When selling a restaurant, most sellers don’t know what the buyer pays for at the closing table besides the listing price. Outside of the listing price, several additional fees should be negotiated upfront between the buyer and restaurant seller.
Restaurant Business Brokers are trained to know the typical components of the fees associated with selling a restaurant and will inform potential buyers of the fees upfront. The average restaurant buyer needs to be more knowledgeable about closing costs. This blog will discuss the additional fees for selling a restaurant besides the listing price.
The Restaurant Brokerage of EATS Broker provides a list of the common items to consider:
- Inventory Cost– Both parties will usually take an itemized physical count on the inventory the night before closing or the day of closing. The on-hand and in-transit marketable inventory at the closing shall be valued using the Seller’s Cost of inventory.
Restaurant Broker Tip: The buyer should come to the inventory count with a check ready to write out to the seller after completing the inventory count.
- Closing Attorney Fees: Buyer shall pay the Closing Agent’s fees and expenses. Such expenses may include, without limitation, costs for a judgment and lien search, documentary stamps taxes, and the recording or filing of UCC-1 financing statements in the state records.
The buyer can pick the Closing Attorney to be authorized to receive, deposit, and distribute funds for the parties. The average cost for deals under $1 million can range from $3,000-$5,000.
- Landlord Security Deposit: When doing a lease assignment while selling your restaurant, the landlord will commonly assign the security deposit they have in hand to the new tenant. The buyer is responsible for paying the current restaurant seller the security deposit back. This charge is added to the Settlement Statement.
Restaurant Broker Tip: Confirm that the landlord will assign the rights to the security deposit to the new tenant. EATS Broker has seen exceptions to this common practice in the past.
- Transfer Fee: Selling a franchise restaurant comes with an additional fee as a transfer fee. Depending on the franchise brand, this fee can range from $2,000 to $30,000. The transfer fee is listed in the Franchise Disclosure Document (FDD).
Restaurant owners do not benefit from the transfer fee; it is paid directly to the Franchise. The transfer fee is commonly paid at the closing table, but some brands require the fee upfront to consider the transfer to a new buyer before closing.
- Prorations: The expenses attributable to the operation of the Business prior to 12:00 p.m. on the Closing Date, including, by way of example and not by way of limitation, expenses for electrical service, natural gas service, telephone service, internet service, pest control service and trash removal, transferable taxes, licenses, rents, utilities, and other customarily prorated items, shall be prorated as of noon on the Closing Date, and may be made on estimates of amounts prorated; provided that the parties agree to recalculate such prorations when the actual numbers are ascertained.
Next time you sell your restaurant, consider the additional fees the buyer will pay outside the purchase price. It’s highly recommended that restaurant owners use a trained Restaurant Business Broker to negotiate and help maximize the dollar value received at closing.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Restaurant Business Broker Dominique Maddox at 404-993-4448 or email at email@example.com. Visit our website at www.EATSbroker.comRead More
When restaurant owners are thinking about selling a restaurant, it’s essential to approach the process thoughtfully and strategically. Every Restaurant owner has a different story about why they want to sell a restaurant, but some things are expected.
Determine Your Why: First, consider why you want to sell the restaurant. It could be due to financial hardship, health issues, personal issues, partnership disputes, or a desire to retire from the restaurant industry. Understanding your motivation will help guide the selling process.
Evaluate your Restaurant: Review the current financial health of your restaurant, including revenue, expenses, and profitability. Potential buyers will want to review your financial records. Restaurants that have accurate and up-to-date financials sell at a higher rate.
Prepare Documentation for sale: Gather all relevant documents, including financial statements, tax records, lease agreements, and any licenses or permits related to the restaurant. Having organized and complete Documentation will make the sale process smoother.
Dallas, Texas, Restaurant Broker Dominique Maddox says, “Getting an accurate restaurant valuation at the start of the restaurant selling process is critical. Selling a restaurant business can be challenging, and it takes an average of 6-8 months to sell a restaurant. Listing a restaurant for too high can negatively affect a restaurant for selling to a new buyer.”
Determine the Restaurant’s Value: This step determines the asking price for the restaurant. Restaurant owners can get a professional restaurant valuation through a professional business appraisal or by working with a business broker specializing in restaurant sales, like EATS Broker.
Market the Restaurant: Create a marketing plan to reach potential buyers. This will include listing your restaurant for sale online, working with a Restaurant Broker, and promoting the listing through various sales channels.
Qualifying Buyers: Screen potential buyers to ensure they are financially qualified and serious about the purchase. This will save you time and effort in dealing with unqualified buyers. When working with a Restaurant Brokerage, they will do all the screening for you.
Negotiate Terms: Once you find a potential buyer, negotiate the terms of the sale, including the purchase price, payment structure, and any contingencies.
