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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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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5 Benefits of Buying an Existing Restaurant
The 5 Benefits of Buying an Existing Restaurant have many positive attributes. The current restaurant owner has built a proven business model, established a client base, and gone through the headaches of the initial building-out phase of the restaurant space.
The harsh reality of the restaurant industry is that 60% of restaurants will close their doors in three years. How to improve your chances for long-term success, the Restaurant Broker suggests not going broke on the build-out.
Buyers can learn a lot from the successes and failures of the current restaurant owner. Buyers can ask questions about the restaurant industry without going thru the growing pains.
Dallas Restaurant Broker Dominique Maddox says, “Buying an Existing Restaurant is a cheat sheet to success. The Restaurant Owner provides sales data, vendor relationships, landlord relationships, and stories of success and failures”.
EATS Broker provides a list of benefits of Buying an Existing Restaurant:
- Employees: An operating restaurant will have trained employees, including cooks. Employees will usually transfer will the sale of the restaurant.
- Customers: Established Customer base that is familiar with the concept
- Cash Flow: Restaurants with a positive cash flow provide a paycheck for the buyer.
- Time to open: Some buyers want to buy an existing restaurant to convert to a new concept.
- Vendor Relationships: The restaurant owner will provide a list of current vendors. Buyers can decide to use the same vendors or find an alternative.
Buying an existing restaurant eliminates some of the build-out time, stress and anxiety that come along with the process.
EXTRA Benefit
Bank Lending: A bank will be more willing to lend to a buyer purchasing an existing restaurant than a start-up restaurant concept.
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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10 Ten Interesting Facts about the Restaurant Industry
It’s easy to find interesting facts about the Restaurant Industry. The National Restaurant Association publishes a Restaurant Owner Demographics Data Brief every year. After reading the March 2022 Data Brief, the Restaurant Broker at EATS Broker picked ten interesting facts.
- Hawaii (64%), Texas (59%), California (58%), Georgia (55%), Maryland (54%), and the District of Columbia (54%) have the highest proportion of restaurants that are owned by minorities.
- 63% of adults have worked in the restaurant industry, making it the nation’s training ground
- 41% of restaurant firms are owned by minorities – compared to 30% of businesses in the overall private sector.
- 9 in 10 restaurants have fewer than 50 employees
- 7 in 10 restaurants are single-unit operations
- 19% of restaurant firms are Asian-owned, 14% are Hispanic-owned, and 9% are Black- or African-American-owned.
- 9 in 10 restaurant managers started in entry-level positions
- 2023 Employment Forecast: 500,000 new jobs for total food service employment of 15.5 million
- 2023 Sales Forecast: $997 billion
- Restaurants employ more minority managers than any other industry.
Dallas Restaurant Broker Dominique Maddox says, “The U.S. restaurant industry has an enormous impact on how it affects people’s lives. I worked as a Sous Chef at the Alaska Club in Anchorage, Alaska, and as a waiter at Boniface Bingo. I’m forever thankful for my experience working in the Restaurant industry”.
Are you hungry for more exciting facts about the Restaurant Industry? According to Zippia.com:
-45.5% of restaurant owners are women, and 54.5% of restaurant owners are men
-46% of Restaurant Owners are over 40, and 28% are between the ages of 30-40
-49% of Restaurant owners earn a bachelor’s degree
-The average Restaurant Owner is 39
-The most common foreign language among restaurant owners is Spanish at 44.9%. The second-most popular foreign language spoken is French at 10.2%, and Thai is the third most popular at 7.9%.
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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4 Worst Decisions when selling a Restaurant
Do you plan to sell a restaurant? What are the worst decisions when selling a restaurant? EATS Broker will provide an inside look at why some restaurant sellers can be disappointed when it’s time to sell a restaurant.
Did you know only 20%-30% of the restaurants listed on the market will sell to a new owner? With the odds stacked against a restaurant owner for success, there are strategies to use to increase the chances of success when selling a restaurant.
Texas Restaurant Broker Dominique Maddox says, “I always ask a restaurant owner before providing a restaurant valuation, how much do you think your restaurant is worth? The response I receive helps me understand the mindset and expectations of the restaurant owner”.
EATS Broker turns down several potential restaurant for-sale listings because of 4 reasons:
- Overpriced Restaurant for Sale-Over pricing a restaurant for sale lowers the chances of a
restaurant selling. Buyers are more educated than ever regarding restaurant valuations and multiples used to create a listing price.
Restaurant owners are known to list with Restaurant Brokers or Business Brokers based on the Brokers providing the listing price they want rather than what the restaurant is worth. The practice of putting overpriced listings on the market is common.
This strategy increases the number of days it takes for a restaurant to sell, and qualified buyers will avoid the listing because they are educated about the market.
