Closing Attorneys for Restaurant Sales Transactions
Closing Attorneys for restaurant sales transactions are an essential part of the selling a restaurant process. Closing Attorneys act as neutral third parties in the transaction. Since they don’t represent either buyer or seller, as an attorney would.
Closing Attorneys are known by multiple names like Escrow agents and Real Estate attorneys. The Closing Attorney’s job is to ensure a smooth closing transaction, UCC-1 lien search, and wire closing proceeds to all parties.
Dallas Restaurant Broker Dominique Maddox says, “picking an experienced Closing Attorney that understands the Asset Sale Purchases is extremely important. Yes, you can close a deal without a Closing Attorney but EATS Broker always recommends a buyer to use a trusted Closing Attorney”.
Duties of a Closing Attorney
– Hold escrow deposit, and disburse closing proceeds to all parties
– Prepare Settlement Statement
– Prepare Bill of Sale
– UCC-1 lien Search
– Prepare Escrow Agreement
– Form of Restrictive Covenant Agreement-(sometimes)
– Prepare Representations and Warranties of Seller and Principal(s) (sometimes)
Closing Attorneys have to confirm that multiple tasks are completed before they will release escrow and send closing proceeds to all parties.
EATS Brokers provides a list of tasks that are completed or confirmed by an experienced Closing Attorney before closing:
Asset Purchase Agreement signed by all parties
All amendments are provided to Closing Attorney
Equipment List provided
Landlord’s Approval of Assignment or New Lease
Final inventory amount (if the purchase price is to be adjusted)
Prorations or Adjustments (if needed)
Franchise Agreement Approval
Wiring instructions for Franchise Transfer Fee
Wiring Instructions for Seller
Wiring Instructions for Broker
Allocation of Purchase Price-(8594 Form)-Asset Acquisition Statement
Buyer Funds-wired directly to the escrow account
Release of Liens or Payoff Letters
Lender’s Instructions (if third-party financing)
When selling a restaurant, EATS Broker always recommends contacting a closing attorney specializing in business transactions rather than residential transactions.
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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What is Restaurant Prime Cost?
Restaurant Prime Cost can be described as the most critical number a restaurant owner should know to operate a profitable restaurant. Restaurant Prime cost should get extensive attention on the profit and loss statement because the category is highly volatile.
Today’s restaurant industry is faced with increasing labor wages and an explosion in food costs. These factors stress restaurant owners’ net profits because it’s expanding the Restaurant Prime Cost.
What is Restaurant Prime Cost?
The formula for Restaurant Prime Cost is: COGS + Total Labor = Prime Cost
Restaurant Prime Cost should be reviewed monthly and, at worst quarterly, to monitor any changes that can negatively affect the Profit and Loss statement. Many successful restaurant owners actually calculate and evaluate prime restaurant costs weekly.
Dallas Restaurant Broker Dominique Maddox says, “the first items I review on a profit and loss statement is the Cost of Good Sold “COGS” and the total labor cost total percentage cost. Prime cost should be 55%-65% or less (total sales)”.
Breakdown of Restaurant Prime Cost:
Cost of Goods Sold:
The cost of goods sold (COGS) in a restaurant includes the price of all products, materials, and condiments used to create a dish or drink.
Total Labor Cost:
Total labor cost includes employees’ wages and benefits. This category contains hourly employees, salaried employees, payroll taxes, and employee benefits.
Restaurant Broker Tips:
-Training managers to be proactive in monitoring food loss, employee scheduling, and comps.
– Provide proper training for new employees
– POS System and technology should be up to date with inventory count
-Increase food prices
-Review restaurant numbers weekly
-Owner/operator or General Manager operated
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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Dominique Maddox featured in Voyage Dallas Magazine
In the February issue, the founder and President of EATS Broker Dominique Maddox was featured in VoyageDallas magazine Local Stories. This is Dominique’s second time being featured in the Voyage magazine; he was featured in VoyageAtlanta in 2020.
Voyage Dallas magazine’s goal is to highlight the best of Dallas people, businesses, organizations, and events. The Voyage Group of Magazines is based out of Los Angeles; they have magazines that feature local hidden gems in multiple states.
The company’s mission is to build a platform that fosters collaboration and support for small businesses, independent artists and entrepreneurs, local institutions, and those making different cities interesting.
Dallas Restaurant Broker Dominique Maddox says, “the opportunity to be featured in VoyageDallas is a blessing for my company. The article allows people to get to know me personally and learn more about EATS Broker.