Legal and Financial Due Diligence: Both you and the buyer will need to conduct due diligence to verify the accuracy of the information provided. This includes reviewing financial records, lease agreements, and other legal and financial aspects of the transaction.
Close the Sale: Once all terms and conditions are met, finalize the sale by signing the necessary legal documents and transferring ownership of the restaurant to the buyer. After the sale, work with the buyer to ensure a smooth transition. This may involve training the new owner and helping them adapt to the restaurant’s operations.
It’s essential to work with professionals like restaurant brokers, attorneys, and accountants to navigate the complexities of selling a restaurant. The process can take time, so patience and careful planning are essential. Be open to negotiations and stay flexible to reach a successful sale that benefits you and the buyer.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dallas, Texas, Restaurant Broker Dominique Maddox at 404-993-4448 or email at firstname.lastname@example.org. Visit our website at www.EATSbroker.comRead More
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
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 email@example.com. Visit our website at www.EATSbroker.comRead More
When it’s time to sell a restaurant, most restaurant owners don’t have an exit strategy. Some Restaurant Owners think they can sell their Restaurant anytime, like a residential property. The hard fact is that only about 20%-30% of restaurants listed on the market will sell.
Restaurant owners with a plan when it’s time to exit, are usually more successful than those without. An exit strategy consists of clean books and records, updated-looking restaurants, understanding the lease, and knowing the status of the PPP loan, Economic Injury Disaster Loan (EIDL), an SBA loan.
Dallas, Texas, Restaurant Broker Dominique Maddox says, “The lack of exit strategy planning for restaurant owners is common. Most restaurant owners plan to sell a restaurant once an unexpected event triggers them”.
When it’s time to sell a restaurant: Two essential factors to consider:
Do you have an SBA loan, and your restaurant sale proceeds will not cover the balance?
Restaurant Broker advice: Contact your SBA lender to let them know you are selling your Restaurant. Find out your options if the sale proceeds will not cover your loan balance. The lenders usually agree to drop the lien on the assets when the Restaurant is sold to a buyer.
The remaining balance Restaurant owner would have to pay back like a personal loan and would be a personal guarantor on the remaining balance.
Balance owed $200,000.
Sell the Restaurant for $125,000 and receive $112,500 after Broker’s Commission.
Personal Guarantor for $200,000 – $112,500 = $87,500
Do you have an Economic Injury Disaster Loan (EIDL)?
The EIDL loan cannot be forgiven, and the payments usually begin 30 months after the disbursement date. Even if the Restaurant closes, the lender can claim and sell your personal assets. The lender can claim the assets of any individual that signed the loan documentation as a personal guarantor.
Restaurant Broker advice: Know the balance of your EIDL loan. Contact an experienced Restaurant Broker for a complimentary restaurant valuation. Knowing the restaurant valuation will help the restaurant owner understand the potential value of the Restaurant and if it makes sense to try to sell the Restaurant.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or email at firstname.lastname@example.org. Visit our website at www.EATSbroker.com
Dominique Maddox of EATS Broker sells a Pizza Franchise in Crawford, Georgia. EATS Broker represented the seller and buyer. The seller is a repeat client; he bought the restaurant in 2021 with the assistance of the Restaurant Broker at EATS Broker.
The new owners bought the building and the Pizza Franchise for Sale. They plan to convert the location to a non-franchised pizza restaurant and open it in the next 60 days. The Crawford, Georgia, residents have been visiting this location for over 30 years.
Dallas, Texas Restaurant Broker Dominique Maddox of EATS Broker says, “Health issues can force a Restaurant Owner to sell immediately. I’m thankful Dan remembers using our services when he bought the restaurant and decided to use EATS Broker when it was time for him to sell a restaurant”.
The Restaurant Seller was filled with emotions about selling his restaurant. Still, he is pleased with the new buyers and believes they will do great in the business. Dan plans to enjoy his retirement and get the medical treatment he needs to get healthy.
It’s a common practice for restaurant owners to buy an existing restaurant and convert the location into a new concept. This approach helps restaurant owners not to go broke on the build-out and allows them to open the doors for business faster.
In the Restaurant Brokerage industry, the ultimate compliment is when a previous client returns for help. EATS Broker will always be thankful for Dan believing in our company and allowing us to help him sell a restaurant!
EATS Broker is based out of Dallas, Texas. Our Brokerage sells restaurants in over 15 states located on the South and East Coast.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at email@example.com. Visit our website at www.EATSbroker.comRead More
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 firstname.lastname@example.org. Visit our website at www.EATSbroker.com
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 email@example.com. Visit our website at www.EATSbroker.com.Read More
The Challenges to Selling a non-franchised restaurant differ from those selling a franchise brand. Restaurants that are Franchises are out selling independently owned restaurants for several reasons.
