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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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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Thinking about selling a restaurant in 2023
It’s the time of the year when restaurant owners are thinking about selling a restaurant in 2023. It’s been a challenging year with increased labor costs, supply chain issues, food price inflation, and a lack of government financial assistance.
At the end of the year, some Restaurant owners must sacrifice time spent with their loved ones to work in the restaurant during the Holidays. It’s a time of the year some Restaurateurs think about life after restaurant ownership.
Dallas Restaurant Broker Dominique Maddox says, “if a restaurant owner wants to sell a restaurant in 2023, I would advise getting a Restaurant Valuation now”. Talking with a Restaurant Broker now can provide restaurant owners with excellent points to discuss with their tax professional, to help them get the highest restaurant valuation.
EATS Broker provides three tips on how to get ready to sell a restaurant.
1st Get your documents in order– This is one of the essential steps in getting a restaurant ready to sell. Buyers will request several financial documents during the due diligence process, and sellers should be able to provide several copies promptly. Remember, time kills deals; buyers want information provided quickly.
Restaurant Brokers Checklist for documents to collect:
Three years of tax returns
Three years of Profit and Loss statements
Equipment List- should only include items owned by the seller
A copy of the lease and all amendments
Copy of Vendor/Supplier List
Copy of Employees with pay rates
POS Sales Reports
Sales Tax Filings
Franchise Disclosure Document (if franchise)
2nd Check Restaurant Equipment-the presentation of how the equipment looks and works will help or hurt the chances of a restaurant selling. Before listing a restaurant for sale, restaurant owners should inspect all restaurant equipment to ensure it’s working correctly.
Deep clean equipment
Clean hood system
Replace any missing knobs or handles
Broken restaurant equipment should be removed
Any equipment not included in the sale should be removed.
3rd Be Patient– Selling a restaurant could be a marathon at times if the restaurant even sells. Only 30%-40% of restaurants listed for sale will sell, and it could take 6-8 months to sell a restaurant. January-March is the busiest time of the year for restaurants to go under contract.
Thru the process, restaurant owners should operate their restaurants as usual and not relax on the standards and procedures because the restaurant is listed for sale.
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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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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What are the Hardest Restaurants to Sell?
The Hardest Restaurants to Sell have several issues that make it difficult to sell a restaurant. The grim reality is that only 30%-40% of restaurants listed for sale will be sold to a new buyer. Why do some restaurants sell, and others don’t?
We’ve seen it all, but these two concepts we will focus on for this blog can be the hardest to sell:
Not Profitable or Losing Money: Asset Sales
Selling a restaurant that is not profitable or losing money yearly is challenging. These types of sales are called Asset Sales.
Buying an existing restaurant sold as an Asset Sale is a quick path to Restaurant Ownership. The previous seller has done the hard work of building the restaurant, dealing with contractors, getting the permits, negotiating the term on the lease, and establishing the location as a restaurant.
CONS:
-Buying a restaurant that is losing money is a liability
-Lease Assignment is usually involved when selling a restaurant; the current tenant has already negotiated the lease terms.
-Buying used restaurant equipment, leasehold improvements, and goodwill. It can be hard to estimate restaurant value and offer price.
Sellers usually are only interested in what they “want” or “need” for the restaurant. The problem is that buyers don’t care and only put a value on the Furniture, fixtures, Equipment, and goodwill.
Restaurant Broker Tip: The Seller should be ready to negotiate on terms. The seller might not get the sales price and terms they originally wanted when listing for sale. Restaurant owners should consider the money saved on monthly payments for the remainder of lease obligations.
Example – Monthly rent $7,000 per month x 36 months left on the lease as personal guarantor
$7,000 x 36 = $252,000 savings!
Chef-Driven Concept:
Starting a restaurant is a Chef’s dream to have the ability to use their culinary skills to create unbelievable dishes. Chefs are trained to stand for hours and work in an intensive working atmosphere. Several chef-driven concepts don’t have written recipes; they are all in the Chef’s head.
Many chefs will burn out and want to sell to someone who can work demanding shifts.
