Selling a Restaurant-Mistakes to Avoid
If you are selling a restaurant, there are mistakes to avoid that can become obstacles to reaching the closing table. To increase the odds of a restaurant for sale getting to the closing table, the Asset Sale Purchase agreement needs to be adequately prepared by a trained professional.
The sales price is only the start of a complex negotiating process that the small details are a BIG determining factor for success. The restaurant resale process negotiations include language that must be agreed upon by both restaurant seller and restaurant buyer.
Once the price has been agreed upon, the knots and bolts of the deal still need to be finalized. Most are not familiar with the critical items that should be addressed in a purchase agreement.
EATS Restaurant Brokers are Restaurant Resale Specialist that understands the critical items on the Asset Purchase Agreement that need to be negotiated upfront between both parties. This blog will cover the essential details that should be addressed in an Asset Purchase Agreement.
Texas Restaurant Broker Dominique Maddox says, “We have a high closing rate because, after ten years as a Restaurant Broker, I have extensive training in restaurant sales negotiations. I understand the critical details to address upfront.
We recently moved our headquarters to Dallas, Texas; we are excited about helping restaurant owners in Texas to avoid mistakes that stop them from selling a restaurant and getting paid at the closing table”.
EATS Restaurant Brokers Top Mistakes to Avoid
Equipment List: The equipment list is usually an itemized list of restaurant equipment and decorations included in the restaurant sale. The list is created by the restaurant owner and provided to the interested buying parties.
The equipment list is an essential part of the restaurant valuation, Asset Purchase Agreement, and assets a buyer will receive. Buyers should understand that fixtures attached to the building belong to the landlord and not the tenant.
Grease trap, hood system, walk-in cooler, walk-in freezer, water sink, and built-in bar should not be included on an equipment list. When an Asset Purchase Agreement is fully executed, it contains a list of equipment that will transfer ownership.
Mistakes to Avoid: Check items on the equipment list to confirm ownership. Restaurant equipment is commonly rented (mainly dishwasher); a restaurant owner can’t sell something they don’t own. Read the lease to ensure the landlord does not own the equipment and the current tenant didn’t lease a fully equipped restaurant space.
Fees: Who Covers them?
Attorney Fees
Who pays the attorney fees and why? In residential real estate, it’s common for both parties to split closing attorney fees in residential real estate, or the Seller will sometimes pay the fees.
Restaurant Brokerage is different; it’s the buyer’s cost and responsibility. It’s beneficial for a restaurant buyer to pick and pay a closing attorney that understands business brokerage. A closing attorney is not needed to close a simple deal if a deal does not involve bank lending or franchise ownership transfer.
Mistake to Avoid– Choose a closing attorney that charges a flat rate compared to an hourly rate. Confirm the services the attorney will provide for the agreed price. Do not use a closing attorney that is not familiar with UCC lien searches or business brokerage deals. Always use a closing attorney for a restaurant sales transaction.
Inventory Cost:
The inventory on hand on the day of closing belongs to the buyer, but actually, they need to pay the restaurant owner first. Several buyers have a misunderstanding that the food inventory is included in the purchase price.
This understanding is far from the truth unless clarified at the beginning of the negotiations. The standard process is that an inventory count is complete the night before closing or the morning of closing. The buyer will pay inventory costs for the food items or other inventory.
Buyer and Seller take inventory together, and the buyer pays a separate check for the final sum. Occasionally a Restaurant Broker will put an estimated number on the Asset Purchase Agreement (for example, $5000). Once the inventory count is final, both parties will finalize the underpayment or overpayment for inventory.
Mistake to Avoid– Confirm restaurant owner will have a copy of recent inventory delivery invoices with current prices. I would suggest not paying for items that are almost gone.
Transfer Fee
A transfer fee is required when reselling a franchise restaurant for sale. The current restaurant owner has already agreed to this fee on the franchise on the Franchise Disclosure Document(FDD).
The transfer fee will cover the buyer’s required training, ranging from 2-10 weeks, depending on the franchise. The transfer fee does not directly go to the restaurant seller; buyers are expected to pay the transfer fee. This fee can range from $5,000-$50,000.
Mistake to Avoid– Confirm Transfer fee upfront and put language in the Asset Purchase Agreement for the party responsible for payment.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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Dominique Maddox of EATS Restaurant Brokers sells Hungry Howie’s Pizza Franchise
Dominique Maddox of EATS Restaurant Brokers sells Hungry Howie’s Pizza . EATS Restaurant Brokers represented the buyer and seller.
