
Labor Cost: Payroll cost as a percentage of sales should not exceed 30%-35% of total sales for full-service restaurants and 25%-30% of total sales for limited-service restaurants. This percentage includes payroll taxes, insurance premiums, and other employee benefits.
EATS Restaurant Brokers Tip: Generally, you don’t want to see management salaries, including kitchen managers, assistant managers, and General Managers’ salaries to exceed 10% of gross sales.
Build-out-cost: The sales-to-investment ratio should be at least 1.5 to 1. This means a minimum of $1.50 in sales should be expected for every $1 of startup costs, according to www.Restaurantowner.com.
This means if you spend $300,000 on a restaurant build-out, the location should be able to generate at least $450,000 annual sales. The best restauranteurs know how to keep build-out costs at a minimum to increase the Sales-to-investment ratio.
EATS Restaurant Brokers Tip: Buying an Asset Sale restaurant is an excellent opportunity to save money on the initial build-out cost.
Rent and Occupancy: The ideal range for rent expense is 6% or less of total sales. This ratio includes costs such as common area maintenance (CAM) and other occupancy expenses.
Many operators are satisfied with an occupancy cost of 8% or lower. Once a restaurant owner-occupancy cost reaches 10% or higher, the charges start to deduct from the owner’s net profit.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
Read More
Restaurant Resales are HOT right now
Restaurant Resales are HOT regarding buyer’s demand as restaurant sale prices jump 34% in 2021 compared to 2020. BizBuySell’s Insight Report just released its report for Quarter 2 of 2021. Restaurant resale numbers are showing very promising growth and buyer interest. Restaurant resales headline growth as the buyer market seeks reopening opportunities.
Now with restrictions lifted across most industries, buyers are turning to restaurant acquisitions. Restaurants, specifically, was a sector that was drastically affected by the shutdown is coming back strong. While transactions are up 38% over the same time last year at the height of pandemic lockdowns, they are still 16% below Q2 2019 pre-pandemic levels leaving further room for recovery, according to BizBuySell Insight Report.
The restaurant for sale sector sees growth, with restaurant acquisitions up 17% in the second quarter of 2021. In addition to the bounce back in transactions, sale prices increased 34% versus Q1, tied to a 20% increase in median cash flow, according to BizBuySell Insight Report.
Dominique Maddox of EATS Restaurant Brokers says, “Labor Shortage, former employees seeking independence, and restaurant owners seeking retirement are increasing the number of restaurant acquisitions on the market.”
Restaurant Sellers and Restaurant Brokers will be happy to know that restaurants for sale during quarter two of 2021 had 190 median days on the market compared to 219 days quarter two of 2019. This data shows that restaurants are popular when it comes to buyer demand.
Dine-in establishments are expected to increase in market value as restaurant restrictions are lifted in most states. They are at the same time experiencing pressure for the labor shortage. A majority of restaurants have made tough decisions that have included reducing operating hours, closing for days, or going out of business.
The business-for-sale market continued to make gains in the second quarter of 2021, with closed transactions up 5% over the previous quarter. For bargain hunters, this may signal a closing window of the great opportunities made available a year ago, according to BizBuySell’s Insight Report.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
Read More
How to validate For Sale by Owner sales numbers
How to validate a For Sale by Owner sales numbers can be a challenge for buyers. A For Sale by Owner listing is a person that decided instead of hiring a Restaurant Broker; chose to represent themselves.
People decide to represent themselves as a For Sale by Owner for several reasons: they don’t want to pay a commission, think the restaurant sales process is simple, and lastly, the clueless restaurant owner that educates themselves on Google.
EATS Restaurant Brokers provides 3 Ways to validate For Sale by Owner sales numbers:
1st-Request a copy of Sales Tax Filings–This represents the gross sales amount the restaurant owner reported to the state government. Restaurant owners who keep accurate books and records pay the correct amount owed for sales tax.
Independent-owned restaurants have many restaurant owners who do not report the correct amount of gross sales to reduce their sales tax bill. Restaurant buyers should only look at the amount reported to State Government.
Sales Tax filings amount can fluctuate from state to state. The statewide sales tax rate is 4% in Georgia, but local rates typically vary from 7-8% (4% for state, plus an additional 3 or 4% for local).
2nd-Request a copy of Tax Returns filed with the IRS, confirm tax returns are the correct ones reported to state government. Tax Returns provide vital information regarding the Gross sales and net profit of a restaurant.
Dominique Maddox, a Restaurant Broker for EATS Restaurant Brokers, says, “I would recommend requesting a Request for Transcript of Tax Return(Form 4506-T) form. Filing this documentation allows the buyer or bank to request tax returns directly from the IRS.
I have experienced instances were the tax returns provided to the buyer did not match the tax returns the IRS had on file”.
3rd-Request a copy of the POS Sales report– The POS Sales report can help buyers understand and simplify the restaurant sales breakdown.
4th- Count the number of customers during peak hours– This is the least recommended method for confirming a For Sale by Owner’s financial numbers. Some buyers like to visit and sit around for a while to monitor the customer traffic count and buying habits.
EATS Restaurant Brokers Tips when buying a restaurant from a For Sale by Owner:
- Inspect the equipment during the due diligence period. Confirm that the restaurant owner owns the equipment and is not leasing it or the landlord owns it.
- Make sure the closing attorney does a UCC lien search days before the closing.
- Ask Restaurant Seller to provide a Sales Tax Clearance Letter before closing.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
Read More
