What are the most demanding Restaurants to Sell
The most demanding restaurants to sell fall into three categories. Chef-driven restaurants, BBQ restaurants, and unprofitable restaurants or new openings. All three types of restaurants present considerable challenges when it’s time to sell a restaurant.
The cold hard fact is that only 30%-40% of restaurants listed for sale will sell to a new buyer. Some restaurant concepts are much easier to sell than others, depending on the skill level required.
Restaurant owners can improve their chances of selling if they understand the obstacles they will face while selling a restaurant.
Texas Restaurant Broker Dominique Maddox says, “ when a buyer is thinking about purchasing a restaurant for sale, they should think about an exit strategy. Concepts like pizza restaurants, sub sandwich restaurants, or ice cream concepts have a large ready, able, willing buyer pool looking to buy.
Restaurant Broker list of challenges to selling a restaurant in each concept:
Cons: Chef-Driven Restaurants: Are usually started by a trained Chef
-The majority of restaurant buyers looking to purchase are not trained, Chefs
-The restaurant is usually branded with Chef’s name and goodwill
-Some locations don’t have a trained Sous Chef
-The consistency of the food can be a problem
-Most will not have recipes documented
Cons: BBQ Restaurants:
–The skill level required to produce an excellent product can be high
-Some cultures don’t eat pork products, so they would not be interested in buying a BBQ restaurant
– Everybody does not want to be a pit master
-Time required to cook meats
– Most will not have recipes documented unless it’s a franchise
Unprofitable restaurants or new openings- The most common phrase from Restaurant Owners is, “I just want my buildout cost or original investment back” it sounds good, but it’s not that simple.
Cons: Unprofitable Restaurants
-Not making money-buyers mainly want profitable restaurants
-Can be considered risky
-Buyers are more cautious when buying restaurants that are not profitable
-Most times, limited books and records are provided
-The new buyer will assume lease obligations
-Buyer is purchasing used equipment and leasehold improvements
Cons: New Buildout-open less than one year (Seller usually doesn’t get original build-out cost back when selling)
-Tenant is usually responsible for obtaining a Certificate of Occupancy (CO)
-Many restaurant owners go over the original buildout cost
-Can take an extended time to open depending on supply and demand for supplies and contractors
-The “unknown” cost associated with a new buildout
-Tenants can be responsible for the following build cost before opening the doors
Installing a Hood System
Installing a Grease Trap
Installing new plumbing
Installing sinks
Building out bathrooms
Building outside seating
Installing walk-in coolers
-First, all Restaurant Sellers should understand that the landlord owns all leasehold improvements that are fixtures.
-Restaurant Valuations for new build-out locations is a challenge for a Restaurant Broker
**These restaurant segments were chosen from past experiences after 11 years of being a Restaurant Broker and specializing in selling restaurants only.**
For more information on the restaurant market and other available consulting services or complimentary restaurant valuations, contact Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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3 Types of Restaurants for Sale
The start of a new year brings an increase in the inventory of listed restaurants for sale. There are three types of Restaurants for Sale that buyers will find on the market. The difference between the three types of for-sale methods is how they are listed.
– Restaurants for Sale by a Business Broker or Restaurant Broker
-Franchise Restaurants for Sale by Franchises
– Restaurants for Sale by Owner
Restaurant Broker Dominique Maddox says, “sellers should understand the pros and cons of each method of listing a restaurant for sale. The resale of a restaurant is much different than operating a restaurant or selling a new franchise unit”.
EATS Broker discuss the Pros and Cons of these methods to Sell a Restaurant:
Restaurants for Sale by a Business Broker or Restaurant Broker- The difference between Broker types is that a Restaurant Broker specializes in selling restaurants, bars, and nightclubs. Business Brokers usually will have many different concepts for sale, for example, car wash, dry cleaners, etc.
Restaurant Brokers understand restaurant valuations, Franchise Resale process, and SBA lending requirements and have a team of professional vendors to help close deals.