- Being unrealistic as a restaurant owner-Restaurant owners have to understand selling a restaurant is like a slower cooker and not a pressure cooker. It takes an average of 6-8 months to sell a restaurant. Only 20%-30% of restaurants listed for sale will actually sell to a new buyer.
Restaurant owners should know they must be ready to negotiate terms with a ready, able, and willing buyer. Every deal is different, and all deals that go under contract will not close.
- Books and records-Buyers are interested in the financials when buying a restaurant and want to check and verify its performance. Restaurant owners with books and records that are not clean, organized, and available to provide to buyers usually will not sell.
- List for buildout cost– Buyers don’t buy a restaurant based on the buildout cost. One of the worst decisions a restaurant owner can make is to justify the listing price based on the money spent on the restaurant’s buildout.
The restaurant can easily cost $300,000-$1,000,000 to build out the restaurant before opening the doors and making one dollar of profit. Most improvements to the restaurant’s leased space belong to the landlord because they are attachments to the building.
60% of restaurants close within 1-3 years of opening the doors, and 80% close within five years. A restaurant that is not profitable is listed on the market as an Asset Sale, which gets sold for pennies on the dollar.
Restaurant Broker Tip: Restaurant owners are shocked when they learn they don’t own the hood system, walk-in coolers, and other attachments. Whether the restaurant owner paid for the items during the buildout phase doesn’t matter.
**Don’t go broke on the buildout**
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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Time to sell your restaurant? How to defend your listing price
When it’s time to sell your Restaurant, how do you plan to defend your listing price? This question is excellent for anyone considering hiring a Restaurant Broker or For Sale by Owner.
It’s easy to think of a random number, list a restaurant for sale, and answer buyer inquiries. Selling a restaurant is like fishing; it’s time to make the catch when a customer is interested (a fish bite).
Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers visualize 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”.
The 3 rules of defending your listing price:
Rule #1
Tell your Restaurant Story: The number one question buyers ask a Restaurant Broker when inquiring about a restaurant for sale is, why are they selling? Once this happens, it’s time to tell the Restaurant Story.
The Restaurant story is the message/description of opportunities that should be provided to the buyer. Buyers want a background of the Restaurant’s current and past operations, growth opportunities, and why the restaurant owners are selling? It’s time to sell the “Sizzle” of the Restaurant to the buyer.
Each Restaurant will have a different Restaurant Story, but the core of the stories will be the same. They will include the total expense of the rent, labor, and cost of goods (COGS); these three categories should be 60%-70% of gross sales.
Rule #2
Clean Books and Records make a BIG difference: Good bookkeeping and accounting help the odds of a restaurant selling. Once the seller and the buyer agree to the terms of the Purchase Agreement, the due diligence process starts.
Buyers will request several financial documents to verify the Restaurant’s operations and profitability.
The documents most requested from buyers include:
-Tax Returns
-Profit and Loss Statements
-Sales Tax Filings
-POS Sales Reports
-Franchise Royalty Reports
-Bank Statements
-W-2s for Owner/Operator or manager replacing an absentee owner
When it’s time to sell a restaurant, owners should check and verify all financial documents tell the same Restaurant Story. A Restaurant Owner can make or break a deal if the financials tell multiple stories. Buyers are looking at financials with suspicion and analyzing every line item.
Restaurant Broker Tip: The Restaurant Owner keeping two sets of books and records or cheating the IRS on tax payments will hurt the chances of your restaurant selling.
Rule #3
Repair and Maintenance-The lack of maintenance in a restaurant can hurt the chance of the Restaurant selling to a new buyer. Buyers will inspect the Restaurant and equipment for flaws and repairs needed.
A neglected restaurant appearance or broken equipment gives a buyer a great reason to reduce the offer price. Restaurant owners should focus on the Restaurant’s presentation before listing a restaurant for sale.
These three rules help any restaurant seller defend its listing price when it’s time to sell a restaurant.
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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Top 4 Biggest Myths about Selling a Restaurant
Many restaurant owners share the Top 4 Biggest Myths about selling a restaurant. Selling a restaurant is much different from selling other businesses, and many restaurant owners will only sell a restaurant once in their lifetime.
When it’s time to sell a restaurant, a large percentage of restaurant owners have common misperceptions about the process.
Dallas, Texas Restaurant Broker Dominique Maddox says, “There are NO guarantees when selling a restaurant, and every deal has unique stipulations and obstacles that somebody must overcome. Restaurant owners that believe common myths about selling a restaurant are commonly disappointed”.
The 5 Biggest Myths about selling a restaurant are:
- Every deal is the same: Restaurant owners that have bought or sold a restaurant in the past sometimes believe every deal process is the same, and this belief is far from the truth. Each Asset Purchase Agreement has several small details that make a big difference.
