Meet Dallas Restaurant Broker Dominique Maddox
The title Dallas Restaurant Broker Dominique Maddox is a title I’m still getting used to hearing. I relocated from Atlanta, Georgia, to Dallas, Texas, in August 2021 to expand my Restaurant Brokerage firm.
My story starts in Anchorage, Alaska, where I lived from 1981-2000; I received a football scholarship to attend Morehouse College in Atlanta, GA. After high school, I actually thought about attending culinary arts school to become a chef. My ambitions of a culinary arts career ended when I visited Atlanta, Georgia, on my football recruiting trip to Morehouse; I knew Morehouse was for me.
My life is full of examples of my ambitions and goals of always “betting on myself.” I left Corporate America in 2008 to go full-time in Real Estate. Well, I couldn’t have chosen a worse time to get introduced to residential home sales.
During this time, homes in Atlanta, Georgia, were selling for unbelievable discount prices; I would always get the investors looking for homes in the price range of $10,000-$100,000. The first home I sold in Atlanta was for $10,000 in an area that sells for over $200,000 today’s market.
I always had dreams of getting into Commercial Real Estate. My life changed in September 2010; I received a random email asking if I ever thought about being a Business Intermediary and selling restaurants?
Well, I had never thought about selling a restaurant, but I was very interested in the opportunity. My interview was a couple days later, and the next thing I knew, I was a Restaurant Broker.
I worked with the Nation’s Largest Restaurant Brokerage firm for 7 years, ranging from Restaurant Broker to Sales Development Manager. I began to notice I had reached a glass ceiling with the opportunity and wanted change.
I opened EATS Restaurant Brokers in October 2019 in Atlanta to bring a new flavor to the Restaurant Brokerage Industry and bring diversity. I decided to change the company name to EATS Broker in December 2021.
Dallas Restaurant Broker Dominique Maddox biggest lessons:
- Selling a restaurant is like a combat sport; the Restaurant Broker has to contact buyers. It’s game day when it comes to selling the restaurant to a new buyer on the phone or by email.
- Only 30%-40% of restaurants listed for sale will actually be sold, and only 2% of buyers on the market looking for a restaurant to buy will actually buy.
- The platform of owning EATS Broker has given me a purpose to help people realize the American Dream of owning a restaurant or selling a restaurant.
I have also been blessed and humbled by the people that have reached out to me for guidance on selling a restaurant, buying a restaurant, or leasing a restaurant.
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.
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3 Biggest Mistakes Restaurant Sellers Make
The biggest mistakes restaurant sellers make are simple issues that can be addressed before a restaurant is listed for sale. The mistakes are based on facts, books, and records and lack of understanding of selling a restaurant.
Dallas Restaurant Broker Dominique Maddox says, “ the small details in the process to sell a restaurant make all the difference at the end. The lack of attention to the facts or books and records will make buyers not interested in buying the restaurant for sale.
The Restaurant Broker at EATS Broker listed out the Biggest Mistakes Restaurant Sellers Make:
- Leaving out the essential facts:
-Ownership of Furniture and Fixtures- what items are leased or owned by the landlord?
-UCC liens that can stop the sale of the restaurant and have to be paid before closing
-Filed tax returns that don’t match the profit and loss statements provided to Broker or buyer
-Restaurant upgrades that are required by Franchise( only applies to franchise restaurants)
-Behind on rent payments
- Clean Books and Records
-Sales Tax Filings don’t match Profit and Loss Statements
-Has two sets of books-provides different copy to IRS and provides the buyer with the accurate numbers
-Does not have a Profit and Loss statement to provide
-Slow to provide updated numbers
-Lack of clean books and records will not qualify for SBA bank lending
-Lack of transparency builds distrust in the buyer
- Not realistic about the selling a restaurant process
-Unlike residential sales, it can take 6-8 months to sell a restaurant
-Only 30%-40% of all restaurants for sale listings will actually sell to a new owner
– Everything is negotiable when it comes to price-need to be flexible
-Only 2% of buyers on the market looking for a restaurant for sale will buy; it can take multiple interested buyers before the actual buyer is found.
