Restaurant Sellers vs. Restaurant Buyers-Different Mindsets
Restaurant Sellers vs. Restaurant Buyers have different mindsets when it involves buying or selling a restaurant. When a restaurant owner decides to sell a restaurant, the primary goals are to get the highest sales price, highest net proceeds, remove the lease as a guarantor, and close quickly.
A restaurant buyer’s focus differs slightly from the sellers and is directly focused on the terms, conditions, and stipulations on an Asset Purchase Agreement.
An asset purchase agreement between a buyer and a seller explains the terms and conditions related to purchasing and selling a restaurant‘s assets. The Asset Purchase Agreement will automatically satisfy the restaurant owner’s needs when filled out correctly. The agreement will document the listing price and closing date.
The restaurant buyer needs to confirm that they are comfortable with the conditions and terms of an Asset Purchase Agreement before signing and setting up an escrow account. The escrow deposit is a good faith deposit that can range from $10,000-$50,000. The buyer’s deposit is protected by the stipulations documented in the purchase agreement.
Dallas Restaurant Broker Dominique Maddox says, “restaurant buyers should make sure they have a trained Restaurant Broker prepare an Asset Purchase Agreement on their behalf. A Restaurant Broker knows the stipulations to add that give the buyer’s escrow deposit the most protection.”
EATS Broker has encountered several buyers that have lost their escrow deposit because they had an untrained Restaurant Broker prepare an agreement for them.
A restaurant buyer should make sure to cover the basics of a Purchase Agreement:
- Due Diligence Period
- Landlord Approval Stipulation
- Bank Lending Approval-if lending is needed
- Escrow Deposit Amount
- All UCC liens should be removed from Equipment
- Sales Tax Clearance letter supplied by the seller before the closing date
- All Equipment should be in working order
- Franchisor Approval stipulation-if restaurant is a franchise for sale
- Who pays for the Transfer Fee?
- Who pays for restaurant remodels if required by franchise?
- Closing attorney contact information
- Restaurant Equipment included in the sale
- Inventory- paid outside of purchase price or included in offer price
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Commercial Lease Assignment: What should you know?
What should you know about a Commercial Lease Assignment before signing the lease? The lease assignment can be short and brief, but it has a tremendous impact on the capability of a restaurant owner selling a restaurant in the future.
When buying or selling a restaurant, it is essential to evaluate the strength or weakness of a commercial lease assignment language.
A restaurant owner that wants to sell a restaurant can easily be stopped by the language in their lease that covers the possibility of a lease assignment to a new tenant.
What should you know if you are negotiating a lease assignment language for a commercial lease? This blog presents a brief breakdown of some of the key points involved in a lease assignment.
When a tenant’s lease interest is assigned to a new tenant/buyer, this is called a lease assignment. The current tenant has already agreed to terms with the landlord; once the new tenant signs the lease assignment, they are now responsible for the lease terms. The landlord’s standard practice is to keep the previous tenant on the lease as a guarantor and add the new tenant.
Most negotiated leases will contain a provision requiring that landlord’s consent to an assignment is necessary, but such approval will not be unreasonably withheld. The tenant will likely also try to include the landlord’s obligation to not unreasonably delay or condition its consent, according to Attorney John G. Kelly.
Dallas Restaurant Broker Dominique Maddox says, “Selling a restaurant has multiple tasks/assignments that have to be completed before restaurant ownership is transferred. Practically every commercial lease will have detailed requirements for the assignment process.
Landlord approval for a lease assignment is a critical part of the selling process. The majority of restaurant owners are clueless about the provisions in their lease for a lease assignment”.
EATS Restaurant Brokers list language to know in a commercial lease regarding a lease assignment
Assignment Fee:
This fee is payable to the landlord before a tenant can transfer the rights to a commercial lease. The amount is usually not negotiated between landlord and tenant, most leases landlord input whatever number they want.
The assignment fees usually range from $0-$10,000 (listings for sale under $2 million); it really depends on the landlord and the language in the lease. The lease assignment fee majority of the time, is paid by the seller.
EATS Restaurant Brokers tip: Read the lease before signing and know how much the assignment fee will cost you.
Financial Qualifications:
Landlords have several different qualifying metrics a tenant should pass before getting approved for a lease. The lease assignment language should not be as strict as the current lease for a new tenant because the business is up and running, usually generating sales.