On a day-to-day basis, Restaurant Brokers view restaurant Profit and Loss statements, tax returns, and balance sheets, read restaurant leases, and prequalifying buyers.
Experienced Restaurant Brokers are a valuable resource to a restaurant owner that wants to sell a restaurant.
CONS: Business Broker/Restaurant Broker will charge a commission of 10%-15% and require an exclusive listing agreement for 6-12 months.
Franchise Restaurants for Sale by Franchises
Franchise Brands are great at selling a new unit to a Franchisee but need help with reselling a franchise. Most Restaurant Franchises cannot help franchisees ready to exit the franchise system.
Restaurant Franchisors are in a challenging position trying to provide Restaurant Valuations to current franchisees. Franchise Brands have a Franchise Development Department but will not have a Restaurant Exit or Restaurant Brokerage department.
Buyers will find that some Franchise Restaurant brands will try to handle the resell process, and franchises will list their resales for sale and follow up with buyer inquiries.
Cons: The Franchise Brands represent their company’s best interest and not the seller or buyer. Restaurant owners should understand how the franchise will help with the resale process. Restaurant owners should have a legal team review all documents.
Restaurants for Sale by Owner:
Buying a Restaurant for sale by Owner can be challenging for a buyer. For Sale by Owner, listings are increasing and becoming more popular. The great news is buyers have more inventory on the market than buy and consider. The bad news is that For Sale by Owner, listings can be regarded as risky!
CONS:
Sales numbers can be hard to validate– some restaurant owners have creative accounting systems that the IRS does not know about. Buyers should use caution when verifying sales data provided by the seller.
Equipment-buyer should confirm who has the title to the equipment. The restaurant equipment can be owned by the landlord, have a UCC lien, or be leased.
Finding out the truth-Dealing directly with an owner/seller can make it hard to get the truth. There is no independent third party verifying or analyzing the information.
The old saying is, “buyers lie, and sellers lie too.”
Restaurant Broker advice: Request Tax Returns directly from the IRS and Sales Tax Receipts. Confirm that total sales numbers match.
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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How to sell a restaurant? Tell your Restaurant Story
To sell a restaurant, one must first tell “The Restaurant Story” to the buyer that they believe and want to be a part of the story moving forward. Restaurant buyers want to know the story of the Restaurant and the owner. The “Restaurant Story” explains why, how, and opportunities for continued success to the buyer.
Most restaurant buyers will purchase a restaurant based on the opportunity to make a profit and the Restaurant Story. The most complex restaurants to sell are locations that are losing money or buyers don’t can’t relate to “The Restaurant Story.”
Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers view themselves as part of the story. An experienced Restaurant Broker will explain the Restaurant’s financial, staffing, liabilities, food cost, and startup story to interested buyers”.
EATS Broker “Restaurant Story” Kit Includes:
– Restaurant’s startup story explains:
- Why was the Restaurant started?
- How was the Restaurant started?
- Who began the Restaurant?
- Success stories
- Failure stories-includes opportunities to improve business
– Financial Picture– Restaurant Profitable or not
– Liability Picture– Lease terms, franchise terms, UCC lien search, and financing liabilities
– Staff Concerns
- Labor Cost and why?
- Full-time vs. part-time?
- Legal workers or paying under the table?
- Employee benefits and perks
- Longevity of staff members
– Food Cost Concerns
- Food Inventory Cost and why?
- Food ordering system
Franchise Restaurants
– Royalty Fee and Marketing Fee
– Transfer Fee
– Required Training Time
– Store upgrades required by Franchisor
– Franchise has first right of refusal to buy (sometimes)
– Training location
– Years left of Franchise Agreement
Before a Restaurant Owner contacts a Restaurant Resale Specialist for a restaurant valuation or tries to sell by themselves, they should be ready to tell their Restaurant Story!
To learn more about EATS Broker consulting services or receive a complimentary restaurant valuation, contact Dallas 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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Restaurant Sellers vs. Restaurant Buyers-Different Mindsets
Restaurant Sellers vs. Restaurant Buyers have different mindsets when it involves buying or selling a restaurant. When a restaurant owner decides to sell a restaurant, the primary goals are to get the highest sales price, highest net proceeds, remove the lease as a guarantor, and close quickly.