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.
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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.
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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.
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What is a Cloud Kitchen? What should you know?
A cloud kitchen is a commercial kitchen, sometimes called a “ghost kitchen,” used for delivery-only or pick-up restaurants. New restauranteurs and current restaurant owners are expanding menu offerings and increasing delivery orders by opening cloud kitchens.
The popularity of ghost kitchens has increased over the years. Today consumers ordering food online might be shocked to find out they have ordered from a ghost kitchen restaurant.
Ghost kitchen restaurants can be open for a fraction of the price versus a brick-and-mortar location. Cloud kitchen restaurants are considered a low-risk method to grow a restaurant business and menu selections. They handle the logistics and fulfillment while the restaurant owner only has to worry about the cooking.
Dallas Restaurant Broker Dominique Maddox says, “ cloud kitchens are opening opportunities for new or current restauranteurs to open restaurant concepts with less capital investment and risk.
Ghost kitchens are a popular business model providing a solution for restaurant owners to expand delivery areas and increase pick up orders”.
The Restaurant Brokers at EATS Broker compares Cloud kitchen restaurants vs. Brick and Mortar restaurants:
Capital Investment( upfront cost) Cloud Kitchens- $30,000 vs. Brick and Mortar $100,000-$300,000
- Staff required
Cloud Kitchens 2-6 employees vs. Brick and Mortar 10-30 employees
- Time required to open
Cloud Kitchens 2-4 weeks vs. Brick and Mortar 4 months-1 year
- Real Estate and Location
Cloud Kitchens- 200-300 sq. ft. vs. Brick and Mortar 1000-5000 sq. ft.
Cloud Kitchens-delivery hotspot with low cost and low traffic.
Brick and Mortar- high price, need prime location, good locations can be hard to find.
- Breakeven Point
Cloud Kitchens- 6 months – 1 year vs. Brick and Mortar- 2 years-5 years
Critical takeaways for Cloud Kitchens/ Ghost Kitchens
They provide excellent delivery and pick up opportunities
Allows restauranteurs to experiment with low risk
Allows restaurant owners to build multiple concepts out of one kitchen
Cuts costs for front and back of house labor costs
The kitchen features an exhaust hood, three comp sinks, prep sink, hand sink, and grease trap.
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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Exit Planning for Restaurant Owners
Exit planning for restaurant owners is a process that should start before a restaurant has opened. The harsh reality of restaurant ownership is 80% close within five years. If you are going into the restaurant industry knowing that it will be time to exit within five years, why not plan in advance?
EATS Restaurant Brokers finds that restaurant owners’ lack of exit planning can create liabilities when selling a restaurant.
Dallas Restaurant Broker Dominique Maddox says, “exit planning for restaurant owners should start once a restaurant is open. The common mistake is that restaurant owners fail to plan an exit until they have to sell a restaurant. An exit strategy should allow the restaurant owner to sell a restaurant with limited liabilities”.
EATS Restaurant Brokers-Exit Planning MUSTS:
- Books and Records-keep clean, excellent, and organized books and records. The restaurant buyers in today’s market are educated and can analyze a restaurant owner’s numbers and expenses for red flags. The best way to sell a restaurant is to have clean tax returns; restaurant owners will have to pay taxes on reported gains.
Restaurants that don’t count cash payments, pay employees under the table, or don’t report most sales on tax returns to save on taxes will sell for less on the open buyer market.
EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check to confirm current sales tax filings.
- Build-out expenses– The initial cost for a restaurant build-out can range from $50,000-$1,000,000for a restaurant space ranging in space between 1000-7000 sq. ft. Potential restaurant owners should analyze if it’s wiser to find a second-generation restaurant space to convert to their concept or build out a white box location.
A restaurant has previously occupied a second-generation restaurant space. In a white box location, the restaurant owner is installing everything needed to open a restaurant. The restaurant space has plumbing, electrical, refrigeration, and initial build-out done.
