5 Benefits of Buying an Existing Restaurant
The 5 Benefits of Buying an Existing Restaurant have many positive attributes. The current restaurant owner has built a proven business model, established a client base, and gone through the headaches of the initial building-out phase of the restaurant space.
The harsh reality of the restaurant industry is that 60% of restaurants will close their doors in three years. How to improve your chances for long-term success, the Restaurant Broker suggests not going broke on the build-out.
Buyers can learn a lot from the successes and failures of the current restaurant owner. Buyers can ask questions about the restaurant industry without going thru the growing pains.
Dallas Restaurant Broker Dominique Maddox says, “Buying an Existing Restaurant is a cheat sheet to success. The Restaurant Owner provides sales data, vendor relationships, landlord relationships, and stories of success and failures”.
EATS Broker provides a list of benefits of Buying an Existing Restaurant:
- Employees: An operating restaurant will have trained employees, including cooks. Employees will usually transfer will the sale of the restaurant.
- Customers: Established Customer base that is familiar with the concept
- Cash Flow: Restaurants with a positive cash flow provide a paycheck for the buyer.
- Time to open: Some buyers want to buy an existing restaurant to convert to a new concept.
- Vendor Relationships: The restaurant owner will provide a list of current vendors. Buyers can decide to use the same vendors or find an alternative.
Buying an existing restaurant eliminates some of the build-out time, stress and anxiety that come along with the process.
EXTRA Benefit
Bank Lending: A bank will be more willing to lend to a buyer purchasing an existing restaurant than a start-up restaurant concept.
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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10 Ten Interesting Facts about the Restaurant Industry
It’s easy to find interesting facts about the Restaurant Industry. The National Restaurant Association publishes a Restaurant Owner Demographics Data Brief every year. After reading the March 2022 Data Brief, the Restaurant Broker at EATS Broker picked ten interesting facts.
- Hawaii (64%), Texas (59%), California (58%), Georgia (55%), Maryland (54%), and the District of Columbia (54%) have the highest proportion of restaurants that are owned by minorities.
- 63% of adults have worked in the restaurant industry, making it the nation’s training ground
- 41% of restaurant firms are owned by minorities – compared to 30% of businesses in the overall private sector.
- 9 in 10 restaurants have fewer than 50 employees
- 7 in 10 restaurants are single-unit operations
- 19% of restaurant firms are Asian-owned, 14% are Hispanic-owned, and 9% are Black- or African-American-owned.
- 9 in 10 restaurant managers started in entry-level positions
- 2023 Employment Forecast: 500,000 new jobs for total food service employment of 15.5 million
- 2023 Sales Forecast: $997 billion
- Restaurants employ more minority managers than any other industry.
Dallas Restaurant Broker Dominique Maddox says, “The U.S. restaurant industry has an enormous impact on how it affects people’s lives. I worked as a Sous Chef at the Alaska Club in Anchorage, Alaska, and as a waiter at Boniface Bingo. I’m forever thankful for my experience working in the Restaurant industry”.
Are you hungry for more exciting facts about the Restaurant Industry? According to Zippia.com:
-45.5% of restaurant owners are women, and 54.5% of restaurant owners are men
-46% of Restaurant Owners are over 40, and 28% are between the ages of 30-40
-49% of Restaurant owners earn a bachelor’s degree
-The average Restaurant Owner is 39
-The most common foreign language among restaurant owners is Spanish at 44.9%. The second-most popular foreign language spoken is French at 10.2%, and Thai is the third most popular at 7.9%.
To learn more about EATS Broker consulting services or receive a complimentary restaurant valuation, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com
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4 Worst Decisions when selling a Restaurant
Do you plan to sell a restaurant? What are the worst decisions when selling a restaurant? EATS Broker will provide an inside look at why some restaurant sellers can be disappointed when it’s time to sell a restaurant.
Did you know only 20%-30% of the restaurants listed on the market will sell to a new owner? With the odds stacked against a restaurant owner for success, there are strategies to use to increase the chances of success when selling a restaurant.
