3 Common Mistakes Restaurant Buyers Make
What are the Common mistakes restaurant buyers make when buying a restaurant? The answer is complicated but simple at the same time. There are several common mistakes that potential restaurant buyers should be aware of when deciding to buy a restaurant.
The Restaurant Broker at EATS Broker provides some of the most common mistakes restaurant buyers make based on his experience of selling restaurants for eleven years.
- No Business Plan– The restaurant industry is a lifestyle with financial obligations. Restaurant buyers should have a clear and comprehensive business plan for the restaurant, which should outline their vision, strategies, and financial projections.
Restaurant Buyers should consider how the restaurant operations affect their current lifestyle, whether the spouse supports the decision, and whether they can afford any hardship from the restaurant.
Restaurant Business Broker Tip: The benefit of buying an established restaurant is that the current owner has done the hard work to get the restaurant up and running. Restaurant buyers are provided with Profit and Loss statements and tax returns to understand the strengths and weaknesses of the restaurant operations.
- Financials ready– It’s common practice for Restaurant Business Brokers to have interested buyers sign a non-disclosure agreement and request proof of funds for certain restaurant listings for sale. This is not always the case. It really depends on the restaurant listing.
When selling a restaurant that is a Franchise, an EATS Broker will request proof of funds that meet the franchisor’s financial requirements, ranging from $100,000 to over $1,000,000. Buyers can send a copy of a bank statement, 401K statement, or letter from a banker.
Potential restaurant buyers who request information on restaurants for sale that don’t have proof of funds ready to send will not be taken seriously by a Restaurant Brokerage.
Restaurant Business Broker Tip: When buying a restaurant, the landlord will request financial information for the new lease or lease assignment approval.
If the restaurant is a franchise, proof of funds will be needed for Franchise approval. When inquiring about a restaurant for sale, buyers should have proof of funds ready to be shared to get more information on the listing.
- Not understanding restaurant numbers: Restaurant buyers who understand how to analyze a profit and loss statement or tax return usually make better decisions. Restaurant buyers who understand food, labor, and rent costs compared to sales make decisions on financials and usually not emotions.
Restaurant Business Broker Tip: Research the expected ratios for food cost, labor cost, and rents for the restaurant segment you have an interest. Ask the restaurant broker or seller questions if you see odd ratios.
To avoid the three Common Mistakes Restaurant Buyers Make, prospective restaurant buyers should conduct thorough due diligence, seek professional guidance, and develop a well-thought-out business plan.
Additionally, it’s essential to understand the restaurant industry, local market conditions, and the specific challenges and opportunities associated with the restaurant they intend to purchase.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Restaurant Business Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Selling a Restaurant? Are you ready
When selling a restaurant, owners can make several mistakes that impact the experience. Restaurant Business Brokers sell multiple restaurants a year, while most restaurant owners will only experience selling a restaurant once in their lifetime. Understanding the resale process of restaurants takes years of experience.
When selling a restaurant, business owners should prepare mentally for the restaurant resale process. Restaurant sellers make several common mistakes before and after the restaurant is listed on the buyer market for sale.
Restaurant Broker -Three typical Mistakes restaurant sellers make:
- Unrealistic Expectations about selling a restaurant: Many Restaurant sellers have unrealistic expectations about the resale process. It’s different than selling a home or another business; reselling a restaurant can be challenging.
Nationally, only about 30%-40% of restaurants listed for resale will sell to a new buyer. In Texas, it’s more like only 20% of restaurants listed for sale will sell.
Most restaurants listed for sale will have to close their doors and remove the listing from the buyer market, and the restaurant tenant will give the restaurant space back to the landlord. It takes an average of 6-8 months to sell a restaurant “IF” it sells.
Selling a restaurant business is like a slow cooker, not a pressure cooker.
- Poor Financial Documentation: The fastest way to lose a buyer’s interest is to provide incomplete or inaccurate financial documentation. Sellers who decide to rush to list their restaurant for sale and don’t have good books and records increase the chances of the restaurant not selling.
Depending on the type of transaction, buyers will request several supporting documentation to review and verify. Restaurant sellers should have specific documentation ready for a qualified buyer to check. Time kills deals, and the longer a buyer waits to receive documents, the likeliness of closing the deal decreases.
Dallas Restaurant Broker tip:
Restaurant sellers should have the following documents ready before listing a restaurant for sale:
-Tax Returns 2-3 years
-Profit and Loss Statements 2-3
-Year-to-date Profit and Loss statement within 60 days
-Copy of Lease
-POS Sales Reports
-Monthly Sales Tax Filings
-Balance Sheets
- Inaccurate Restaurant Valuation: This is restaurant owners’ number #1 mistake. Restaurants listed too high will hurt the potential sale; listing too low will leave money on the table.
Getting a restaurant valuation and not just a “WAG” wild-ass guess is critical!