The person that benefits the most from a restaurant owner building out a first-generation restaurant space is the landlord.
Example: Restaurateur pays $300,000 in build-out expenses before opening the doors to a new restaurant. The restaurant owner estimates the restaurant should make a profit of $50,000 per year. The restaurant owner has to wait six years to get the build-out cost expenses back $300,000/50,000= six years!
EATS Restaurant Brokers Tip: Don’t go BROKE on the build-out.
- Restaurant’s Transferability- All restaurants for sale are not good listings because they lack transferability.
Ex.1 A chef-driven restaurant for sale depends on the performance of the chef. If an owner/operator is also the cook, these types of restaurants are difficult to sell. Most restaurant buyers are not looking at buying a restaurant to be a chef; they want a skilled chef in place.
Ex.2 Some restaurants for sale, the landlord, owns the equipment. Restauranteurs that lease restaurants that come fully equipped only own the business and goodwill; they have limited assets to sell.
This type of arrangement can make it difficult for a restaurant owner to sell in the future. Asset purchase agreements between buyers and sellers have the restaurant equipment being sold listed on the contract.
EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check for UCC liens on equipment or business.
EATS Restaurant Brokers biggest take-aways from this blog are listed below:
- Good Books and Records help restaurants sell for the highest and best price
- Don’t go broke on the build-out expenses and have to wait 3-10 years trying to get the initial investment back.
- Make sure to have a restaurant/system that can transfer to a new restaurant owner.
- Own the equipment in the restaurant
To learn more about EATS Restaurant Brokers consulting services or receive a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.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 Restaurant Brokers 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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Independent Owned Restaurants-How to Build Value?
As an Independent Owned Restaurant, how do you increase restaurant value for resale besides good food and environment? Independent Owned Restaurants for sale usually sell for less than Franchise Owned Restaurants.
Franchise Restaurants for sale provide a potential buyer with systems, training, and brand awareness to customers; these are non-tangible items that improve resale value.
The best time as a non-franchise restaurant to start thinking about organizing and operating your restaurant like a franchise is at the very beginning. Start thinking about training manuals, required training time for a position, social media presence, and misc.
60% of Independent owned restaurant operators will fail within three years of opening the doors for business. 80% will close within 5 years. The reality of opening a restaurant is you should always have an exit plan.
When it’s time to sell a restaurant, how does a non-franchise restaurant for sale increase its odds of selling a restaurant to a new buyer?
Dallas Restaurant Broker Dominique Maddox says, “ my suggestions to improve value are create a story behind the establishment, cook from scratch, have fantastic food, and create systems easy to follow.
After ten years of selling restaurants, I have found that non-franchise-owned restaurants for sale that are not unique and organized usually don’t sell.
EATS Restaurant Brokers provides TIPS to improve value!
- Story behind establishment: Have a story behind your restaurant; people relate and remember stories. This is one of the best ways to build brand loyalty from customers. Make sure your customers can read your story by posting on the wall, website, cups, etc.
Has the restaurant been passed down from generation to generation? Did a unique passion project inspire the owner to start the restaurant? These are exciting stories that make a restaurant unique. Key take-away people remember stories!
- Create Systems: The POS system should be updated to record all valuable sales information. POS systems are useful tools to analyze to improve restaurant profitability.
Create Training Manual: A manual with all the training material needed for a new operator is a valuable tool. The manual should have the job descriptions for each position. The manual should describe the process and time requirements for new hires.
- Unique Food– Do you have a unique cooking style, use exciting ingredients, how is the presentation? Outstanding food and experience will always get customers talking about a restaurant. Word of mouth referrals is the best and cheapest way to grow your restaurant.
Create a unique style of cooking that customers have to visit your restaurant to enjoy. Besides the type of cooking is the taste of food. The best non-franchise restaurants cook from scratch.
Create a menu book that lists all of the cooking recipes, measurements required and cooking time.
The suggestions listed in this blog are intended to help an Independently owned restaurant owner sell a restaurant business in the future. These tips should help the restaurant operator stand out from the competition.