Texas Restaurant Broker Dominique Maddox says, “I always ask a restaurant owner before providing a restaurant valuation, how much do you think your restaurant is worth? The response I receive helps me understand the mindset and expectations of the restaurant owner”.
EATS Broker turns down several potential restaurant for-sale listings because of 4 reasons:
- Overpriced Restaurant for Sale-Over pricing a restaurant for sale lowers the chances of a
restaurant selling. Buyers are more educated than ever regarding restaurant valuations and multiples used to create a listing price.
Restaurant owners are known to list with Restaurant Brokers or Business Brokers based on the Brokers providing the listing price they want rather than what the restaurant is worth. The practice of putting overpriced listings on the market is common.
This strategy increases the number of days it takes for a restaurant to sell, and qualified buyers will avoid the listing because they are educated about the market.
- Being unrealistic as a restaurant owner-Restaurant owners have to understand selling a restaurant is like a slower cooker and not a pressure cooker. It takes an average of 6-8 months to sell a restaurant. Only 20%-30% of restaurants listed for sale will actually sell to a new buyer.
Restaurant owners should know they must be ready to negotiate terms with a ready, able, and willing buyer. Every deal is different, and all deals that go under contract will not close.
- Books and records-Buyers are interested in the financials when buying a restaurant and want to check and verify its performance. Restaurant owners with books and records that are not clean, organized, and available to provide to buyers usually will not sell.
- List for buildout cost– Buyers don’t buy a restaurant based on the buildout cost. One of the worst decisions a restaurant owner can make is to justify the listing price based on the money spent on the restaurant’s buildout.
The restaurant can easily cost $300,000-$1,000,000 to build out the restaurant before opening the doors and making one dollar of profit. Most improvements to the restaurant’s leased space belong to the landlord because they are attachments to the building.
60% of restaurants close within 1-3 years of opening the doors, and 80% close within five years. A restaurant that is not profitable is listed on the market as an Asset Sale, which gets sold for pennies on the dollar.
Restaurant Broker Tip: Restaurant owners are shocked when they learn they don’t own the hood system, walk-in coolers, and other attachments. Whether the restaurant owner paid for the items during the buildout phase doesn’t matter.
**Don’t go broke on the buildout**
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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Time to sell your restaurant? How to defend your listing price
When it’s time to sell your Restaurant, how do you plan to defend your listing price? This question is excellent for anyone considering hiring a Restaurant Broker or For Sale by Owner.
It’s easy to think of a random number, list a restaurant for sale, and answer buyer inquiries. Selling a restaurant is like fishing; it’s time to make the catch when a customer is interested (a fish bite).
Dallas Restaurant Broker Dominique Maddox says, “The Restaurant Story is an opportunity to help buyers visualize 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”.
The 3 rules of defending your listing price:
Rule #1
Tell your Restaurant Story: The number one question buyers ask a Restaurant Broker when inquiring about a restaurant for sale is, why are they selling? Once this happens, it’s time to tell the Restaurant Story.
The Restaurant story is the message/description of opportunities that should be provided to the buyer. Buyers want a background of the Restaurant’s current and past operations, growth opportunities, and why the restaurant owners are selling? It’s time to sell the “Sizzle” of the Restaurant to the buyer.
Each Restaurant will have a different Restaurant Story, but the core of the stories will be the same. They will include the total expense of the rent, labor, and cost of goods (COGS); these three categories should be 60%-70% of gross sales.
Rule #2
Clean Books and Records make a BIG difference: Good bookkeeping and accounting help the odds of a restaurant selling. Once the seller and the buyer agree to the terms of the Purchase Agreement, the due diligence process starts.
Buyers will request several financial documents to verify the Restaurant’s operations and profitability.