Restaurant real estate brokers can provide a restaurant valuation to give buyers a Broker’s opinion. The Restaurant Broker at EATS Broker provides complimentary restaurant valuations to customers.
After reading this blog, avoiding these mistakes and seeking professional advice and guidance can significantly improve the likelihood of selling a restaurant.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Restaurant Business Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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What is the best time to sell a restaurant?
The best time to sell a restaurant can depend on various factors outside the Restaurant seller’s control. The elements can include specific circumstances of the restaurant business, market conditions, and your personal goals.
The Restaurant Broker at EATS Broker provides some considerations to help you determine the optimal time to sell a restaurant:
Financial Performance is key: The best time to sell a restaurant is when it’s profitable and has good books and records. Potential buyers will be more interested in a profitable restaurant for sale. Ensure your restaurant has a track record of solid revenue, profit margins, and positive cash flow.
Restaurant Broker Tip: The tax returns and profit and loss statements should tell the same financial story. During the due diligence period, buyers will sometimes request financial documentation directly from the IRS on the restaurant.
Market Conditions: Local and regional market conditions can significantly impact the sale of your restaurant. Factors like population growth, demographic changes, and competition can influence the demand for restaurants.
Lease Terms: If your restaurant operates in a leased space, consider the remaining lease term and whether it’s renewable. A long, favorable lease can make your restaurant more appealing to buyers.
Personal Goals: Your own circumstances and goals are essential. If you’re looking to retire or pursue a different business venture, that could be the right time for you to sell. Additionally, consider factors like your health and life events.
Seasonality: If your restaurant has a seasonal aspect, such as a beachfront location, the best time to sell may be at the end of a successful season.
Market Trends: Keep an eye on industry trends and consumer preferences. Selling while your restaurant aligns with current trends can be advantageous.
Brand Reputation: A strong brand and positive reputation can enhance the value of your restaurant. Selling when your restaurant is highly regarded in the community can lead to a better deal.
Financial Documentation: Ensure your financial records and tax returns are in order. Buyers will want to see accurate financial data before making an offer.
Consult with Professionals: Seek advice from professionals like business brokers, accountants, and attorneys who specialize in restaurant sales. They can provide insights into the current market and guide you through the selling process.
Exit Strategy: Plan your exit strategy well in advance. Selling a restaurant can take time, so start preparing at least a year or two before you intend to sell.
Ultimately, the best time to sell a restaurant will vary depending on your specific circumstances and the condition of your business. It’s essential to conduct a thorough assessment and seek professional guidance to determine the optimal timing for selling a restaurant.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Restaurant Business Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Thinking about selling a restaurant
When restaurant owners are thinking about selling a restaurant, it’s essential to approach the process thoughtfully and strategically. Every Restaurant owner has a different story about why they want to sell a restaurant, but some things are expected.
The restaurant business broker at EATS Broker provides steps to consider when thinking about selling your restaurant:
Determine Your Why: First, consider why you want to sell the restaurant. It could be due to financial hardship, health issues, personal issues, partnership disputes, or a desire to retire from the restaurant industry. Understanding your motivation will help guide the selling process.
Evaluate your Restaurant: Review the current financial health of your restaurant, including revenue, expenses, and profitability. Potential buyers will want to review your financial records. Restaurants that have accurate and up-to-date financials sell at a higher rate.
Prepare Documentation for sale: Gather all relevant documents, including financial statements, tax records, lease agreements, and any licenses or permits related to the restaurant. Having organized and complete Documentation will make the sale process smoother.
Dallas, Texas, Restaurant Broker Dominique Maddox says, “Getting an accurate restaurant valuation at the start of the restaurant selling process is critical. Selling a restaurant business can be challenging, and it takes an average of 6-8 months to sell a restaurant. Listing a restaurant for too high can negatively affect a restaurant for selling to a new buyer.”
Determine the Restaurant’s Value: This step determines the asking price for the restaurant. Restaurant owners can get a professional restaurant valuation through a professional business appraisal or by working with a business broker specializing in restaurant sales, like EATS Broker.
Market the Restaurant: Create a marketing plan to reach potential buyers. This will include listing your restaurant for sale online, working with a Restaurant Broker, and promoting the listing through various sales channels.
Qualifying Buyers: Screen potential buyers to ensure they are financially qualified and serious about the purchase. This will save you time and effort in dealing with unqualified buyers. When working with a Restaurant Brokerage, they will do all the screening for you.
Negotiate Terms: Once you find a potential buyer, negotiate the terms of the sale, including the purchase price, payment structure, and any contingencies.
Legal and Financial Due Diligence: Both you and the buyer will need to conduct due diligence to verify the accuracy of the information provided. This includes reviewing financial records, lease agreements, and other legal and financial aspects of the transaction.
