Selling a restaurant isn’t just a financial decision; it’s emotional, strategic, and often one of the most critical milestones in a restaurant owner’s life. For many restaurant owners, their business represents years (or decades) of sacrifice, community presence, and personal identity.
But here’s the truth: selling a restaurant is NOT as easy as many restaurant owners think. The road to a successful sale is often fraught with hidden risks and common misconceptions. Whether you’re a first-time restaurant owner, a partner ready to exit, or an experienced restaurateur prepared to transition, understanding these challenges is the first step toward a profitable exit.
The Restaurant Brokerage EATS Broker, led by Dallas Restaurant Broker Dominique Maddox, CBI, CFE, believes in being forewarned and forearmed. Let’s tackle the most significant risks and misconceptions restaurant owners face when selling, and emphasize the critical role of a professional team.
As a Certified Business Intermediary (CBI) & Certified Franchise Executive (CFE) who specializes exclusively in restaurant sales, I’ve seen deals succeed—and I’ve seen them fall apart.
This blog outlines the most significant risks when selling a restaurant and how to avoid them with the right team of professionals. This blog outlines the most significant risks when selling a restaurant and how to avoid them with the right team of professionals.
The Biggest Misconceptions About Selling a Restaurant
Many hopeful sellers and first-time buyers share a few key misunderstandings about the restaurant sales process. These misperceptions often lead to deals collapsing during the crucial due diligence period.
Misconception #1: Selling a Restaurant is Like Selling a House
The Reality: Selling a restaurant is exponentially more complex than selling real estate. It’s an intricate transfer of a business’s assets, liabilities, and complex legal agreements.
- It’s not just a building and equipment: You’re selling a highly regulated operation that includes perishable inventory, specialized equipment, employee relationships, and intangible assets like Goodwill.
- Regulatory Hurdles: The transfer of a Retail Alcoholic Beverage License is notoriously exacting and multi-layered, often governed by strict state and local regulations that can hold up a sale for months if not navigated correctly.
- The Due Diligence Period: The buyer has a limited window to scrutinize everything. A major cause of deal failure is a lack of upfront truthfulness from the seller regarding accurate financial records, lien status, or the condition of key kitchen equipment.
Why Do So Many Restaurant Sales Fall Apart
Most restaurant transactions collapse during the due diligence period, when buyers review financials, inspect operations, verify compliance, and dig into the details provided by the Restaurant Broker and Restaurant Owner.
Deals fall apart when:
✔ Financial records don’t match reality
✔ The seller hides material facts
✔ A landlord refuses to transfer a lease
✔ The buyer discovers unpaid taxes or liens
✔ Employees panic and quit
✔ The buyer realizes the lifestyle isn’t for them
Misconception #2: My Books Aren’t Good Enough to Get Financing
Many owners hesitate to sell because their bookkeeping isn’t perfect. The truth? With today’s POS systems, bank deposits, and digital payroll tracking, most restaurants are fundable, even with imperfect bookkeeping. While solid record-keeping is always best, an experienced restaurant broker can help.
- Modern POS systems and credit card transactions mean that 80% of sales are traceable.
- A restaurant broker knows how to “recast” financials to arrive at the Seller’s Discretionary Earnings (SDE)—the true earning power—that lenders examine. Your personal expenses and other add-backs can often be adequately explained to a good underwriting team.
- Buyers and SBA lenders care more about cash flow consistency.
- A knowledgeable restaurant broker knows how to present financials properly.
The Restaurant Brokers at EATS Broker provide the “Top 5 Risks of Selling a Restaurant and How to Mitigate Them”.
1. Risk to Confidentiality & Employee Stability
- The Fear: “Everyone will find out my business is for sale, and my key employees will leave.” One of the biggest fears owners have is that employees, customers, and vendors will find out the business is for sale, putting operations and stability at risk.
- Confidentiality when selling a restaurant: A professional restaurant broker prioritizes secrecy from day one. Buyers must sign a legal confidentiality agreement and provide proof of funds before any sensitive information is disclosed. This pre-qualification process ensures only serious, capable buyers get details, drastically reducing the risk of a leak.
- In our experience at EATS Broker, in most cases, employees don’t leave because:
-They value consistent income
-They fear change and uncertainty
-They prefer stability over starting fresh elsewhere
Restaurant Broker Tip: Buyers should provide proof of funds in the form of a bank statement, a 401 (k) statement, or a Letter from a Banker with contact details. The bank statement should be no longer than 60 days old. This protects the seller AND ensures only serious buyers receive financial information.
2. Failure to Secure a Lease Transfer
- The Fear: “My landlord will deny the lease transfer to the new buyer.”
