Buying an existing restaurant to convert to a new concept
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 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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Why do Restaurant Brokers prequalify buyers
Why do Restaurant Brokers prequalify buyers before providing the restaurant name and financials? The answer is simple to protect the confidential information on the restaurant for sale. Restaurant buyers sometimes don’t understand the process of buying a restaurant and what’s involved. Many potential buyers understand they must first sign a Non-Disclosure Agreement (NDA) or confidentiality agreement.
After the Non-Disclosure Agreement (DNA) is signed, restaurant buyers expect instantly to get the name and financials of the restaurant for sale. Buyers sometimes will request a copy of tax returns, profit and loss statements, a copy of a lease, etc. A professional Restaurant Broker should now ask buyers to provide proof of funds once this occurs.
Why do Restaurant Brokers prequalify buyers? The short answer is that only 2% of buyers that inquire about a restaurant for sale will buy. A Restaurant Broker usually must communicate with 60-75 buyers before a restaurant is sold.
Dallas Restaurant Broker Dominique Maddox says, “we prequalify buyers by getting proof of funds in the form of a bank statement, brokerage statement, 401K, or letter from a banker before providing their name, address, and financials on our restaurant listings”.
EATS Broker reasons to qualify a buyer:
- To protect the confidentiality of the listing agreement, limit the number of buyers with the information on the listing.
- Ensure the buyer has enough liquid assets to be approved by the landlord.
- Ensure the buyer has enough liquid assets to be approved by the Franchisor.
- To confirm, buyers can put down 10%-20% for SBA lending
Protecting the confidentiality of our client’s listing is a top priority at EATS Broker. Once the buyer signs the non-disclosure agreement and submits proof of funds, we provide the name and financials of the restaurant for sale.
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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Why use a Restaurant Broker? When selling a restaurant.
Why use a Restaurant Broker when selling a restaurant is a good question. Could you save on a commission and market your restaurant For Sale by Owner? Yes, but the reality about selling a restaurant is that only about 30%-40% of restaurants listed for sale will sell, and only about 2%-5% of the buyers looking for restaurants will buy.
A Restaurant Broker specializes in reselling independent-owned restaurants and franchise resales. Daily Restaurant Brokers analyze profit and loss statements, view POS sales reports, review commercial leases, analyze Sales Tax Filings and provide Restaurant Valuations.
Dallas Restaurant Broker Dominique Maddox says, “ I have a competitive edge compared to other Business Brokers because I only sell restaurants. I’m a Restaurant Resale Specialist in providing accurate restaurant valuations and selling them”.
Why should restaurant owners want to work with a professional full-time Restaurant Broker?
EATS Broker provides 3 Reasons to use a Restaurant Broker:
1. Restaurant owners are good at operating a restaurant but usually not good at selling a restaurant.
-Restaurant Brokers are trained negotiators – the best Restaurant Brokers are deal makers that ensure both parties get to the closing table. Finding a buyer can be the easiest part of the transaction, and bringing that same buyer to the finish line can be complicated.
-Restaurant Brokers are similar to Quarterbacks in football. A Restaurant Broker needs to know what all the parties all doing to help the deal get to the closing table, and they will correspond with the following parties throughout the process.
- Landlord
- Bank if lending required
- Closing Attorney
- Buyer
- Seller
- Buyer’s lawyer/attorney
- Seller’s lawyer/attorney
- Buyer’s CPA/accountant
- Franchisor
- Franchise Business Consultant
2. Restaurant Brokers have professional vendors to help deals get closed.
-An experience Restaurant Broker should be able to provide Restaurant Sellers with vendors to help close the deal. Restaurant Brokers will usually keep a list of the following vendors for clients
- Bank Lending Contacts
- Closing Attorney
- Escrow Companies
- 401K Providers to liquidate funds for the purchase
- Equipment Inspector
- E-2 Visa providers
3. Restaurant Broker understand the Franchise Approval Process
–EATS Broker Founder Dominique Maddox is a Certified Franchise Executive (CFE)
-Restaurant Brokers can help with the franchise approval. EATS Broker educates buyers about the following items when selling a franchise resale:
-Required Training Time
-Training Location
-Transfer fee
-Expectations for Discover Day
-Remaining years of Franchise Agreement
Ready to have a Restaurant Broker work for you? We can help.
EATS Broker is available to provide a 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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Bring your own bottle (BYOB). Is it good for restaurants?
Bring your own bottle (BYOB) policy can be good for restaurants, but it also has some significant downsides. If a restaurant has a BYOB policy, customers are allowed to bring their alcoholic beverage of choice to the restaurant. Strict licensing requirements and high taxes on alcohol sales have made the idea of restaurant owners to offer a Bring your own bottle (BYOB) popular.
Dallas Restaurant Broker Dominique Maddox says, “BYOB restaurants and bars are popular in Texas; this is a practice not commonly seen in Georgia, where I relocated from last year to Dallas, Texas. The concept of providing customers the freedom to BYOB is growing in cities like Philadelphia, Boston, Phoenix, and Dallas Fort Worth”.
EATS Broker provides a list of the pros and cons of owning a BYOB restaurant:
Pros:
-Does not require a state license to serve liquor (restaurant owners may have a beer and wine license). Restaurant owners can save money by not paying for a full liquor license.
-Can charge a corkage fee, usually, $3-$10 is the average cost, but the cost can go up to $20-35 depending on the city and state.
-Buyers tend to spend more money on food and desserts
-Customers like the freedom to bring their drink
-Can charge for glassware or mixture to compliment their drinks
-There are no statewide BYOB laws in Texas
-Less storage space is needed in the restaurant for liquor inventory
Cons:
-Liquor and cocktails are high-profit margin items on the menu
-When it’s time to sell the restaurant, BYOB concepts can be hard to resell to a buyer that prefers to have a full liquor license.