Close the Sale: Once all terms and conditions are met, finalize the sale by signing the necessary legal documents and transferring ownership of the restaurant to the buyer. After the sale, work with the buyer to ensure a smooth transition. This may involve training the new owner and helping them adapt to the restaurant’s operations.
It’s essential to work with professionals like restaurant brokers, attorneys, and accountants to navigate the complexities of selling a restaurant. The process can take time, so patience and careful planning are essential. Be open to negotiations and stay flexible to reach a successful sale that benefits you and the buyer.
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
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EATS Broker attends Black Franchise Symposium and Trade Show in Dallas, Texas
The President and Founder of EATS Broker Dominique Maddox attended the September African American Franchise Symposium and Trade show in Dallas, Texas. The event made history as the FIRST-EVER Black Franchise Symposium and Trade Show in the United States!
The event was held at Yum! Corporate Campus located in Plano, Texas. The Symposium was filled with powerhouse individuals in the Franchise Industry.
EATS Broker was the only Restaurant Broker at the event. EATS Broker was an exhibitor for the Trade Show and had a table in the exhibitor hall. Various Franchise Brands, like KFC, Smoothie King, and others, were at the event.
Dallas Restaurant Broker Dominique Maddox says, “ It was important for me to attend the augural African American Franchise Symposium and Trade Show. Representation and diversity matter in the Restaurant Brokerage industry”.
EATS Broker specializes in Restaurant Brokerage, which includes restaurants for sale, bars for sale, nightclubs for sale, franchise restaurants for sale, non-franchise restaurants for sale, and commercial real estate.
EATS Broker was founded in October 2019. Restaurant Broker Dominique Maddox started the company to change the status quo of the Restaurant Brokerage Industry and bring diversity.
EATS Broker sells restaurants in multiple states. The Restaurant Brokerage helps restaurant owners maximize their sale price when they’re ready to sell a restaurant.
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
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EATS Broker sells Bobby V’s in Arlington, Texas
Dominique Maddox of EATS Broker sells Bobby V’s Sports Gallery Café located at 4301 S Bowen Rd, Arlington, TX 76016. EATS Broker represented the seller in the transaction.
Bobby V’s is one of the oldest sports bars in Arlington, TX, established in 1985 by former Texas Rangers head coach Bobby Valentine. Bobby V’s is a landmark location in Arlington, Texas, half sports bar, half sports museum, with over 50 TV’s.
The new owners will be only the third group to own Bobby V’s Sports Gallery Café. They plan to keep the concept the same, while making upgrades to the building. The business has averaged over $1.6 million in sales for the past five years, the new owners expect to increase sales by offering new specials.
Dallas, Texas Restaurant Broker Dominique Maddox of EATS Broker says, “while growing up as a sports memorabilia fan, I could have never thought about selling a location like Bobby V’s. I’m thankful the children of the former owner gave EATS Broker an opportunity.
EATS Broker is based out of Dallas, Texas. Our Restaurant Brokerage sells restaurants in over 15 states located in the South and East Coast.
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@eatsbroker.com. Visit our website at www.EATSbroker.com
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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
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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
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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.
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
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Buying a Restaurant with SBA Lending. Things to Know
Buying a Restaurant with SBA lending is a great opportunity for buyers to finance up to 90% of the total acquisition cost. Restaurant Acquisitions are eligible for Small Business Administration (SBA) 7(a) loans, but the process can be time-consuming and requires many supporting documents.
The restaurant buyer’s and the restaurant seller’s financial documents must be approved for bank lending. Both parties have different duties during the due diligence process for SBA bank lending.
Buyer Documents required for SBA lending:
-Last three years of personal federal tax returns and W-2’s
-Copy of Asset Purchase Agreement or Letter of Intent (LOI)
-Business Plan
-SBA Form 1919-collects information about the applicant
-SBA Personal Financial Statement is known as form 413
-Professional Resume
-Credit Authorization for the lender to obtain a credit report
-Business license and registration
-Copy of current commercial real estate lease(if not buying the building)
-Collateral-is needed for most loans but not all
-Proof of Buyer’s Equity Injection 10%-20% required-can be gifted funds if it doesn’t have to be paid back to the original source.
*Depending on the buyer, SBA will only require a 10% equity injection from the buyer. This injection can be made in various ways. The buyer can provide the entire 10% equity or 5% seller financing and 5% buyer down payment.
Seller Documents required for SBA lending:
-Recent three years of business federal tax returns
-Current Profit and Loss Statements and Balance Sheets
-Broker’s Price Opinion or Confidential Information Memorandum
-4506T form-request for transcript of tax return directly from the IRS
-Bank statements can be requested
The U.S. Small Business Administration (SBA) doesn’t provide business loans, but partially guarantees loans that banks and other lenders make to small businesses. By partially guaranteeing the loan, they will eliminate some risk and encourage lenders to make loans to small business owners.
Buying a restaurant with SBA lending is
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
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