Want more help selling a restaurant? Contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Selling a Restaurant-Mistakes to Avoid
If you are selling a restaurant, there are mistakes to avoid that can become obstacles to reaching the closing table. To increase the odds of a restaurant for sale getting to the closing table, the Asset Sale Purchase agreement needs to be adequately prepared by a trained professional.
The sales price is only the start of a complex negotiating process that the small details are a BIG determining factor for success. The restaurant resale process negotiations include language that must be agreed upon by both restaurant seller and restaurant buyer.
Once the price has been agreed upon, the knots and bolts of the deal still need to be finalized. Most are not familiar with the critical items that should be addressed in a purchase agreement.
EATS Restaurant Brokers are Restaurant Resale Specialist that understands the critical items on the Asset Purchase Agreement that need to be negotiated upfront between both parties. This blog will cover the essential details that should be addressed in an Asset Purchase Agreement.
Texas Restaurant Broker Dominique Maddox says, “We have a high closing rate because, after ten years as a Restaurant Broker, I have extensive training in restaurant sales negotiations. I understand the critical details to address upfront.
We recently moved our headquarters to Dallas, Texas; we are excited about helping restaurant owners in Texas to avoid mistakes that stop them from selling a restaurant and getting paid at the closing table”.
EATS Restaurant Brokers Top Mistakes to Avoid
Equipment List: The equipment list is usually an itemized list of restaurant equipment and decorations included in the restaurant sale. The list is created by the restaurant owner and provided to the interested buying parties.
The equipment list is an essential part of the restaurant valuation, Asset Purchase Agreement, and assets a buyer will receive. Buyers should understand that fixtures attached to the building belong to the landlord and not the tenant.
Grease trap, hood system, walk-in cooler, walk-in freezer, water sink, and built-in bar should not be included on an equipment list. When an Asset Purchase Agreement is fully executed, it contains a list of equipment that will transfer ownership.
Mistakes to Avoid: Check items on the equipment list to confirm ownership. Restaurant equipment is commonly rented (mainly dishwasher); a restaurant owner can’t sell something they don’t own. Read the lease to ensure the landlord does not own the equipment and the current tenant didn’t lease a fully equipped restaurant space.
Fees: Who Covers them?
Attorney Fees
Who pays the attorney fees and why? In residential real estate, it’s common for both parties to split closing attorney fees in residential real estate, or the Seller will sometimes pay the fees.
Restaurant Brokerage is different; it’s the buyer’s cost and responsibility. It’s beneficial for a restaurant buyer to pick and pay a closing attorney that understands business brokerage. A closing attorney is not needed to close a simple deal if a deal does not involve bank lending or franchise ownership transfer.
Mistake to Avoid– Choose a closing attorney that charges a flat rate compared to an hourly rate. Confirm the services the attorney will provide for the agreed price. Do not use a closing attorney that is not familiar with UCC lien searches or business brokerage deals. Always use a closing attorney for a restaurant sales transaction.
Inventory Cost:
The inventory on hand on the day of closing belongs to the buyer, but actually, they need to pay the restaurant owner first. Several buyers have a misunderstanding that the food inventory is included in the purchase price.
This understanding is far from the truth unless clarified at the beginning of the negotiations. The standard process is that an inventory count is complete the night before closing or the morning of closing. The buyer will pay inventory costs for the food items or other inventory.
Buyer and Seller take inventory together, and the buyer pays a separate check for the final sum. Occasionally a Restaurant Broker will put an estimated number on the Asset Purchase Agreement (for example, $5000). Once the inventory count is final, both parties will finalize the underpayment or overpayment for inventory.
Mistake to Avoid– Confirm restaurant owner will have a copy of recent inventory delivery invoices with current prices. I would suggest not paying for items that are almost gone.
Transfer Fee
A transfer fee is required when reselling a franchise restaurant for sale. The current restaurant owner has already agreed to this fee on the franchise on the Franchise Disclosure Document(FDD).