I talk about my struggles as a Restaurant Broker and starting my Restaurant Brokerage firm. I moved from Atlanta, GA to Dallas, TX in August 2021 to grow my business”. http://voyagedallas.com/interview/exploring-life-business-with-dominique-maddox-of-eats-broker/
EATS Broker is a boutique restaurant brokerage specializing in exclusively selling restaurants, bars, and nightclubs. Our brokerage is known as Restaurant Resale Specialists that are Subject Matter Experts in the selling a restaurant and the buying a restaurant process.
We help our clients through the complex process of buying or selling a restaurant. Our company specializes in selling Restaurant Franchise Resales and Restaurant ReSales. We also help clients with Restaurant real estate site selection, Tenant Representation, Franchise Consulting, and Restaurant Price Evaluations.
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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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7 Most Common Restaurant Sale Deal Killers
The most common restaurant sale deal killers are items that are usually out of the hands of a Restaurant Broker. The process to sell a restaurant can feel like a marathon that many participants will have fatigue and not finish the race.
It’s a known fact in the Restaurant Brokerage industry less than 50% of businesses that go under contract will close. Some Restaurant Brokers might advertise hiring closing rates, which could be possible.
The Restaurant Broker at EATS Broker Dominique Maddox said, “some deal killers can be addressed upfront if they are known; it’s the unknown details that kill deals.
How will the landlord, bank, and Franchisor react to the new potential buyer? Did the seller provide all the details? Over my ten years of selling restaurants, I have seen it all”.
Restaurant Broker list of Common Restaurant Sale Deal Killers:
- Landlord- The landlord is the KING for restaurant sale deal killers. The landlord owns the property, and transactions cannot be completed without a lease assignment or lease. A majority of the landlords are simple to work with because they want a guarantee they will continue to receive monthly rent.
- Bank-When a restaurant for sale can qualify for SBA lending, the chances of that restaurant selling increase drastically. That’s the good news; the bad news is that it takes some serious legwork and patience to get a deal to funding.
Banks have several qualifying requirements a buyer must be able to pass. There are many reasons why a buyer may not qualify for lending. Example credit score, lack of liquidity, no collateral or don’t want a lien on collateral, etc.
- Franchisor: Franchise approval is only an issue with Franchise Restaurants for Sale. Franchise resale listings are popular with restaurant buyers, but the buyer has to get approved by the Franchise.
Franchisors have many requirements before they approve a buyer to become a franchisee. If a restaurant is a franchise for sale, the sale cannot be completed without the Franchisor’s approval of the buyer. Franchise resales require the buyer to travel to the Franchisor headquarters for a discovery day.
The Franchise can schedule training in a different state than the restaurant for sale. Buyers are responsible for paying the transfer fee, travel arrangements, and housing accommodations while attending training. The training time can range from 2-8 weeks depending on the Franchise Brand.
- Restaurant Buyer Expectations: Rule #1 Buying a restaurant differs from buying a home. The majority of buyers that purchase a restaurant are first-time buyers and don’t understand the buying process.
Buyer fatigue and misunderstanding is a fundamental reason why some transactions fall apart. The buyer should educate themselves about the buying process and work with a Restaurant Broker thru the process.
- Restaurant Seller Expectations: Restaurant sellers can misunderstand the restaurant sales process. Sellers have to understand that everything is negotiable for a buyer’s offer (except rent terms). Restaurant owners have to be willing to negotiate, provide supporting documentation, be patient, and be trustworthy.
Restaurant sellers have to understand if the documentation they provide to a Restaurant Buyer during the due diligence period doesn’t check out, the buyer might want to submit a counteroffer and renegotiate.
- UCC liens: A UCC-1 financing statement is a legal form that a creditor files to give notice that it has or may have an interest in the personal property. Restaurants for sale should have the ability to sell a restaurant that is free and clear of liens.
The closing attorney will conduct a UCC lien search on the business weeks before closing. If a UCC lien is discovered, the restaurant owner will have to pay the fees before closing or at the closing table.
- Time: It’s a known fact in selling a restaurant that Time Kills deals. The longer the process to sell a restaurant, the greater the deal’s chances of falling apart. Buyer fatigue and seller fatigue become an issue if an agreement is dragged out.
Buyer and seller work off a closing checklist, and both parties must work together to meet deadlines.
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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How is Selling a Restaurant like Fishing?
Are you asking yourself how is selling a restaurant like fishing? The best fishers in the world know that they are not guaranteed to catch a fish every time they go fishing. The art of selling a restaurant is a process that is not guaranteed to end successfully for the restaurant owner.