The documents most requested from buyers include:
-Tax Returns
-Profit and Loss Statements
-Sales Tax Filings
-POS Sales Reports
-Franchise Royalty Reports
-Bank Statements
-W-2s for Owner/Operator or manager replacing an absentee owner
When it’s time to sell a restaurant, owners should check and verify all financial documents tell the same Restaurant Story. A Restaurant Owner can make or break a deal if the financials tell multiple stories. Buyers are looking at financials with suspicion and analyzing every line item.
Restaurant Broker Tip: The Restaurant Owner keeping two sets of books and records or cheating the IRS on tax payments will hurt the chances of your restaurant selling.
Rule #3
Repair and Maintenance-The lack of maintenance in a restaurant can hurt the chance of the Restaurant selling to a new buyer. Buyers will inspect the Restaurant and equipment for flaws and repairs needed.
A neglected restaurant appearance or broken equipment gives a buyer a great reason to reduce the offer price. Restaurant owners should focus on the Restaurant’s presentation before listing a restaurant for sale.
These three rules help any restaurant seller defend its listing price when it’s time to sell a restaurant.
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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Top 4 Biggest Myths about Selling a Restaurant
Many restaurant owners share the Top 4 Biggest Myths about selling a restaurant. Selling a restaurant is much different from selling other businesses, and many restaurant owners will only sell a restaurant once in their lifetime.
When it’s time to sell a restaurant, a large percentage of restaurant owners have common misperceptions about the process.
Dallas, Texas Restaurant Broker Dominique Maddox says, “There are NO guarantees when selling a restaurant, and every deal has unique stipulations and obstacles that somebody must overcome. Restaurant owners that believe common myths about selling a restaurant are commonly disappointed”.
The 5 Biggest Myths about selling a restaurant are:
- Every deal is the same: Restaurant owners that have bought or sold a restaurant in the past sometimes believe every deal process is the same, and this belief is far from the truth. Each Asset Purchase Agreement has several small details that make a big difference.
Things to consider in each deal:
-Selling a profitable restaurant or an Asset Sale
-Selling a Franchise or non-franchise
-The buyer’s profile
-The landlord approval process
-The Franchise approval process
-Bank lending required or cash deal
-E-2 investor requirements
-Closing Attorney involved
-PPP or EIDL payments owed
-Sales Tax Filings
-Equipment repair requirements
- I will receive my asking price: When selling a restaurant, everything is negotiable, but the rent amount is owed to the landlord. The negotiation process between the buyer and the seller will determine the terms of the deal.
Restaurant owners can list a restaurant for sale, stating they want to recoup their equipment purchase price, build-out cost, or loan payoff balance, only to be disappointed. The market will determine the price of your restaurant.
Cash buyers are usually more aggressive in their offer price. Restaurant owners should expect offers at least 10% lower or more than the asking price.
- Time to sell a restaurant: The average time to sell a restaurant is 150-165 days, but this is only an average. Only 20%-30%of the restaurants listed will sell to a new buyer, and most restaurants for sale will sit on the market and never sell.
Only 2%-5% of the buyers looking to buy a restaurant will buy. Some deals are more like a slow cooker instead of a pressure cooker. Restaurant Sellers want a quick sale, while some restaurant buyers are not ready for quick closing.
- The Landlord is your partner: When dealing with a lease assignment approval from the landlord, some restaurant owners think the process is simple. Most owners have not reviewed the lease document they signed when opening the restaurant, and owners usually do not know what requirements are needed for lease assignment approval.
The Golden Rule when dealing with a landlord is that they are not your friend, and the landlord is looking out for their best interest in collecting future rent. If the landlord has a well-qualified restaurant owner as a lease guarantor, why would they approve a lease assignment for a questionable potential tenant?
The landlord can decide if a deal will make it to the closing table. Should the restaurant owner feel comfortable only in leases that don’t require landlord consent or have written auto-approval language for franchises.
Selling a restaurant can be a complex process. Hiring the right Restaurant Broker and understanding the selling process can make all the difference.
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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Want to sell your restaurant? What Restaurant Equipment do you own?