The transfer fee will cover the buyer’s required training, ranging from 2-10 weeks, depending on the franchise. The transfer fee does not directly go to the restaurant seller; buyers are expected to pay the transfer fee. This fee can range from $5,000-$50,000.
Mistake to Avoid– Confirm Transfer fee upfront and put language in the Asset Purchase Agreement for the party responsible for payment.
Want more help selling a restaurant? Contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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How to review a Restaurant Profit and Loss Statement
Understanding how to review a Restaurant Profit and Loss Statement is a crucial variable for a Restaurant Valuation to determine the restaurant’s actual value. Restaurants are one of the industries that the ratios on a profit and loss statement can give valuable clues on how a seller operates his/her restaurant.
Unexperienced buyers will look straight down to the Net Income number when reviewing a Profit and Loss Statement. Experienced restaurant operators/buyers will start from the top and work down; they will check the key variables’ ratios.
EATS Restaurant Brokers -5 Critical Categories to review ratio percentages on a Profit and Loss Statement:
• Sales
• Cost of Goods Sold
• Payroll
• Rent/ Occupancy
• Net Income
Let’s start from the top of the Profit and Loss Statement:
1. Sales: This category is the most critical number because all the other key variables are based on the net sales number. Today, restaurant owners can automatically pull the total sales numbers from an integrated Point of Sale( POS). Total Sales is a good indicator to show if the restaurant sales are improving or declining yearly.
2. Cost of goods sold (COGS): Refers to the direct costs of producing the goods sold by a restaurant. Cost of Goods should typically run around 28%-32% of sales. This number can increase or decrease depending on the restaurant concept.
Example:
Pizza restaurants COGS are usually lower, ranging from 25%-28%
Full-Service Restaurants COGS are higher, ranging from 33%-36%
Sub Sandwich Franchise COGS typically range from 28%-33%
3. Payroll: Includes labor cost, including hourly and salaried, payroll taxes, 401K contributions, and other employee benefits. An average payroll rate should be around 25%.
Restaurant Brokers come across some diverse Payroll expense ranges when providing restaurant valuation. Here are some scenarios:
-Low under 20%- Restaurant has family members working extensive hours, or husband and wife are working over 40 hours weekly
-Low under 20%-Owner debits some payroll expenses under Cost of Goods Sold (COGS).
-Low under 20%-The most common scenario is CASH-owner is paying employees in CASH, aka under the table.
(These factors are essential because they make a difference in the restaurant valuation)
4. Rent/ Occupancy Expense: Occupancy costs are costs related to occupying space, including; rent, real estate taxes, personal property taxes, and insurance on the building. Occupancy Costs should be between 7%-11% of sales.
EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Occupancy Costs that are 5% or less and 12%-18% should get an experienced Restaurant Broker’s attention providing a restaurant valuation. Leases that have a monthly occupancy cost of 12%-18% are an indication of a bad lease. This ratio number for rental occupancy can be challenging for restaurant owners trying to sell a restaurant to a buyer.
On the opposite end, Occupancy Cost that is 5% or less should be explained in detail. In most cases, the restaurant seller owns the building and pays a low mortgage, or the landlord provided reduced rent as a concession.
5. Net income (NI), also called net earnings, is calculated as sales minus the cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expense.
Restaurant Net Incomes usually range from 5%-10%, a well-managed restaurant can see percentages increase up to 15%.
EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Net Income over 20% should be analyzed and explained. Most times, sellers are not deducting all expenses, under-reporting numbers, or combining multiple restaurant expenses.
**Disclaimer if the seller provides a net income over 20% for numerous years on the TAX RETURNS, then it makes it easier to believe.
Restaurant Sellers should understand their Profit and Loss statement and be ready to explain specific ratios if they are irregular from the average ratio ranges. EATS Restaurant Brokers reviews restaurant Profit and Loss Statements daily. We understand the restaurant business down to the percentage numbers.
EATS Restaurant Brokers are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbrokers.com
or 404-993-4448.
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