If there were guarantees in fishing, they would call it catching. Fishing can be defined as the activity of trying to catch a fish. Selling a restaurant could be described as trying to catch the RIGHT buyer.
When it’s time to sell a restaurant, the owner needs patience, just like if they were going fishing. It can take an average of 6-8 months to sell a restaurant, and only 20%-30% of all restaurants listed for sale will actually sell.
When fishing, bait is used to attract the fish to bite the hook. When selling a restaurant, the lure is the details about the restaurant for sale to attract buyers.
Dallas Restaurant Broker Dominique Maddox says, “ providing a buyer with the cash flow, gross revenue, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and asking price is the bait to attract a buyer.”
While fishing, a person can get a bite from a fish, and the process of securing the fish starts. The restaurant for sale listing can get multiple inquiries from interested buyers before the restaurant is sold.
The Restaurant Broker at EATS Broker knows it takes talking/emailing to anywhere from 60-75 buyers before finding the buyer that will actually buy the restaurant for sale. Only 2% of buyers looking to buy a restaurant will purchase a restaurant for sale.
Once a qualified buyer has signed the non-disclosure agreement and sent proof of funds to qualify for the listing, and decides to make an offer, the process of getting that buyer to the finish line starts.
Just because a fish bites the hook does not mean fresh fish is for dinner. The fishing line can break, get snagged on debris, or the fish just gets off the hook.
Every buyer that goes under contract for a restaurant for sale does not end in a closed deal. The due diligence period for a buyer and seller would be equivalent to a person struggling with a fish on the hook.
Unlike fishing, the wrestling match between the fish and person fishing is usually done within an hour. When selling a restaurant, the due diligence process is usually 10-30 days for deals under $2 million.
The conclusion in fishing is that you catch a fish, celebrate with a delicious meal, or if you don’t catch a fish, you just have stories to tell.
When selling a restaurant after the deal closes, The restaurant seller gets a check at the closing table, and the Restaurant Broker receives a commission. But if the deal doesn’t close, it’s time to go fishing for the next buyer.
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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3 Biggest Mistakes Restaurant Sellers Make
The biggest mistakes restaurant sellers make are simple issues that can be addressed before a restaurant is listed for sale. The mistakes are based on facts, books, and records and lack of understanding of selling a restaurant.
Dallas Restaurant Broker Dominique Maddox says, “ the small details in the process to sell a restaurant make all the difference at the end. The lack of attention to the facts or books and records will make buyers not interested in buying the restaurant for sale.
The Restaurant Broker at EATS Broker listed out the Biggest Mistakes Restaurant Sellers Make:
- Leaving out the essential facts:
-Ownership of Furniture and Fixtures- what items are leased or owned by the landlord?
-UCC liens that can stop the sale of the restaurant and have to be paid before closing
-Filed tax returns that don’t match the profit and loss statements provided to Broker or buyer
-Restaurant upgrades that are required by Franchise( only applies to franchise restaurants)
-Behind on rent payments
- Clean Books and Records
-Sales Tax Filings don’t match Profit and Loss Statements
-Has two sets of books-provides different copy to IRS and provides the buyer with the accurate numbers
-Does not have a Profit and Loss statement to provide
-Slow to provide updated numbers
-Lack of clean books and records will not qualify for SBA bank lending
-Lack of transparency builds distrust in the buyer
- Not realistic about the selling a restaurant process
-Unlike residential sales, it can take 6-8 months to sell a restaurant
-Only 30%-40% of all restaurants for sale listings will actually sell to a new owner
– Everything is negotiable when it comes to price-need to be flexible
-Only 2% of buyers on the market looking for a restaurant for sale will buy; it can take multiple interested buyers before the actual buyer is found.
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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How to Get a Restaurant Ready to Sell
The art of getting a restaurant ready to sell really starts with planning and preparation. Restaurant owners planning to sell a restaurant in 2022, should be in the process of collecting and organizing important supporting documents now.
The New Years is a great time for restaurant owners that are considering selling a restaurant to prepare for the sale. January-April is the busiest months for restaurants for sale to go under contract with buyers.
A large number of people are familiar with the process of getting a home ready to sell, but a small number of restaurant owners understand how to get a restaurant ready to sell.
Dallas Restaurant Broker Dominique Maddox says, “ getting all the items required to list a restaurant for sale can be challenging if the restaurant owner is not prepared and organized.
The best advice is to start collecting all your documentation early, so you are prepared when calling a Restaurant Broker for a free restaurant valuation”.
