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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Want to sell your restaurant? What Restaurant Equipment do you own?
Want to sell your restaurant, and it’s time to create an equipment list? What Restaurant equipment do you own as a restaurant owner? This seems easy to answer, but most restaurant owners misunderstand what they own when leasing a restaurant space.
The landlord is responsible for creating a lease to protect their interest when leasing a restaurant space. The restaurant owner is responsible for reading the lease to understand the terms.
Texas Restaurant Broker Dominique Maddox says, “ restaurant owners are shocked when they find out they don’t own any fixtures in the restaurant. The key items in a restaurant like the hood system, grease trap, sink compartments, walk-in coolers/freezers, and misc. Belong to the landlord”.
When selling a restaurant, a restaurant owner must create an equipment list to provide to interested buyers. The Restaurant Broker at EATS Broker requests an equipment list from restaurant owners ready to sell a restaurant before it goes on the market.
Restaurant owners are asked only to provide restaurant equipment that they own. The equipment list and details will differ from restaurant owner to owner, and restaurant owners unfamiliar with the language in their lease usually provide an incorrect equipment list.
A restaurant that is not profitable or closed will be listed as an Asset Sale. Selling a turn-key restaurant fully equipped as an Asset Sale is an excellent opportunity for buyers looking to create their own concept. Restaurant buyers will be curious to know the restaurant equipment involved in the sale.
The Restaurant Broker at EATS Broker creates an equipment checklist to consider:
Items Restaurant Owners should keep off an equipment list because they are attached to the building:
-Walk-in coolers
-Walk-in freezers
-Grease traps
-3 compartment sinks
-Hood system
-HVAC systems
-Tankless water heater
***Leased Items should not be added either***
-Fountain Drink Dispenser
–Dishwasher
–POS System
-Refrigeration, if provided by the vendor
This blog was written to help restaurant owners create an equipment list that reflects what they own and can be removed from the building. Next time when making an equipment list, restaurant owners should ask themselves do I own this equipment?
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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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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Why are Asset Sale Restaurants HOT right now
Asset Sale Restaurants are HOT right now because several restaurant owners that need to sell were not profitable in 2022. What is an Asset Sale when it comes to selling a restaurant? An Asset Sale is a restaurant that is not profitable or makes minimal profits.
An Asset Sale is priced for its Furniture, Fixtures, and Equipment (FF&E). Restaurant owners can expect a listing price of 20%-30% of the original cost. Restaurant owners are shocked when they discover that the walk-in cooler, hood system, and other fixtures are not included on their equipment list. Fixtures belong to the landlord and are not sold to the new buyer.
Usually, an Asset Sale will return Restaurant owners only pennies on the dollar of their original investment. Asset Sales prices typically range from $50,000-$300,000 or more. Restaurants with significant leasehold improvement or a good location are easier to sell.
Texas Restaurant Broker Dominique Maddox says, “An Asset Sale is an excellent opportunity for a new buyer to save money on opening a new restaurant. Franchise brands have started looking for second-generation restaurants and Asset Sale restaurants to save money on the build-out cost of opening a location.
Asset Sale Restaurants for sale are piling up on the market, and buyers have a number to sort through to find the right opportunity. When selling a restaurant that is an Asset Sale, the Restaurant Broker must tell the correct “Restaurant Story” to the potential buyer.
What are the WINS for the Restaurant Owner that sells a restaurant that is an Asset Sale
–Selling a restaurant that is not profitable
-Have a chance to get off the lease as the Personal Guarantor sooner than the signed lease expires
-Receive a fraction of the original investment
-No longer have to work in the restaurant
-No longer have to stress about restaurant operations
-No longer have to worry about paying the Restaurant Bills
-No longer have to stress about employee/labor issues
Restaurant Owners, when selling a restaurant as an Asset Sale, you probably will not get the sale price you want. Buyers like buying a profitable restaurant for sale that have solid books and records over an Asset Sale.
The buyer who purchases an Asset Sale is taking a risk if they continue operating the restaurant with the same concept. They will want a discount on the price to take that risk.
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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Selling your Franchise Restaurant
Are you thinking about selling your franchise restaurant in 2023? We have finished the Holiday season, and now it’s time to get ready to start a new year with new challenges. Some of the most seasoned restauranteurs, managers, and employees exited the restaurant industry in 2022.
The challenges of labor rate inflation, labor shortage, food inflation, and Covid relief funds no longer available will have some restaurant owners ready to sell in 2023. Selling a franchise restaurant has different challenges than selling an independently owned restaurant.