Things to consider in each deal:
-Selling a profitable restaurant or an Asset Sale
-Selling a Franchise or non-franchise
-The buyer’s profile
-The landlord approval process
-The Franchise approval process
-Bank lending required or cash deal
-E-2 investor requirements
-Closing Attorney involved
-PPP or EIDL payments owed
-Sales Tax Filings
-Equipment repair requirements
- I will receive my asking price: When selling a restaurant, everything is negotiable, but the rent amount is owed to the landlord. The negotiation process between the buyer and the seller will determine the terms of the deal.
Restaurant owners can list a restaurant for sale, stating they want to recoup their equipment purchase price, build-out cost, or loan payoff balance, only to be disappointed. The market will determine the price of your restaurant.
Cash buyers are usually more aggressive in their offer price. Restaurant owners should expect offers at least 10% lower or more than the asking price.
- Time to sell a restaurant: The average time to sell a restaurant is 150-165 days, but this is only an average. Only 20%-30%of the restaurants listed will sell to a new buyer, and most restaurants for sale will sit on the market and never sell.
Only 2%-5% of the buyers looking to buy a restaurant will buy. Some deals are more like a slow cooker instead of a pressure cooker. Restaurant Sellers want a quick sale, while some restaurant buyers are not ready for quick closing.
- The Landlord is your partner: When dealing with a lease assignment approval from the landlord, some restaurant owners think the process is simple. Most owners have not reviewed the lease document they signed when opening the restaurant, and owners usually do not know what requirements are needed for lease assignment approval.
The Golden Rule when dealing with a landlord is that they are not your friend, and the landlord is looking out for their best interest in collecting future rent. If the landlord has a well-qualified restaurant owner as a lease guarantor, why would they approve a lease assignment for a questionable potential tenant?
The landlord can decide if a deal will make it to the closing table. Should the restaurant owner feel comfortable only in leases that don’t require landlord consent or have written auto-approval language for franchises.
Selling a restaurant can be a complex process. Hiring the right Restaurant Broker and understanding the selling process can make all the difference.
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 email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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EATS Broker sells a downtown Dallas, Texas Restaurant
EATS Broker sells a downtown Dallas, Texas Restaurant in the Mosaic Dallas building at 300 N Akard St, Dallas, TX 75201. EATS Broker was the Intermediary for the seller and buyer for this transaction.
The restaurant is in a luxury, high-rise living community in downtown Dallas, Texas. Near the Arts District, Klyde Warren Park, and the Majestic, this is the perfect location to accommodate affluent young adults desire for convenient and delicious food.
The seller has owned the restaurant since 2019. He plans to take a few days off and move on to his next business venture, and he will be exiting the restaurant Industry.
The buyer has big plans to make improvements to the location. He brings years of General Manager experience working in Corporate Franchise restaurants. EATS Broker was excited to help him realize the American Dream of business ownership.
Christopher was a Petty Officer 3rd with the US Navy. He will bring that discipline and work ethic to his first restaurant. He plans to upgrade the menu offerings, create new recipes, and change the business name.
Texas Restaurant Broker Dominique Maddox of EATS Broker says, “the new owner will bring a new perspective and leadership style to the restaurant. I’m thankful he trusted EATS Broker to help him with the buying process”.
Selling a restaurant can be a complex process. The duties of a Restaurant Broker included presenting an opportunity and helping a buyer reach the closing table. EATS Broker did its job on this listing to get it sold, and it’s on to the next.
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 email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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Restaurant Broker Dominique Maddox of EATS Broker sells Jimmy John’s franchise
Restaurant Broker Dominique Maddox of EATS Broker sells Jimmy John’s in Benbrook, Texas. EATS Broker represented the seller and buyer for this transaction.
The buyer is a multi-unit owner expanding his territory and ownership in Jimmy John’s. The new ownership group takes over a successful location with sales of over $840,000 in 2022. The seller was an absentee owner ready to exit the business.
Benbrook, Texas, is located in the southwestern corner of Tarrant County, Texas, and a suburb of Fort Worth. Benbrook, Texas, is experiencing growth in the surrounding area. The city of Benbrook is currently contracted to build 10,000 homes and one apartment complex, all within the delivery area of this location.
Texas Restaurant Broker Dominique Maddox says, “the sellers were initially trying to sell their restaurant For by Owner. They eventually decided to hire a Restaurant Broker and allowed my company to get their franchise restaurant sold.
EATS Broker received a 5-star Google review that says, “He went above and beyond at all times. Would highly recommend”. This marks the 12th 5-star Google Review the Restaurant Broker at EATS Broker has received.
Jimmy John’s is an American sandwich chain headquartered in Champaign, Illinois. The business was founded by Jimmy John Liautaud in 1983.
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 email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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