Restaurant Brokers Checklist for selling a restaurant:
A copy of the lease and all amendments
Three years of Profit and Loss statements
Three years of tax returns
A copy of Furniture Fixtures and Equipment-only items owned by the seller
Franchise Disclosure Document (if franchise)
Copy of Vendor/Supplier List
Copy of Employees with pay rates
One year sales tax filings
Pictures of Front and Back of house
The start of a new year brings new excitement to the idea of entrepreneurship and ownership. Corporate Refugees fuel record buyer demand for entrepreneurship. Buyers are paying record-high prices for restaurants that have continued to perform well during the pandemic.
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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Steps for first-time restaurant buyer
What are the Steps for first-time restaurant buyers? This question EATS Broker gets multiple times weekly for buyers inquiring about restaurants for sale. Many interested buyers looking at restaurants for sale opportunities will be first-time restaurant buyers.
Many buyers are shocked about the difference between buying a home compared to buying a restaurant. The buying process from purchasing a home to purchasing a restaurant has completely different steps.
The restaurant sales transactions can be more complex where the smallest detail can make the difference from selling a restaurant or a restaurant for sale not selling.
Dallas Restaurant Broker Dominique Maddox says, “I enjoy educating restaurant buyers about the process of buying a restaurant. A big part of my job responsibilities is to educate and help buyers through the restaurant buying process.
The Restaurant Broker at EATS Broker provides a Five Step-by-Step overview of the First time Restaurant Buyer process:
- Research online:Restaurant buyers can get an idea of the inventory available on restaurants for sale in the local market on BizBuySell.com. The site is the internet’s largest business-for-sale marketplace.
Individuals interested in buying an existing restaurant can get preliminary information on the site like price, income, EBITDA, cash flow, gross revenue, rent, and year established.
- Have documents ready to show– When buying a home, the buyers will contact the bank and get pre-qualified before contacting a Real Estate Agent.
Many buyers are shocked when a Restaurant Broker asks for proof of funds before providing the name, address, and financials of a restaurant for sale.
Restaurant Brokers Golden Rule of Thumb
-If the listing is a franchise or over $100,000, a Restaurant Broker will want to see proof of funds (bank statement, 401K, or letter from bank). The franchise requires a certain amount of liquid funds before approving a potential franchisee.
The landlord will want to see proof that the new tenant can afford the lease. There is no need to provide financials to a buyer that can’t qualify.
-The bank statement, 401K statement, or letter from the bank should be within 60 days; close out your account number because a Restaurant Broker will only need to see your name and amount.
- Contact a Business Broker
A majority of the restaurant for sale are listed by a Business Broker or a Restaurant Broker. Buyers are required to sign a confidentiality agreement to access more information about the listing for sale.
A select number of restaurants for sale brokers will provide more information instantly once the non-disclosure is signed. Unfortunately, a large number of the listings will require a buyer to provide proof of funds.
Once non-disclosure is signed and proof of funds, the buyer will get a copy of the package. The package will have the name, photos, financials, details about the lease, and the restaurant’s location.
4. Visit the restaurant
A restaurant buyer gets to visit the restaurant as a customer. Some buyers will want to skip this step and schedule a meeting with the owner to ask questions and tour the kitchen area.
The Restaurant Broker at EATS Broker Tip:
A restaurant buyer should come to the seller-buyer meeting provided with questions. A buyer will learn more about the business and its long-term potential by asking the right questions.
- Evaluate and make a buying decision
During this step, a restaurant buyer will evaluate the information they have received from the seller. The buyer will decide whether to make an offer and the contingencies needed to feel comfortable. The buyer will start the due diligence process if the purchase agreement offer is accepted.
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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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What is a Cloud Kitchen? What should you know?
A cloud kitchen is a commercial kitchen, sometimes called a “ghost kitchen,” used for delivery-only or pick-up restaurants. New restauranteurs and current restaurant owners are expanding menu offerings and increasing delivery orders by opening cloud kitchens.
The popularity of ghost kitchens has increased over the years. Today consumers ordering food online might be shocked to find out they have ordered from a ghost kitchen restaurant.
Ghost kitchen restaurants can be open for a fraction of the price versus a brick-and-mortar location. Cloud kitchen restaurants are considered a low-risk method to grow a restaurant business and menu selections. They handle the logistics and fulfillment while the restaurant owner only has to worry about the cooking.
Dallas Restaurant Broker Dominique Maddox says, “ cloud kitchens are opening opportunities for new or current restauranteurs to open restaurant concepts with less capital investment and risk.
Ghost kitchens are a popular business model providing a solution for restaurant owners to expand delivery areas and increase pick up orders”.