Depending on the landlord, EATS Restaurant Brokers has seen lease assignments that automatically approve a new tenant if they keep the lease space the same franchise brand. But also seen lease assignment language where the new tenant has to have as much or more liquid assets as the previous tenant. This can be an unreasonable requirement if the first tenant is financially well off when signing the original lease.
Renewal Option
The renewal option gives a tenant the right to extend a commercial lease expiring in the future. Lease options are usually extended by 3 years, 5 years, or 10 years.
Renewal options should have specific language on the conditions required for a tenant to extend an expiring lease. Many leases need a tenant to give 90-180 days’ written notice to confirm if the tenant plans to extend the lease.
Restaurant owners who are trying to sell a restaurant and lease are about to expire might think they will just have the new buyer sign the tenant.
If the window to provide a landlord with a written notice has expired, the landlord has the right to refuse to agree to a lease assignment.
EATS Restaurant Brokers Tip: The restaurant owner should know how far in advance written notice to extend the lease is required to the landlord.
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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Independent Owned Restaurants-How to Build Value?
As an Independent Owned Restaurant, how do you increase restaurant value for resale besides good food and environment? Independent Owned Restaurants for sale usually sell for less than Franchise Owned Restaurants.
Franchise Restaurants for sale provide a potential buyer with systems, training, and brand awareness to customers; these are non-tangible items that improve resale value.
The best time as a non-franchise restaurant to start thinking about organizing and operating your restaurant like a franchise is at the very beginning. Start thinking about training manuals, required training time for a position, social media presence, and misc.
60% of Independent owned restaurant operators will fail within three years of opening the doors for business. 80% will close within 5 years. The reality of opening a restaurant is you should always have an exit plan.
When it’s time to sell a restaurant, how does a non-franchise restaurant for sale increase its odds of selling a restaurant to a new buyer?
Dallas Restaurant Broker Dominique Maddox says, “ my suggestions to improve value are create a story behind the establishment, cook from scratch, have fantastic food, and create systems easy to follow.
After ten years of selling restaurants, I have found that non-franchise-owned restaurants for sale that are not unique and organized usually don’t sell.
EATS Restaurant Brokers provides TIPS to improve value!
- Story behind establishment: Have a story behind your restaurant; people relate and remember stories. This is one of the best ways to build brand loyalty from customers. Make sure your customers can read your story by posting on the wall, website, cups, etc.
Has the restaurant been passed down from generation to generation? Did a unique passion project inspire the owner to start the restaurant? These are exciting stories that make a restaurant unique. Key take-away people remember stories!
- Create Systems: The POS system should be updated to record all valuable sales information. POS systems are useful tools to analyze to improve restaurant profitability.
Create Training Manual: A manual with all the training material needed for a new operator is a valuable tool. The manual should have the job descriptions for each position. The manual should describe the process and time requirements for new hires.
- Unique Food– Do you have a unique cooking style, use exciting ingredients, how is the presentation? Outstanding food and experience will always get customers talking about a restaurant. Word of mouth referrals is the best and cheapest way to grow your restaurant.
Create a unique style of cooking that customers have to visit your restaurant to enjoy. Besides the type of cooking is the taste of food. The best non-franchise restaurants cook from scratch.
Create a menu book that lists all of the cooking recipes, measurements required and cooking time.
The suggestions listed in this blog are intended to help an Independently owned restaurant owner sell a restaurant business in the future. These tips should help the restaurant operator stand out from the competition.
Want more help selling a restaurant? Contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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10 Reasons for selling a restaurant
Reasons for selling a restaurant can differ from restaurant owner to owner. Everyone has a specific reason that they want to sell a restaurant.
EATS Restaurant Brokers list of Top 10 reasons for selling a restaurant:
Retirement– The baby boomers are ready to retire and enjoy the last chapter of their life in peace without the stress of restaurant ownership. The Covid-19 pandemic and worker shortage have baby boomers listing restaurants for sale faster than in the past.
Failing Restaurant– 60% of restaurants will fail within three years after opening the doors. 80% will close the doors permanently within five years of opening up for business. Restaurant ownership is a rewarding but demanding business to survive in for multiple years.
Lack of Capital- The restaurant business is all about the numbers and ratios to total sales. Many restaurant owners have to use personal capital to keep a restaurant operating. Liquid capital can quickly disappear from bank accounts when it comes to restaurant ownership; money is one of the most significant driving factors for restaurant owners to sell a restaurant.
Burnout– The restaurant industry is a lifestyle that most people cannot handle over an extended time. Restaurant owners can be asked to work 10-12 hour shifts and always be on call for problems.