A restaurant buyer’s focus differs slightly from the sellers and is directly focused on the terms, conditions, and stipulations on an Asset Purchase Agreement.
An asset purchase agreement between a buyer and a seller explains the terms and conditions related to purchasing and selling a restaurant‘s assets. The Asset Purchase Agreement will automatically satisfy the restaurant owner’s needs when filled out correctly. The agreement will document the listing price and closing date.
The restaurant buyer needs to confirm that they are comfortable with the conditions and terms of an Asset Purchase Agreement before signing and setting up an escrow account. The escrow deposit is a good faith deposit that can range from $10,000-$50,000. The buyer’s deposit is protected by the stipulations documented in the purchase agreement.
Dallas Restaurant Broker Dominique Maddox says, “restaurant buyers should make sure they have a trained Restaurant Broker prepare an Asset Purchase Agreement on their behalf. A Restaurant Broker knows the stipulations to add that give the buyer’s escrow deposit the most protection.”
EATS Broker has encountered several buyers that have lost their escrow deposit because they had an untrained Restaurant Broker prepare an agreement for them.
A restaurant buyer should make sure to cover the basics of a Purchase Agreement:
- Due Diligence Period
- Landlord Approval Stipulation
- Bank Lending Approval-if lending is needed
- Escrow Deposit Amount
- All UCC liens should be removed from Equipment
- Sales Tax Clearance letter supplied by the seller before the closing date
- All Equipment should be in working order
- Franchisor Approval stipulation-if restaurant is a franchise for sale
- Who pays for the Transfer Fee?
- Who pays for restaurant remodels if required by franchise?
- Closing attorney contact information
- Restaurant Equipment included in the sale
- Inventory- paid outside of purchase price or included in offer price
For more information on the restaurant market and other available consulting services or restaurant valuations, contact 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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Commercial Lease is it an Asset or Liability?
Your current commercial lease is it an Asset or Liability? Most Restaurant Owners find a restaurant for lease and sign a commercial lease before they open their restaurant unless they are buying the building. The sad truth is that a large number of restaurant owners never really read the lease they signed, don’t understand the lease, can’t find the lease, and have no clue about the effect the lease has on their chances of selling in the future.
Restaurant Owners across the nation have to decide if they should reopen and operate, close the doors for good, or try to sell. Restaurant Valuations are not only about sales and profits, but a big factor is also if the lease is an Asset or Liability.
Dominique Maddox Founder and President of EATS Broker says, “ My biggest headaches and heart burns have been with the lease approval or language in the lease, this affects how marketable a restaurant is to another buyer.” One of the biggest secrets in Commercial Real Estate is that the landlord is not your companion and the lease is written to benefit the landlord.
EATS Broker provides lease negotiations consulting to clients. Find some of the keys points we found in a recent lease we reviewed for a potential seller that was in the process of renewing the lease.
- Radius-In the event that during the Lease Term either Tenant, or Tenant’s management, or any person or entity controlled by Tenant, or controlling tenant, or controlled by the same person or entity or persons entities who control Tenant, directly or indirectly, owns, operates, is employed in, directs or serve any other place of business, which is (i) the same, or similar to, or competitive with, Tenant’s business as set forth herein, (ii) with a radius of five (5) mile from the outside boundary of the shopping center.
EATS Restaurant Brokers recommendation: Change the radius to 1 mile, this will allow you to open another restaurant in the future within 2-5 miles from your current location.
- Assignment or Subletting-Tenant shall pay an “Assignment Administrative Fee” of $5,000 and shall not have to reimburse the Landlord for all out-of-pocket expenses.
EATS Restaurant Brokers recommendation: Reduce fee to $1,000 because if you have a buyer for your location you would have to pay the landlord $5,000 for a lease assignment when 75%-80% of landlords do lease assignments for free
- Relocation of the Demised Premises- If Landlord determines that it is necessary or desirable that Tenant vacate the Demised Premises or that the Demised Premises be altered, Landlord may require that Tenant surrender possessions of the Demised Premises to the landlord, in its sole and absolute discretion.