The buyer is a Michigan native that was raised on Hungry Howie’s delicious pizza. When the opportunity came available to purchase the Hungry Howie’s Pizza, Mike jumped on the opportunity. The restaurant has been closed since June, Mike has returned from his 4-weeks of corporate training in Michigan and is ready to re-open the business!
The buyer provided EATS Restaurant Brokers with the following Google Review, “ Process was very easy, and each step was explained. I was updated throughout the purchase and communication was great. Very impressed”.
Dominique Maddox of EATS Restaurant Brokers says, “ this transaction was a perfect match! The Hungry Howie’s reminded the buyer of his childhood memories of eating pizza. He saved this business that was recently closed, and now the surrounding community and Kennesaw State University students can enjoy Hungry Howie’s Pizza again”.
Dominique Maddox is the President and Founder of EATS Restaurant Brokers and www.EATSbrokers.com, a business brokerage firm specializing exclusively in restaurant franchise resales, restaurants for sale, bars, and nightclubs. After working with one of the nation’s largest restaurant brokerage firms for seven years, Dominique decided it was time to bring a new flavor to the Restaurant Brokerage Industry and founded EATS Restaurant Brokers.
Dominique Maddox has been selling restaurants since 2010 and has undergone intensive training in the Restaurant Brokerage Industry. Dominique attended Morehouse College on a football scholarship, he brings that same competitive spirit and energy to the field of restaurant brokerage.
EATS Restaurant Brokers are Restaurant Resale Specialists that can guide you thru the complex process of buying or selling a restaurant.
Thinking about selling a restaurant contact EATS Restaurant Brokers. 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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Thinking about selling a restaurant?
What should you know today if you are thinking about selling a restaurant? The restaurant resale market has drastically changed from January 2020 to now. The Covid-19 pandemic has reset the restaurant market for available restaurant lease spaces, restaurant price valuations, and increased buyer’s negotiating power.
Dominique Maddox a Restaurant Broker and Founder of EATS Restaurant Brokers says, “ Restaurant owners have to be honest with themselves about the value of their restaurant in today’s market. The Covid-19 pandemic reduced the 2020 restaurant valuations based on 2019 sales numbers for a majority of restaurants.
Some of the buyer’s offers I receive today to present to sellers would have been offensive and considered low in January are now being accepted by sellers in July and August.”.
Financial Books and Records– buyers have an enhanced curiosity regarding the restaurant sales Pre-Covid and Post-Covid. Restaurant Buyers will still request 3 years of income statements, sales tax filings, and POS sales reports.
The most requested information now is monthly sales reports for 2019 and 2020 to compare, and sales information for 2020 thru July. Sellers should have these documentations prepared before listing the restaurant for sale.
Bank Lending– banks are lending in today’s market but they are requiring much more information from buyers and sellers. The newest requirement is a plan for recovery from the pandemic if the restaurant was negatively affected. Pre-Covid banks did not require a semi business plan for recovery and guidelines from seller’s.
Buyer’s negotiating power– savvy buyers are mindful of the economy and challenges restaurant owners are facing to keep the doors open. The buyers looking for restaurant resales are optimistic about the economy recovering. They understand restaurant price valuation has been reduced due to a reduction in sales.
A handful of restaurants that showed a strong profit in 2019 and were listed to sell in 2020 are now shutting down the business and filing for bankruptcy. Other restaurant owners are trying to sell to get out of the lease obligations. Sellers whose cardinal intention is to get out of the lease are settling for lower prices to remove the stress of the lease payments.
Thinking about selling a restaurant contact EATS Restaurant Brokers. 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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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What are the Benefits of Buying an Existing Restaurant?
The million-dollar question for buyers should be,” what are the benefits of buying an existing restaurant”? The Restaurant Industry has a high failure rate, around 60 percent of new restaurants fail within the first year. And nearly 80 percent shutter before their fifth anniversary according to CNBC.com
Knowing these tremendous odds of failure, there are precautions prospective restaurant owners can take to help their odds of being successful. The biggest precaution is to limit your exposure to unknown expenses. How do you accomplish this task? The answer is to buy an existing restaurant for sale or 2nd generation restaurant lease space.