Divorce- Several restaurants for sale on the buyer market are due to parties getting divorced.
Illness- To be successful in the restaurant industry, you need to stay healthy and active. The restaurant hospitality industry is for the strong mentally and physically and, individuals can endure long hours and stressful situations. Illness is a significant factor in the decision-making when it’s time to sell a restaurant.
Family – Time with the family or lack of time with the family is a big motivator to sell a restaurant. The kids grow up fast, the babies start walking before you know it, the time at night before bed with your soulmate means the world to most.
Bored-Depending on the type of restaurant owned, some restaurants have lots of downtown during non-peak hours. Restaurant owners whose sales are low and can’t attract customers can get bored with restaurant ownership.
Overwhelmed-Restaurant owners have to wear multiple hats when owning a restaurant. One minute they can be ordering inventory, next minute dealing with a busted leak in the ceiling, POS machine not working, and workers are calling out for work. Juggling multiple tasks and responsibilities can be overwhelming to even an experienced restauranteur.
Stress- The restaurant industry is notorious for sending people to the hospital. The stress related to the long hours, the bills adding up, labor work shortage, can lead to health-related stress issues for many individuals.
Additional Issues outside of Top 10 list:
All equity tied up in restaurant assets
The restaurant business is too risky
Want to focus on other business or core business
Outside factors (political/economic)
To raise capital/funds for another business
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Restaurant Seller and Buyer Meeting: Tips for Success
EATS Restaurant Brokers decided to create a Restaurant Seller and Buyer Meeting-Tips for Success checklist. The initial meeting between the buyer and a seller can dictate how the working relationship will be in the future.
The goal of the initial meeting is to familiarize both Restaurant Seller and Restaurant Buyer, view the back of the house, buyers get an opportunity to ask probing questions and review restaurant financials. The most straightforward deals are when the buyer and seller like and respect each other. When the personalities don’t mix, the restaurant closing process could be filled with turbulence.
Dominique Maddox of EATS Restaurant Brokers says, “ The best method to minimize differences in personalities is to keep the deal flow managed by a specialized trained Restaurant Broker. When Restaurant Sellers and Buyers communicate directly without a skilled Restaurant Broker, a deal can crumble quickly”.
EATS Restaurant Brokers 7 Tips for a Successful Seller and Buyer meeting.
- Buyer and seller should both have face masks on, even if social distancing is done.
- Walk around the restaurant to get the seller talking and to get the buyer more comfortable. Great way to break the ice between parties.
- We recommended starting with the back of the house (BOH) to show the kitchen area and cooking equipment. This task can range in time depending on the size of the restaurant and restaurant owner explaining items.
- Sit down for a meeting- This is a great time to introduce each party to start talking about why one party wants to sell and the buying party to explain the interest in buying.
- The sit-down meeting allows the buyer to ask questions about the restaurant operations, restaurant equipment, lease, employees, financials, and willingness to negotiate on price.
- Restaurant sellers should be prepared to explain the Cost of Goods (COGS), Labor, Sales, and potential to increase sales.
- Buyer should review financials before meeting with the seller. The buyer should come to the meeting with prepared questions to ask the seller.
- Follow-up questions after the meeting should be directed to Restaurant Broker to share with the seller.
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 sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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How to qualify for a SBA loan
What is essential for underwriting SBA loans, and how to qualify for a SBA loan? EATS Restaurant Brokers receive this question often when talking with restaurant buyers.
Qualifying for SBA loans has multiple vital factors to consider; we will cover the critical points in this blog.
The process to qualify for SBA loans has changed and evolved since the pandemic began. In today’s post-Covid environment, securing financing for RV parks and campgrounds is more easily approved, while fitness centers and restaurants are challenging.
When providing restaurant valuations for restaurant owners, EATS Restaurant Brokers always let them know, based on their financials, if the restaurant will get approved for SBA lending. Dealing with the buyers to get qualified for lending is a much different story.
Dominique Maddox, a Restaurant Resale Specialist, states, “selling franchise restaurants with SBA loans today has far less failure rate than independently owned restaurants. Established franchise restaurant brands give buyers better odds to qualify for bank lending.
Franchise Restaurants for sale have systems, brand awareness, training, Financial Disclosure Document (FDD), and they are proven to have success”.
Selling a restaurant? Here are the 5 Key Factors for Buyers to get qualified for SBA lending:
1. Background
Underwriters are always curious about a buyer’s background. They want to know about the previous work experience and education that could help a buyer be successful. Previous or current ownership and management experience is a huge plus.