How often have you heard someone talk about opening or owning a restaurant? For the most part, our society loves the fantasy of restaurant ownership.
When it’s time to buy or start a restaurant, restauranteurs have to decide to join a Franchise Brand or start a non-franchise restaurant. The owners that prefer 100% ownership will choose to begin in a restaurant that is not a franchise.
The decision to open a restaurant that is a non-franchised restaurant can save a substantial amount of start-up money required for a franchise brand. Instantly restauranteurs save on the following items
–Development Fee ranges from $5,000-$50,000
-Royalty Fees range from 3%-10%
-National Marketing Fees
-Required Training cost
-Restaurant Equipment requirements
Dallas, Texas Restaurant Broker Dominique Maddox says, “the initial fee to start a non-franchise restaurant is usually lower. When it’s time to exit, the restaurant valuation is generally higher for Franchise restaurants.
EATS Broker challenges to selling a non-franchise restaurant are:
Restaurant Valuations: Non-franchise brands usually will have a lower sales multiple compared to National Franchise Brands. The multiple is based on several considerations:
-Number of units open
-Longevity of brand
Restaurant Valuation example:
Non-Franchise Brand: $100,000 (EBITDA) x 2.x (multiple) = $200,000 listing price
Franchise Brand: $100,000 (EBITDA) x 3x (multiple) = $300,000 listing price
Good Books and Records-Non-Franchise restaurants do not have a universal accounting system like most Franchise Brands require. The restaurant owner of an independently owned restaurant doesn’t have any checking their number for royalty and marketing fees.
Owners have the freedom to be creative with their books and records. Unorganized financials hurt when it comes to reselling a restaurant. Non-franchise restaurants with books and documents that are not clean or look fake rarely sell.
Restaurant Broker tip: Restaurant owners should confirm that tax returns, profit and loss statements, and sales tax filings tell the same story.
Buyers may request the following financial documents from sellers:
-Profit and Loss Statements
-Sales Tax Filings
-POS Sales Report
-Credit Card Statements
-Bank Statements (this is rarely provided in restaurant sales transactions)
Training and Support-New buyers are on their own to learn the concept, operations, employees, and marketing. The buyer usually completes no formal training before or after the sale transaction.
A training schedule can be agreed upon on the Asset Purchase Agreement, but it’s up to the restaurant seller to coordinate and execute. Once the restaurant is sold, the support usually ends from the previous owner.
Unlike a franchise brand with a training program, vendor relationships, and a support system, non-franchise brands may only have vendor relationships.
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 firstname.lastname@example.org. Visit our website at www.EATSbroker.com
Buying an existing restaurant to convert to a new concept is an excellent way for a non-experienced restaurant owner and an experienced restaurateur to become a restaurant owner. The new buyers benefit from the hard work the current owner has experienced to build out the restaurant, open the restaurant, and maintain the restaurant.
An existing restaurant can be purchased to keep operating as the current concept or converted to a new one. The buyer who plans to convert an existing restaurant space to a new idea thinks about the deal differently than a buyer who keeps the concept the same.
Dallas Restaurant Broker Dominique Maddox says, “buying an existing restaurant for sale and converting to a new concept saves time to open the doors and money on the build-out cost.” It takes out some of the unknown cost that is usually associated with new restaurant openings”.
Restaurant Franchise Brands are buying Asset Sale Restaurants and converting the space to a new franchise opening for a fraction of the price of a completely new build-out.
Buying an existing restaurant doesn’t come with a checklist. EATS Broker Checklist provides a list of items to consider when purchasing an Existing Restaurant.
Converting Restaurant to New Concept: 10 THINGS TO CONSIDER
-Does the size of the kitchen work for your concept?
-What kitchen equipment currently installed will you use?
– Does the size of the grease trap work for your concept?
-Parking available for customers
-How long is the hood system?
-How much does new signage cost?
-How much will be painting the walls cost?
-Does the HVAC system work correctly?
-Can the new concept support the current lease and rent structure (rent should be only 4%-8% of total sales)
-Will the landlord approve the lease?
Items to have ready for the landlord to review:
Business Plan with three years forecast- Tell your Restaurant Story and why your new concept will succeed.
Personal Financial Statement
Copy of Menu-
Resume or Bio-explain how our past work experience will help you in the new role.
Proof of liquid assets-Bank Statement, 401K statement, or letter from your bank
Copy of Personal Tax Returns
Restaurant buyers that want to buy a restaurant and convert an existing restaurant to a new concept can see that a restaurant space has potential but needs the right idea!
For more information on the restaurant market and other available consulting services, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at email@example.com. Visit our website at www.EATSbroker.com.
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.”
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 firstname.lastname@example.org. Visit our website at www.EATSbroker.com.