The Restaurant Brokers at EATS Broker compares Cloud kitchen restaurants vs. Brick and Mortar restaurants:
Capital Investment( upfront cost) Cloud Kitchens- $30,000 vs. Brick and Mortar $100,000-$300,000
- Staff required
Cloud Kitchens 2-6 employees vs. Brick and Mortar 10-30 employees
- Time required to open
Cloud Kitchens 2-4 weeks vs. Brick and Mortar 4 months-1 year
- Real Estate and Location
Cloud Kitchens- 200-300 sq. ft. vs. Brick and Mortar 1000-5000 sq. ft.
Cloud Kitchens-delivery hotspot with low cost and low traffic.
Brick and Mortar- high price, need prime location, good locations can be hard to find.
- Breakeven Point
Cloud Kitchens- 6 months – 1 year vs. Brick and Mortar- 2 years-5 years
Critical takeaways for Cloud Kitchens/ Ghost Kitchens
They provide excellent delivery and pick up opportunities
Allows restauranteurs to experiment with low risk
Allows restaurant owners to build multiple concepts out of one kitchen
Cuts costs for front and back of house labor costs
The kitchen features an exhaust hood, three comp sinks, prep sink, hand sink, and grease trap.
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 by email at sales@eatsbroker.com. Visit our website at www.EATSbroker.com.
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Exit Planning for Restaurant Owners
Exit planning for restaurant owners is a process that should start before a restaurant has opened. The harsh reality of restaurant ownership is 80% close within five years. If you are going into the restaurant industry knowing that it will be time to exit within five years, why not plan in advance?
EATS Restaurant Brokers finds that restaurant owners’ lack of exit planning can create liabilities when selling a restaurant.
Dallas Restaurant Broker Dominique Maddox says, “exit planning for restaurant owners should start once a restaurant is open. The common mistake is that restaurant owners fail to plan an exit until they have to sell a restaurant. An exit strategy should allow the restaurant owner to sell a restaurant with limited liabilities”.
EATS Restaurant Brokers-Exit Planning MUSTS:
- Books and Records-keep clean, excellent, and organized books and records. The restaurant buyers in today’s market are educated and can analyze a restaurant owner’s numbers and expenses for red flags. The best way to sell a restaurant is to have clean tax returns; restaurant owners will have to pay taxes on reported gains.
Restaurants that don’t count cash payments, pay employees under the table, or don’t report most sales on tax returns to save on taxes will sell for less on the open buyer market.
EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check to confirm current sales tax filings.
- Build-out expenses– The initial cost for a restaurant build-out can range from $50,000-$1,000,000for a restaurant space ranging in space between 1000-7000 sq. ft. Potential restaurant owners should analyze if it’s wiser to find a second-generation restaurant space to convert to their concept or build out a white box location.
A restaurant has previously occupied a second-generation restaurant space. In a white box location, the restaurant owner is installing everything needed to open a restaurant. The restaurant space has plumbing, electrical, refrigeration, and initial build-out done.
The person that benefits the most from a restaurant owner building out a first-generation restaurant space is the landlord.
Example: Restaurateur pays $300,000 in build-out expenses before opening the doors to a new restaurant. The restaurant owner estimates the restaurant should make a profit of $50,000 per year. The restaurant owner has to wait six years to get the build-out cost expenses back $300,000/50,000= six years!
EATS Restaurant Brokers Tip: Don’t go BROKE on the build-out.
- Restaurant’s Transferability- All restaurants for sale are not good listings because they lack transferability.
Ex.1 A chef-driven restaurant for sale depends on the performance of the chef. If an owner/operator is also the cook, these types of restaurants are difficult to sell. Most restaurant buyers are not looking at buying a restaurant to be a chef; they want a skilled chef in place.
Ex.2 Some restaurants for sale, the landlord, owns the equipment. Restauranteurs that lease restaurants that come fully equipped only own the business and goodwill; they have limited assets to sell.
This type of arrangement can make it difficult for a restaurant owner to sell in the future. Asset purchase agreements between buyers and sellers have the restaurant equipment being sold listed on the contract.
EATS Restaurant Brokers Tip: Before listing a restaurant for sale, check for UCC liens on equipment or business.
EATS Restaurant Brokers biggest take-aways from this blog are listed below:
- Good Books and Records help restaurants sell for the highest and best price
- Don’t go broke on the build-out expenses and have to wait 3-10 years trying to get the initial investment back.
- Make sure to have a restaurant/system that can transfer to a new restaurant owner.
- Own the equipment in the restaurant
To learn more about EATS Restaurant Brokers consulting services or receive a complimentary restaurant valuation, contact Texas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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