If a buyer does not have restaurant experience, then underwriters will consider what current or previous experience they have to help them be successful? The buyer might have a background in sales, marketing, management that can be very useful in their new role.
2. Credit Score and Debt-to-Income ratio
To be safe, a restaurant buyer should have a credit score of over 700. Yes, lower credit scores get approved, but sometimes the lender will ask for additional supporting documentation.
A debt-to-income ratio is derived by dividing the monthly debt payments by the monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well a borrower manages monthly debts — and if a borrower can afford to repay a loan.
3. Skin in the Game
Today’s lender will ask for a range from 10%-30% down depending on the borrower and situation. Bank wants to make sure the borrower has skin in the game. EATS Restaurant Brokers recommends that buyers have at least 20% down or do not consider lending.
In some cases, the SBA lender will require the seller to carry a seller financing note up to 10%, so everyone has skin in the game, and the buyers have to bring less to the closing table.
4. Collateral
Besides money down, the SBA lenders want some collateral attached to the loan. Collateral will not always be requested for loans under $350,000. Collateral can be described as something pledged as security for repayment of a loan, to be forfeited in a default.
Disclaimer-if a borrower has a house that is free and clear of payments and wants a loan, typically, the bank will use the personal home as collateral.
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 sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Selling a Restaurant: What Documentation is needed?
When selling a restaurant, what documentation is needed from the seller? The answer is simple it depends on what type of sales transaction. Trained Restaurant Brokers use two methods when providing a Restaurant Valuation to a seller.
The most profitable and best way to sell a restaurant is based on past Profit and Loss Statements and Tax Returns. If these documentations are not available, the restaurant should be priced as an Asset Sale, meaning pennies on the dollar for the equipment and build-out.
EATS Broker breaks down the essential documentation needed for both types of transactions. We list the documentation that is provided during the due diligence period for the buyer:
Selling a Restaurant Business Based on Tax Returns and Profit and Loss Statements:
– Tax Returns for the past three years
– Profit and Loss Statements for past three years
– Copy of Lease and all amendments
– Sales Tax Clearance Letter
– POS Sales Report
– Bank Statements (sometimes)
– Balance Sheet
– Copy of Franchise Royalty Report
– Equipment List (only items owned by the seller)
– Franchise Agreement
– Sales Tax History
Selling a Restaurant priced as an Asset Sale:
– Sales Tax Clearance Letter
– Copy of Lease and all amendments
– Equipment List
– Limited Profit and Loss information
– Sales Tax History (sometimes)
– Bank Statements (sometimes)
Providing documentation for a successful and profitable business net the seller the highest asking price, can qualify for a restaurant for bank lending and attracts more buyers. Asset Sale is harder to sell and makes the Restaurant Broker work for their commission.
Asset Sale can be a challenging sale because you sell the opportunity or potential to a new buyer. You can tell when a restaurant is listed as an Asset Sale because Cash Flow and EBITDA will be low or nonexistent.
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a restaurant’s overall financial performance.
Dominique Maddox of EATS Restaurant Brokers says, “selling a restaurant business has two phases for a restaurant owner. First providing the documents needed for a valuation. Second, providing more detailed supporting documentation during the buyer’s due diligence period”.
Some restaurant owners can be frustrated and think they provided enough financial information during the valuation phase for buyers to confirm their numbers. This thinking is usually incorrect, and most buyers will ask and want to see more additional supporting documentation before arriving at the closing table.
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 sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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Selling a Franchise Restaurant vs Non-Franchise
What are the Pros and Cons of Selling a Franchise Restaurant vs. Non-Franchise is a common question EATS Restaurant Brokers receives from sellers? Franchise Restaurants for Sale make up 60%-70% of all restaurant sold listings annually. Why is the number so high compared to independently owned restaurants?
The hard facts are only 30%-40% of restaurants listed on the for-sale market will get sold to new buyers. Why does a Franchise Restaurant have a better chance of being sold than a non-franchise restaurant for sale?
EATS Broker discuss the Pros and Cons:
Pros:
- Trade Name: Franchisees have the right to use an established trade name, marks, logo, and goodwill. Buyers are generally knowledgeable about the concept and menu.
- Restaurant Valuation: Franchise Restaurants usually get a higher price valuation.
- Franchise Business Consultant: New buyers are assigned a Consultant from the franchise brand to receive additional training and support.