Dominique Maddox of EATS Restaurant Brokers says, “ I have a countless number of horror stories of new restaurant owners going broke on the build-out of restaurant space. I recommend to my buyers to look for an established restaurant to keep or convert to a new concept. I have seen restaurant owners spend over $500,000 on a build-out and sell a year later for less than $100,000.”
Eats Restaurant Brokers provides 5 Reasons to Buy an Existing Restaurant:
1. Established an Open– Why wait to open a restaurant when you can buy one and be open the same day of the closing day? When you buy an established restaurant that has been open for a significant amount of time, it comes with an established customer base and goodwill.
Why wait to build up Google Reviews when you can buy a location with great reviews and an online reputation. Some restaurants come with professional websites, great social media following, and email customer marketing lists.
To a restaurant owner the sound of the POS sales system taking orders, delivery orders coming in, and pick up orders on the 1st day of ownership is a priceless feeling.
- Staff- One of the hardest tasks for new owners is to recruit, hire, and train staff members. Established restaurants usually come with a trained employee workforce, these individuals are trained on the basic skills that are necessary for performing their roles. Inheriting experienced employees can be a valuable asset.
- Existing Business Relationships– The current owner has established relationships with food vendors, suppliers, printers, insurance companies, service companies for restaurants, and banks. Some of these relationships can easily be transferred at the time of closing.
- Price and Expenses– The current seller usually has everything in place for a new buyer to take over the operations. When purchasing an established business, the buyer knows exactly what he or she is getting for the price. The buyer in most cases can review the seller’s profit and loss statements and learn from the seller’s success and failures with expense control.
- Furniture and Fixtures– One of the biggest misconceptions for restaurant owners is that they own everything in the building. Restaurant owners can spend hundreds of thousands of dollars to install a grease trap, hood system, walk-in coolers, walk-in freezers, and sinks. Only to find out once they are ready to sell all the leasehold improvements belong to the landlord (read your lease). Building a new restaurant requires you to convert an existing space into a restaurant.
Why go thru the troubles and heartburn of a build-out when you can buy an existing restaurant, that is fully equipped with restaurant equipment for pennies on the dollar.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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What is a Restaurant Broker?
People ask me all the time What is a Restaurant Broker? Restaurant Brokers are specialists trained to facilitate a restaurant transaction between sellers and buyers. On a daily basis Restaurant Brokers are working with professionals in the Restaurant Industry. Some Restaurant Brokers know the financials of a business better than the restaurant owners due to years of daily experience reviewing restaurant financial statements.
Unlike some brokers that sell everything from a dry cleaner, gas station, to an automobile shop, Restaurant Brokers deal exclusively with the restaurant industry.
Some of the beneficial services Restaurant Brokers offer buyers and sellers during the sales process include:
Buyer Benefits
– Restaurant Brokers work on 100% commission and take their fee as commission out of the price agreed upon by seller and buyer. Broker and seller have a separate commission agreement signed. This means the benefit of the broker’s experience and knowledge without personal cost.
– Restaurant Brokers help the buyer client with analyzing the seller’s financials, collects sales tax filings, tax returns, leases, equipment list, utility providers, and does an introduction to the landlord for lease assignment.
– Every restaurant broker has a network of local vendors a buyer may need during the purchase process. These professional relationships were built over the years and help the buyer with a stress-free closing.
Seller Benefits
– A Restaurant Broker is a skilled professional who provides a restaurant price valuation based on the financials provided by the sellers. Restaurant Brokers know the guidelines for qualifying business for bank lending to help sellers get the most for the business.
– A Restaurant Broker is skilled in negotiation and document handling. Restaurant negotiations are complex, a Restaurant Broker can negotiate an agreement that works for everyone.
– Selling a restaurant can be a process that takes 6-9 months, the whole time a Restaurant Broker is screening buyers, pre-qualifying buyers, answering questions about your business to buyers, and marketing your business.
-Most importantly a Restaurant Broker only gets paid at the closing table when the business is sold. The commission ranges from 10%-15%, but the broker puts up all the money to market the business, spends the time with buyers, and only gets paid once the deal is closed. For the seller, this is professional representation without putting upfront fees!
A Restaurant Broker is a professional that can help you buy a restaurant, sell a restaurant, or lease a restaurant at a price you can afford.
EATS Broker is a full-service Real Estate Business brokerage practice focused on the restaurant industry. The company specializes in selling Restaurant Franchise Resales and Restaurant Sales. We also help clients with Restaurant real estate site selection, Tenant Representation, Franchise Consulting, and Business Price Evaluation.
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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