Want to sell your restaurant, and it’s time to create an equipment list? What Restaurant equipment do you own as a restaurant owner? This seems easy to answer, but most restaurant owners misunderstand what they own when leasing a restaurant space.
The landlord is responsible for creating a lease to protect their interest when leasing a restaurant space. The restaurant owner is responsible for reading the lease to understand the terms.
Texas Restaurant Broker Dominique Maddox says, “ restaurant owners are shocked when they find out they don’t own any fixtures in the restaurant. The key items in a restaurant like the hood system, grease trap, sink compartments, walk-in coolers/freezers, and misc. Belong to the landlord”.
When selling a restaurant, a restaurant owner must create an equipment list to provide to interested buyers. The Restaurant Broker at EATS Broker requests an equipment list from restaurant owners ready to sell a restaurant before it goes on the market.
Restaurant owners are asked only to provide restaurant equipment that they own. The equipment list and details will differ from restaurant owner to owner, and restaurant owners unfamiliar with the language in their lease usually provide an incorrect equipment list.
A restaurant that is not profitable or closed will be listed as an Asset Sale. Selling a turn-key restaurant fully equipped as an Asset Sale is an excellent opportunity for buyers looking to create their own concept. Restaurant buyers will be curious to know the restaurant equipment involved in the sale.
The Restaurant Broker at EATS Broker creates an equipment checklist to consider:
Items Restaurant Owners should keep off an equipment list because they are attached to the building:
-Walk-in coolers
-Walk-in freezers
-Grease traps
-3 compartment sinks
-Hood system
-HVAC systems
-Tankless water heater
***Leased Items should not be added either***
-Fountain Drink Dispenser
–Dishwasher
–POS System
-Refrigeration, if provided by the vendor
This blog was written to help restaurant owners create an equipment list that reflects what they own and can be removed from the building. Next time when making an equipment list, restaurant owners should ask themselves do I own this equipment?
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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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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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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3 Mistakes to Avoid in Selling Your Restaurant
Selling a restaurant can be a complicated process. What are the mistakes to avoid when selling your restaurant? The Restaurant Broker at EATS Broker has been selling restaurants for over ten years. This blog will provide insights for restaurant owners thinking about selling a restaurant.
Mistake #1 Listing your restaurant for sale too late
Ask the Dallas Restaurant Broker when it is time to list your restaurant for sale. The response will be when you start to think about it. It takes an average of 6-8 months to sell a restaurant in today’s market. Even once listing a restaurant for sale, it’s a process to get sold.
It’s human nature that once a person has decided the restaurant industry demands are not for them, the restaurant becomes a mental and physical burden. When people decide they are tired, bills are hard to pay, and mentally checking out, it’s time to sell a restaurant.
Restaurant Broker advice: Call a Restaurant Resale Specialist for a complimentary restaurant valuation. Discuss your options to list your restaurant for sale before deciding to close the doors to your restaurant forever.
Mistake #2 – Going to market without Good Books and Records
It’s a common saying, “time kills deals.” Once a buyer is interested in a restaurant for sale, it’s essential to provide the buyer with accurate financials. When a seller goes to market without the ability to give a buyer up-to-date tax returns and profit and loss statements, it always kills a deal.
Restaurant Owners that decide to list a restaurant for sale without the capability of providing financials in a timely matter are making a big mistake. The buyer will request some financials before making an offer and more during the due diligence.
Mistake #3 – Closing the doors
Buyers like to see the lights on, customers coming in the doors, and the cash register ringing. One of the biggest mistakes is to get a restaurant valuation and list your restaurant sale, only to close the doors months later.
Once a restaurant is closed reduces the value in the buyer’s mind. Instead of getting a turn-key restaurant, they are getting used equipment and rights to the lease. These types of transactions are harder to sell. 41% of buyers will be 1st-time restaurant buyers and favor an open restaurant.
Restaurant Broker advice:
List your restaurant for sale months before you decide to close the doors. Contact a Restaurant Resale Specialist to discuss the value before deciding to close your restaurant.
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, 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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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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