- Books and Records: Franchise Restaurants are known to have better books and records to provide to buyers. Franchise concepts typically require Franchisees to have updated POS sales systems.
- Landlord Approval-: Landlords, are most comfortable approving restaurant concepts for lease spaces. Occasionally lease assignments will have guaranteed landlord approval for franchise concepts.
- Bank Lending: Banks view franchise restaurants as less risky loans compared to an independently owned restaurant. The approval process, at times, can be quickly done.
Cons:
- Franchise Fee: Initial Franchise Agreement Fee ranges from $20,000-$100,000+ depending on Franchise. When a restaurant transfers to a new buyer, a transfer fee is generally required, usually up to 50% of the Franchise Agreement fee.
- Royalty: This operating fee is calculated based on Gross sales ranging from 3%-10% (it could be higher).
- National Marketing Fee: Required fee each franchisee pays to the franchisor to help with the franchise marketing cost. Expenses can range from 0%-6%.
- Remodel Cost: Franchises require locations to date on current specs before a sales transfer can take place to a new buyer. Restaurant remodels cost can be prohibitive depending on the Franchise’s current location requirements. Required upgrades can range from updated tables, chairs, signage, POS system upgrade, lighting, and cooking equipment.
- Required Training: New franchisees are required to complete a certain number of hours working in the restaurant before a buyer can achieve a sales transfer. This process from start to finish can range from 2 weeks-3 months.
- Franchise Approval: Buyers have to get approved by the Franchise.
- Vendors: Franchises have a list of preferred vendors that the franchisees must use.
Independent Owned Restaurant for Sale
Pros:
- No Royalty: Buyers are not required to pay 3%-10% to any franchise; this could equal hefty savings yearly.
- No Required Training: The buyer can schedule training with the seller, but a certain number of hours working in the new buyer’s business is not required to complete the transaction.
- Time to close: Once the buyer and seller agree to terms on an Asset Sale purchase and the landlord approves the new buyer, the deal can close. One of the most significant advantages of non-franchise sales is the lack of time to complete this deal. Instead of 2-4 months to close on a franchise concept, a buyer can close on a non-franchise restaurant in 2-4 weeks.
- Remodel Cost: Sellers are not required to do any upgrades unless buyers request.
- National Marketing Fee: Buyers are not required to pay an automatic marketing fee to anyone.
- Freedom: Have the ability to make changes with getting franchise approval. Owners have the freedom to choose their vendors.
- Local: Customers like to support local restaurants that are not national franchise concepts.
Cons:
- Restaurant Valuation: Normally are lower than Franchise concepts. Unless the restaurant has good books and records, goodwill, and has been open and established for years.
- Training: 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.
- Trade name: Building up the trade name is 100% the responsibility of the operator. The new owner has to maintain or establish a new identity for the restaurant.
- Books and Records: Keeping updated and accurate books and records can be challenging for non-franchise concepts.
- Landlord approval: Landlords will frequently do more due diligence on a non-franchise concept before they approve a lease assignment. From the landlord’s standpoint, it is riskier to approve a non-franchise compared to a franchise concept.
Franchise Restaurant ownership and independently owned restaurants have tons of pros and cons to consider when buying a restaurant.
EATS Broker are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbroker.com or 404-993-4448.
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How to review a Restaurant Profit and Loss Statement
Understanding how to review a Restaurant Profit and Loss Statement is a crucial variable for a Restaurant Valuation to determine the restaurant’s actual value. Restaurants are one of the industries that the ratios on a profit and loss statement can give valuable clues on how a seller operates his/her restaurant.
Unexperienced buyers will look straight down to the Net Income number when reviewing a Profit and Loss Statement. Experienced restaurant operators/buyers will start from the top and work down; they will check the key variables’ ratios.
EATS Restaurant Brokers -5 Critical Categories to review ratio percentages on a Profit and Loss Statement:
• Sales
• Cost of Goods Sold
• Payroll
• Rent/ Occupancy
• Net Income
Let’s start from the top of the Profit and Loss Statement:
1. Sales: This category is the most critical number because all the other key variables are based on the net sales number. Today, restaurant owners can automatically pull the total sales numbers from an integrated Point of Sale( POS). Total Sales is a good indicator to show if the restaurant sales are improving or declining yearly.
2. Cost of goods sold (COGS): Refers to the direct costs of producing the goods sold by a restaurant. Cost of Goods should typically run around 28%-32% of sales. This number can increase or decrease depending on the restaurant concept.