-Buyers can take advantage of the policy and order minimal food
-The server’s/waiters tips might be affected by lower check averages
-Customers can complain about the corkage fee
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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When to sell a restaurant? 8 reasons why that start with D!
When to sell a restaurant is a difficult decision for most restaurant owners. Interesting fact that the reason a restaurant owner wants to sell a restaurant usually will start with the letter D! Buyers are always curious about why a restaurant owner wants to sell a restaurant?
The Dallas Restaurant Broker at EATS Broker explains the most common reasons to sell a restaurant. There 8 reasons to sell a restaurant:
1. Debt– A restaurant owner has multiple forms of debt. All these forms of debt can affect a restaurant owner mentally and physically. One of the biggest concerns of a restaurant owner is to avoid bankruptcy and sell a restaurant for a profit.
-Landlord Debt
-Bank loan Debt
-Vendor Debt
-EIDL Loan Debt
-PPP Loan Debt
-UCC lien
2. Disability- There are many types of disabilities, such as intellectual, physical, sensory, and mental illnesses.
3. Divorce- Restaurant ownership’s demanding physical and financial requirements can break up a happy home and lead to divorce. Many restaurants depend on an owner/operator to be present to be successful.
It’s common for a restaurant owner to work 50-60 hours a week and work on the holidays. The life of a restaurant owner requires sacrifices from the family and owner.
4. Death- Everybody deals with recovering from death differently. The thought of restaurant ownership after death could seem impossible.
5. Disinterest– It’s easy to get disinterested in a restaurant that is unsuccessful or doesn’t live up to the restaurant owner’s dreams.
6. Declining Sales- This is one of the biggest reasons for selling a restaurant business. Inflation is at an all-time high, labor costs are exploding, and rents keep increasing.
7. Dissension among owners-Once partnerships start to be unproductive, and the relationship between parties starts to crumble, it’s time to sell your restaurant.
8. Disaster- The pandemic is a good example of a disaster that happens and changes everything.
**Delivery of a child would be another good reason for selling a restaurant business**
To learn more about EATS Broker consulting services or receive a complimentary restaurant valuation, contact Restaurant Resale Specialist Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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Are you selling your restaurant? Are you ready?
Have you thought about selling your restaurant? Are you ready to sell and let go? Selling a restaurant can be a mentally tough and draining decision. Several restaurant owners view ownership of a restaurant as having a child, an business identity, a way to provide for the family, and a legacy.
According to Forbes, baby Boomers, defined as people born between the years 1946 and 1964, account for approximately 40 percent of small business or franchise ownership.
Forbes also states that the Baby Boomer generation accounts for an estimated 2.3 million small businesses in the United States, employing over 25 million people. Many of these businesses are thriving, and nearly 60 percent have no succession or transition plan in place.
The Baby Boomer population today is listing restaurants for sale or looking for a restaurant valuation to consider their options to sell a restaurant.
Reasons for Baby Boomers to Sell a Restaurant:
- Pandemic
- Work labor shortage
- Inflation
- Retirement
- Health
- Divorce
- Partnership Issues
The Dallas Restaurant Broker Dominique Maddox states, “EATS Broker provides restaurant owners with a complimentary restaurant valuation. Numerous restaurant owners will inquire about a restaurant valuation but are not ready to sell”.
Today’s Restaurant Owners must be honest with themselves if they are ready to sell a restaurant? The Restaurant Broker provides some questions to consider when thinking about selling a restaurant.
How to know if you are ready to sell a restaurant? Ask yourself these questions:
- Is the restaurant ready for a sale?
- What are my plans after I sell my restaurant?
- Am I ready to sell a restaurant?
- What happens if I don’t sell my restaurant?
- Who can help with selling a restaurant?
- Should I try For Sale by Owner or hire a Restaurant Broker?
- What sales price will I need to be happy?
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, contact Texas 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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Questions to ask when Buying a Restaurant Franchise Resale
Customers that are buying a Restaurant Franchise resale do intensive research on the restaurant for sale opportunity but not enough research about the Franchise Brand. The relationship between a Franchisee and Franchisor is a business marriage that can end in success or divorce.
Franchise Brands provide the franchise disclosure document (FDD) to individuals interested in becoming a Franchisee. The FDD is the blueprint on how the working relationship between Franchisee and Franchisor will work.
Franchisors must provide the potential Franchisee with the FDD at least 14 days before it can be signed or any money transferred. It’s a great time to ensure potential restaurant buyers get some critical questions answered.
Dallas Restaurant Broker Dominique Maddox says, “most restaurant buyers only think about the royalty fees, marketing fees, transfer fees, and restaurant upgrades required.
When Buying a Restaurant Franchise for Sale, I think buyers should be focused on researching and asking questions about the Franchisor, Franchise Support Services, and operations.
The Restaurant Broker at EATS Broker provides a list of critical questions that should be answered or considered before buying a restaurant franchise for sale.
-How long has the Franchisor been franchising?
-What is the experience of the Management Team?
-What is the expansion strategy of the Franchisor?
-What is the Franchisee selection process?
-How long is the term of the Franchise Agreement?
-What does the initial training consist of?
-Does the Franchisor have a preferred food supplier?
-What makes the product unique?
-What is the brand position within the category?
-What is the market demand for the product?
-Have unit sales been decreasing or increasing?
-How many units does the Franchise have open?
The Franchise Disclosure Document (FDD) has some of the answers to these questions above but does not have them all.
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, contact Texas 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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