EATS Restaurant Brokers recommendation- Language needs to be removed from the lease. The landlord has the option to uproot you and relocate you without your permission.
- Exclusive use: Landlord will not lease space in the Shopping Center to a tenant (herein “Competing Use”) whose primary use shall be the sale of fresh-squeezed juices and smoothies(herein “Competing Use”). For purposes of this provision, use is primary when more than fifty percent (50%) of such tenant’s Gross Sales are derived from the Competing Use.
EATS Restaurant Brokers recommendation: Your current lease does not protect you from another concept opening up in the same shopping center with gross sales of up to 49% for Fresh squeezed juices and smoothies. Request exclusive on Fresh squeezed juices and smoothies or other businesses cannot have more than 10% of the tenant’s gross sales.
For more information on the restaurant market and other available consulting services or restaurant valuations, 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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5 Things Sellers should consider with the lease assignment
5 Things Sellers should consider with the lease assignment:
The best day of a Restaurant owner’s life in the business world is usually when they first open the doors to their restaurant! The Restaurant Industry can be a tough business and the second-best day for a Restaurant Owner is usually when they sell the restaurant. When it’s time to sell, the business owner will prepare docs to provide to a potential buyer and review the lease signed with the landlord.
Most Restaurant owners have to dusk off the original lease and review what obligations they have to the landlord, some don’t have a copy of the lease at all. A commercial lease can range from 1-90 pages or longer and contain some very specific language that can make it challenging for lease assignment approval.
Here are the top 5 issues a Restaurant Broker will find in a lease:
The Personal Guarantee:
Landlords want a blanket guarantee over the entire term of the lease, even if the seller completes a sale with a buyer. Someone buying or selling a restaurant should fully understand their obligations when it comes to a personal guarantee, and the financial obligations that come with the agreement. This clause allows the landlord to come after the original tenant’s personal assets long after they have sold their business if the current tenant defaults on the monthly rent. This is very important to negotiate upfront with the landlord so no surprises will come up when it’s time to sell.
Consent to Transfer:
As a restaurant broker interacting with landlords every single day on lease assignments, this clause can be very misleading. Landlords will write the vague language in the lease usually like “Shall not unreasonably withhold” or “Shall not unreasonably withhold” or “Same net worth as current”. This gives the landlord total control of who they will approve for the lease assignment. The lease needs to have specific, measured steps with a timeline in the event you ever transfer the store when leasing a restaurant.
Assignment Fee:
Landlords usually will have a legal team prepare the original lease and put protect themselves from future expenses of creating a lease assignment by adding an Assignment Fee. This is one of the biggest item sellers will overlook when reviewing a lease. This becomes a big issue when it’s time to sell and the landlord is asking for $5000 from the seller to have the right to assign the lease. Assignment fees range from $0-$10,000, negotiate this fee upfront before you sign the lease because you have the most leverage at that time.
Option Terms with no agreed rent amount:
The landlord is not your friend when it comes to your monthly rent amount and yearly increases. The landlord is looking out for only one person in the transaction. He/she wants to improve their checkbook, and the bottom line and his earnings. The tenant should protect themselves from future increases by having the numbers agreed upon upfront, the national average for yearly rent increases is 3%-5%, but tenants cannot assume a landlord will not increase rates by more
Security Deposit:
The security deposit is usually required from landlords and can be the amount for 1-3x times monthly rent. When it’s time to sell the restaurant, what happens to this security deposit? Tenant’s should get confirmation upfront on how their security deposit will be returned if a lease assignment is approved.
When it’s come to landlords, remember it’s business and not personal and protect yourself. Use what you learned to get the best deal possible for a leasing assignment or a new lease for a restaurant. If you need help, contact EATS Broker to help you negotiate a deal.
For more information on the restaurant market and other available consulting services or restaurant valuations, 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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