- The Lease Assignment: Landlords rarely outright deny a transfer to a qualified tenant. The real fight is often getting out of the personal guaranty on the commercial lease. Your broker qualifies the buyer in advance and professionally prepares a strong introduction package for the landlord. Allowing an unqualified buyer to approach the landlord “cold” is the most significant risk here.
Common Landlord Issues:
-Refusing a lease assignment
-Demanding a personal guarantee from the seller
-Requiring additional security deposits
-Changing lease terms during the sale process
How to Protect Yourself:
-Never let the buyer approach the landlord alone
-Use a properly structured Buyer Package / Resume
-Present financials and experience professionally
-Have a Restaurant Broker & Attorney negotiate early in the process
Restaurant Broker Tip: Most restaurant sales fail because of the lease, not the financials.
3. Personal Financial Liability Post-Sale
- The Fear: “The bank or landlord will still hold me responsible for the loan after I sell my restaurant.”
- The Mitigation: This is a significant risk, especially with existing bank loans and lease guarantees. A successful exit strategy must proactively negotiate the removal of these ongoing personal liabilities. This is a legal and financial negotiation in which the expertise of both your restaurant broker and your attorney is indispensable.
Restaurant Broker Tip – Legal liability after the sale is one of the most overlooked dangers. If the sale is not structured correctly, the seller may remain liable for:
-Personal guarantees
-Existing loans
-Back taxes
-Vendor contracts
-Utility accounts
-Franchise & royalty fees
This is why attorneys and restaurant brokers must structure the deal together, choosing the proper sale method:
SALE STRUCTURE WHO TAKES LIABILITIES? TAX IMPACT
Asset Sale Buyer avoids most liabilities . Often better for the buyer
Stock Sale Buyer takes ALL liabilities . Often better for the seller
The wrong structure can cost tens of thousands in taxes or post-sale liability
4. Due Diligence Fallout
- The Fear: “The deal will collapse during due diligence because of a problem the buyer finds.”
- The Mitigation: Full disclosure from the start is your most powerful defense. Buyers often walk away because they find inaccurate financials or mistrust the seller. Working with a broker who demands complete transparency and helps you resolve issues (like clearing existing liens) before the listing hits the market can save the entire deal.
5. The Restaurant Won’t Sell
Risk #5 – The Restaurant Won’t Sell
Some restaurant owners fear their businesses are too small, losing money, or unattractive to buyers. But the truth is:
Even struggling restaurants have value, location, buildout, FF&E, parking, permits, grease traps, hood systems, etc.
Second-generation restaurant spaces save buyers $300K–$800K in buildout costs.
Asset Sales allow owners to exit EVEN IF the business is losing money.
Restaurant Broker Tip: Not every restaurant sells because of strong financials; many sell because of opportunity.
Why You Need a Restaurant Broker and an Attorney
Trying to sell your restaurant alone is like trying to manage the dinner rush and do your taxes at the same time—it’s overwhelming and prone to costly errors. For a complex transaction like a restaurant sale, a specialized Restaurant Broker and a business Attorney are non-negotiable members of your team.
Restaurant Broker like (Dominique Maddox, CBI, CFE)
Key Value Proposition: Confidentiality, Valuation, Buyer Qualification, Deal Management. They price your business correctly, create blind, professional marketing packages, find and screen qualified buyers, and act as a crucial buffer during negotiations to keep the deal on track.
Why You Can’t Skip Them: Without a professional Opinion of Value, you risk overpricing (and sitting on the market) or underpricing (and leaving money on the table). They manage the dozens of small deals required to get to closing.
Business Attorney:
Key Value Proposition: Legal Documentation, Liability Management, Transaction Structure, Regulatory Compliance. They draft and review the purchase agreement, negotiate the elimination of personal liabilities (such as lease guarantees), and navigate complex transfers, including liquor licenses.
Why You Can’t Skip Them: They protect you from ongoing personal liabilities and ensure the sale structure (Asset vs. Stock) is legally sound and financially optimal for your tax situation.
The Bottom Line: A broker manages the sale process and price, while an attorney manages the legal and financial risk. Skipping either one leaves a massive, costly hole in your exit strategy.
Many restaurant owners wait too long to consider selling, often after burnout, health issues, declining sales, or landlord pressure.
But the best time to sell is when your restaurant is stable, not when it’s struggling.
Ready to sell your restaurant without the stress and hidden risks?
Would you like to contact Dominique Maddox, CBI, CFE, at EATS Broker for a confidential valuation of your restaurant business?
Call: 404-993-4448
Email: [email protected]