Texas Restaurant Broker Dominique Maddox says, “selling a franchise restaurant is more complex than selling a non-franchise. Regarding Restaurant Franchise Resales, you are dealing with transfer fees, restaurant upgrades required, training requirements, and Franchisor approval”.
Selling a Franchise Restaurant vs. a Non-Franchise restaurant has pros and cons for each transaction. Franchise Restaurants’ popularity keeps growing, and more franchise restaurants are opening daily. Franchise resales usually get more buyer inquiries compared to non-franchise brands.
EATS Broker lists the differences between Selling a Franchise Restaurant vs. Non-Franchise -Pros and Cons.
Selling a Franchise Restaurant: Advantages
- Books and records are usually clean and accurate. Franchise Brands will require Franchisees to have an updated POS Sales System to track sales.
- Restaurant Valuations are usually higher because the multiple ranges from 2.5x-3.25 ex. ($100,000 profit x 2.5 = $250,000 listing price)
- Franchisees benefit from the Franchisor’s trade Name, logo, goodwill, and trademark secrets.
- Landlord approval for a lease assignment or a new lease can be more accessible. Landlords like having franchise brands in their shopping centers.
- Bank lending is more likely to be approved when applying to buy a Franchise Brand.
- Franchisors will provide training support to Franchisees. A Franchise Business Consultant offers ongoing support.
Selling a Franchise Restaurant: Disadvantages
- Franchise Royalties are collected weekly or monthly from the gross sales. Franchise royalties range from 3%-12%.
- National Marketing Fees are collected weekly or monthly from the gross sales. The fee ranges from 1%-5%
- A transfer Fee is required when a current Franchisee wants to sell a restaurant. The fee ranges from $5,000-$50,000, depending on the Franchise Brand.
- Required training for new franchisees can range from 2 weeks-12 weeks. Buyers are usually required to pay for travel and lodging.
- Remodel costs or upgrades can be required before a Franchisee can sell to a new buyer. These costs can range from $10,000-$200,000 or more.
- The Franchisor has to approve the new buyer.
- Preferred Vendors are usually in place, and Franchisees don’t have the flexibility to shop with other vendors.
Selling a Non-Franchise Restaurant: Advantages
- Fewer requirements to get a deal done
- Buyers don’t have extra fees when buying a franchise restaurant, like royalty or marketing fees.
- Don’t have to worry about Franchisor not approving the new buyer
- No training is required before a new buyer can take ownership
- Non-franchise restaurants transactions can closer quickly
- A new buyer can change the concept if the landlord approves
Selling a Non-Franchise Restaurant: Disadvantages
- Books and records have a better chance of not being accurate or don’t exist.
- Landlord approval for a lease assignment or new lease can be challenging if the new buyer doesn’t have restaurant experience.
- Restaurant Valuations are usually lower because the multiple ranges from 1.75x-2.5x ex. ($100,000 profit x 1.75 = $175,000 listing price)
- Training a new buyer is informal and sometimes not enough to ensure the new buyer will be successful. There usually is no ongoing support.
- Non-franchise brands don’t have goodwill and brand awareness.
- Most don’t have systems or manuals for food preparation, operational, staff, or back-of-house procedures.
Which is better depends on the individual that wants to sell a restaurant and the buyer. Both concepts have pros and cons that should be considered when buying or selling a restaurant.
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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Restaurant Owner-Do you have an exit strategy?
A Restaurant Owner should start planning an exit strategy before signing the lease. Thinking about the exit strategy should be as important as planning for the opening. It’s a known fact that 80% of restaurants close within five years of opening their doors or has a change in ownership.
Texas Restaurant Broker Dominique Maddox says, “Most restaurant owners EATS Broker talks with daily don’t have an exit strategy. The main deciding factors in selling a restaurant usually relate to partnership issues, divorce, health, debt issues, lack of sales, money, or just being tired.”
Restaurant Broker lists three critical things to consider when selling a restaurant and planning an exit strategy.
Lease Terms and Conditions-the ability for a restaurant owner to transfer the lease to a new buyer via lease assignment is a critical segment of the resale process. Most restaurant owners don’t understand the lease terms they sign and don’t know the requirement for an exit.
Clean Books and Records-When a Restaurant Broker list a restaurant for sale; we are only selling two things. It’s either selling a buyer a paycheck or used equipment. When buyers purchase a profitable restaurant for sale, they buy a “paycheck.” If the restaurant is not profitable, it’s considered an Asset Sale (used equipment). Profitable restaurants get the highest price valuation.