Example:
Pizza restaurants COGS are usually lower, ranging from 25%-28%
Full-Service Restaurants COGS are higher, ranging from 33%-36%
Sub Sandwich Franchise COGS typically range from 28%-33%
3. Payroll: Includes labor cost, including hourly and salaried, payroll taxes, 401K contributions, and other employee benefits. An average payroll rate should be around 25%.
Restaurant Brokers come across some diverse Payroll expense ranges when providing restaurant valuation. Here are some scenarios:
-Low under 20%- Restaurant has family members working extensive hours, or husband and wife are working over 40 hours weekly
-Low under 20%-Owner debits some payroll expenses under Cost of Goods Sold (COGS).
-Low under 20%-The most common scenario is CASH-owner is paying employees in CASH, aka under the table.
(These factors are essential because they make a difference in the restaurant valuation)
4. Rent/ Occupancy Expense: Occupancy costs are costs related to occupying space, including; rent, real estate taxes, personal property taxes, and insurance on the building. Occupancy Costs should be between 7%-11% of sales.
EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Occupancy Costs that are 5% or less and 12%-18% should get an experienced Restaurant Broker’s attention providing a restaurant valuation. Leases that have a monthly occupancy cost of 12%-18% are an indication of a bad lease. This ratio number for rental occupancy can be challenging for restaurant owners trying to sell a restaurant to a buyer.
On the opposite end, Occupancy Cost that is 5% or less should be explained in detail. In most cases, the restaurant seller owns the building and pays a low mortgage, or the landlord provided reduced rent as a concession.
5. Net income (NI), also called net earnings, is calculated as sales minus the cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expense.
Restaurant Net Incomes usually range from 5%-10%, a well-managed restaurant can see percentages increase up to 15%.
EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Net Income over 20% should be analyzed and explained. Most times, sellers are not deducting all expenses, under-reporting numbers, or combining multiple restaurant expenses.
**Disclaimer if the seller provides a net income over 20% for numerous years on the TAX RETURNS, then it makes it easier to believe.
Restaurant Sellers should understand their Profit and Loss statement and be ready to explain specific ratios if they are irregular from the average ratio ranges. EATS Broker reviews restaurant Profit and Loss Statements daily. We understand the restaurant business down to the percentage numbers.
EATS Broker are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbroker.com
or 404-993-4448.
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What is The Best Way to Sell a Restaurant?
The best way to sell a restaurant in today’s market with restaurants closing at a record pace since the pandemic started is a tough question to answer.
BizBuySell’s 3rd Quarter Insight Report reflects a market-driven by opportunity seekers and business owners either well-positioned to profit or forced to exit.
The Restaurant Owners forced to exit likely will have to close permanently or try to sell as an Asset Sale. When a restaurant buyer is purchasing a restaurant, they are purchasing a salary/job or buying an Asset Sale.
An Asset Sale is a restaurant that is not profitable; books and records are not clean, open for less than two years, or closed. Why would anyone buy a restaurant that is not profitable? An Asset Sale can be a quick path to restaurant ownership.
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “The market in 2021 is projected to be filled with restaurants listed as an Asset Sale. The pandemic has reduced restaurant sales by 10%-50% of 2019 sales numbers for most owners. Restaurants work on narrow net margins ranging from 5%-10% starting and have little room for error. The pandemic will force many restaurant sellers to list for sale as an Asset Sale in 2021.
A large number of Restaurant Owners are trying to sell to pay back the rent owed and to get out of the lease obligations that usually come with a personal guarantor. They are selling their restaurant for pennies on the dollars”.
BizBuySell.com states that Asset Sales have become an increasingly popular path to business ownership. The only sure discount for value shoppers is likely to come by way of a business asset sale.
Restaurant buyers purchasing an Asset Sale can keep the concept the same or convert to a new idea. Restaurant Franchise Brands are taking advantage of the restaurant inventory coming available to buy and convert to their own concept. Buying an Asset Sale can save a restaurant owner thousands of dollars on build-out cost and save time to open the doors for business.
Asset Sales can be a perfect opportunity for existing restaurant owners to expand or for new restaurant owners to save money on opening a new restaurant. According to BizBuySell’s survey, 47% of buyers are considering purchasing the assets of a closed business.
EATS Broker recommends restaurant owners planning to sell a restaurant in 2021 to hurry to hit the market before inventory gets saturated with Asset Sales. January-April are the highest months for buyer activity on restaurants 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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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