CONS:
– Hard to find a trained chef with liquid assets to buy the restaurant and qualify for lease assignment with the landlord.
– Only a tiny minority of buyers looking to buy a restaurant are comfortable cooking in a commercial kitchen or have the desire to cook.
– The lack of documented recipes creates a problem with consistency
– Takes a certain level of culinary training and experience to be successful
Restaurant Broker Tip: These restaurant owners need to consider the importance of having a trained Sous Chef. The Chef needs to be skilled enough to operate the kitchen like the owner. When a buyer knows that an experienced Chef will stay on board once the restaurant is sold, it provides a certain level of comfort.
The restaurant owners need to have documented recipes with measurements to ensure consistency.
When trying to sell a restaurant that can be considered some of the Hardest Restaurants to Sell, owners should have realistic expectations.
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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How to sell a restaurant? Tell your Restaurant Story
To sell a restaurant, one must first tell “The Restaurant Story” to the buyer that they believe and want to be a part of the story moving forward. Restaurant buyers want to know the story of the Restaurant and the owner. The “Restaurant Story” explains why, how, and opportunities for continued success to the buyer.
Most restaurant buyers will purchase a restaurant based on the opportunity to make a profit and the Restaurant Story. The most complex restaurants to sell are locations that are losing money or buyers don’t can’t relate to “The Restaurant Story.”
Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers view 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”.
EATS Broker “Restaurant Story” Kit Includes:
– Restaurant’s startup story explains:
- Why was the Restaurant started?
- How was the Restaurant started?
- Who began the Restaurant?
- Success stories
- Failure stories-includes opportunities to improve business
– Financial Picture– Restaurant Profitable or not
– Liability Picture– Lease terms, franchise terms, UCC lien search, and financing liabilities
– Staff Concerns
- Labor Cost and why?
- Full-time vs. part-time?
- Legal workers or paying under the table?
- Employee benefits and perks
- Longevity of staff members
– Food Cost Concerns
- Food Inventory Cost and why?
- Food ordering system
Franchise Restaurants
– Royalty Fee and Marketing Fee
– Transfer Fee
– Required Training Time
– Store upgrades required by Franchisor
– Franchise has first right of refusal to buy (sometimes)
– Training location
– Years left of Franchise Agreement
Before a Restaurant Owner contacts a Restaurant Resale Specialist for a restaurant valuation or tries to sell by themselves, they should be ready to tell their Restaurant Story!
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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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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Restaurant Broker Dominique Maddox of EATS Broker sells two Schlotzsky’s
Restaurant Broker Dominique Maddox of EATS Broker sells two Schlotzsky’s franchises in Galveston, Texas. EATS Broker represented the seller and buyer for this transaction.
The seller, a multi-unit owner, had experience selling their restaurants for sale by the owner in the past. After researching EATS Broker, they decided to give the Restaurant Brokerage Firm located in Dallas, Texas, an opportunity.
Texas Restaurant Broker Dominique Maddox says, “I really enjoyed this transaction. The seller was previously For Sale by the Owner. After a free phone consultation and a free restaurant valuation, they decided my Restaurant Brokerage was the best choice.
When I decided to start my Restaurant Brokerage in October 2019, I was challenged with a 2-year non-compete agreement in Georgia (which expires in October 2022). Low startup funds and the pandemic starts six months; later, in March 2020!
I will be forever thankful to Mr. Jain and his organization for giving my company an opportunity. This was my first Texas Restaurant for Sale I have sold since my relocation to Dallas, Texas”.
The buyer has an established history of success in the local market. Upgrades to the exterior and interior of both restaurants are coming soon. The new owner acquires the franchises for sale at the perfect time; summer tourism is booming in Galveston, Texas, right now!
Galveston is an island city on the Gulf Coast of Texas. It’s known for its restaurants that line Galveston Island Historic Pleasure Pier on the south shore. West is bird-rich Galveston Island State Park, with its trails, kayak launches, and fishing spots. Stewart Beach and East Beach are on the island’s eastern end.
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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