Reporting Financials to the IRS– It’s a known fact that restaurant owners write off many personal items and non-business related expenses on their tax returns or Profit and Loss statements. This strategy helps restaurant owners pay less in taxes.
Over-aggressive tax write-offs work if a restaurant owner is not trying to sell a restaurant. Restaurant Brokers would recommend that restaurant owners, 2-3 years before trying to sell a restaurant, keep clean and accurate books and records.
Franchise Requirements– When a restaurant owner that owns a Franchise brand wants to sell a restaurant, it’s different from an independently owned restaurant. The following are additional factors for owners to consider.
–Transfer Fee-how much is it?
–Training requirement- how long it the training and where training is conducted?
–Franchise approval process and requirements
–Restaurant Upgrades required- any major updates required soon?
–Franchise years left of Franchise Disclosure Documents (FDD)-how much is the renewal cost?
The Restaurant Business is one of the most demanding business segments to have success for an extended time. The ideal exit strategy helps the Restaurant Owner get into the right mindset about exiting the restaurant business and gives them a timeframe to think about.
Planning for an exit strategy is critical when trying to sell a restaurant. The Restaurant owner should consider what they plan to do after selling the restaurant.
EATS Broker is available to provide free, confidential restaurant valuations for all restaurant owners thinking about selling a restaurant.
For more information on the restaurant market and other available consulting services or 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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3 Challenges to Selling a Franchise Restaurant
Are you thinking about selling your franchise restaurant in 2023? This blog covers three Challenges to selling a franchise restaurant that every Franchisee will face.
We have finished the Holiday season, and now it’s time to get ready to start a new year with new challenges. Some of the most seasoned restauranteurs, managers, and employees exited the restaurant industry in 2022.
The challenges of labor inflation, labor shortage, food inflation, and burnout will have some franchise restaurant owners ready to sell in 2023. Selling a franchise restaurant has different challenges than selling an independently owned restaurant.
Dallas Restaurant Broker Dominique Maddox says, “most restaurant owners know what it takes to buy and open a franchise restaurant but don’t understand the challenges to exit. A Restaurant Resale Specialist understands the ins and outs of the franchise restaurant resale process.”
I currently hold the Certified Franchise Executive (CFE) because I have always wanted to specialize in selling restaurant franchise resales”.
EATS Broker provides the 3 Challenges to Selling your Franchise Restaurant
1. Transfer Fee– Franchise Brands require a transfer free once the current Franchisee wants to resale their franchise. This fee can vary depending on the brand; they usually range from $5,000-$50,000 per location.
The buyer and seller will need to negotiate who pays the transfer fee. Eats Broker commonly sees the buyer paying the transfer fee, which covers a new buyer’s required training class/on-the-job training fee.
This transfer fee goes straight to the Franchisor and usually is non-negotiable. Franchisees can find out how much the transfer fee is by viewing the Franchise Disclosure Document (FDD).
2. Store upgrades– Franchise brands will have requirements for Franchisees to keep locations up to current brand standards and upgrades. These upgrades can include new signage, chairs, tables, Point-of-sale (POS) system upgrade, equipment, building improvements, and more.
Required upgrades can range depending on the Franchise Brand; EATS Broker has seen the costs range from $1,000-$100,000. The Franchise Brand will send a Business Consultant to evaluate the location and equipment.
The Franchisee will be presented with a checklist of items that need to be fixed, repaired, or upgraded before a resale transfer can occur. The Franchisee can try to negotiate to have the buyer responsible for store upgrades after closing.
3. Training Requirements- Franchise Restaurant Brands have training requirements for new franchisees to complete before the sale. The training requirement can range from one to ten weeks, and the buyers must attend training before resale is complete.
Attending training can be a challenge if the activity is done in a different state than the restaurant location. Buyers must pay for travel, food, and lodging during this time, and some franchise brands need two people to attend the training.
Franchise Restaurant owners should understand the challenges they will face when it’s time to resell a franchise restaurant. Operating a Franchise Restaurant and trying to resell a restaurant are two different assignments; we recommend contacting a Restaurant Broker for help.
EATS Broker are Subject Matter Experts in Franchise Restaurant resales. Let us provide you with a complimentary Restaurant Valuation; contact us today at sales@eatsbroker.com or 404-993-4448.
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