04 Dec Top Ten Tips for Selling a Restaurant
I am often asked by restaurant owners, “What are some of the secrets for selling a restaurant business?” Inherent in the question is the desire to learn how to get a fair price for the business and/or how to get the price that is being asked.
So, in order to help you, I would like to share ten of the many things I recommend be done by sellers to ensure a smooth, rewarding restaurant sale.
1. Anticipate the Sale – Buyers buy primarily on the basis of the quality of the sales and cash flow, equipment and real property lease of the restaurant. This assumes the location is strong and there is adequate goodwill in the business. I advise clients that they should try to anticipate the selling process up to a year before the time to list the business for sale. This time is used to enhance sales, if possible, and to bolster cash flow by reducing expenses. It’s also a great time to review your real property lease to clarify issues that may be viewed as detrimental by astute buyers.
2. Price It Right! – You can find an expert to help you establish a selling price, including real estate brokers who are experienced in these matters, or valuation services that understand the nuances of the restaurant business. The rules of thumb for pricing a restaurant are: Sellers usually, but not always, list for 2 ½ to 3 times adjusted cash flow or 25-50% of average annual sales. You also need to consider comparable restaurants’ selling prices, lease matters, equipment condition and a host of other important items. Remember, price your business too high and it will probably take a long time to sell. Price it too low and buyers will wonder what is wrong!
3. List Exclusively – I am a 100% believer in the assistance of trained real estate and business brokerage professionals when it comes to selling a restaurant. I also believe that your best bet for selling a restaurant is to align yourself with someone who specializes in restaurant sales. As a seller, you are paying for savvy—the knowledge of the marketplace, where and how to reach high probability buyers, the broker’s professional and buyer networks, and also the broker’s awareness of the restaurant business. I always suggest listing exclusively because this gives the broker the greatest incentive to perform and gives the seller the greatest right to performance on the part of the broker.
4. The Squeaky Wheel Gets the Grease – Sellers who give a listing and then just sit back and wait are missing the boat. In restaurant brokerage, as in any business relationship, the client has a right to communication and knowledge of what’s happening. Insist on regular verbal or written activity reports and help the broker in any way possible to facilitate the flow of information amongst all parties. Two-way communication will assure that your listing remains a priority.
5. Polish the Apple – Buyers certainly pay attention to the financial health of a restaurant and they also pay attention to the physical condition of the premises and the furniture, fixtures and equipment. Selling a restaurant is like selling a house—clean it up, fix it up, make repairs, make it shine and keep it neat and orderly—particularly when showing the premises to a prospective buyer.
6. Get Your Advisors Involved Early – Lawyers, accountants and other consultants who may need to be involved in the sale of a business should be integrally involved even before the business is listed for sale. You will need legal advice and tax advice. The best way to get it is not just at the time when an offer is received, but all the way through the process. Last-minute introduction of advisors into the negotiating process all too often tends to slow, constrict or inhibit the entire sales process. The best way to sell a restaurant is to have your advisory team included in the entire process.
7. Keep the Business Growing – When your business is listed for sale, you need to continue to aggressively push for increasingly positive sales and expense performance. Since the length of time it takes to properly sell a restaurant can be six months or longer, the need to show improving performance should be obvious. In fact, reducing sales or cash flow will only serve the purpose of lowering the final price that the restaurant will sell for. Avoid the tendency to put the restaurant up for sale and then relax your standards and expectations.
8. A Bird in Hand – Remember the expression, “A bird in the hand is worth more than two in the bush.” It’s true even in the process of selling a restaurant. It’s also a great negotiating strategy. For instance, you get an offer that is less than expected. The tendency sometimes is to dismiss it and perhaps not even reply. Experienced sellers know that selling is a process of give and take. When an offer is received, it should be treated with respect and responded to accordingly. Keep the buyer in the game; always reply to offers. Give something so that you can raise the offering price. Keep buyers alive and you’ll get a deal. Brokers know how precious buyers are. We like to give them all the respect they deserve.
9. Anticipate Offers that Are Different from the Asking Price and Terms – Rarely does a buyer offer exactly what is being asked for a restaurant business. The seller may want all cash—the buyer asks for financing. The seller sets a price and the buyer offers all cash, discounting the price as much as 25%. The rule here is be flexible. Visit with your broker and advisors prior to and during the listing period and when offers are received, so that you understand what your options are.
10. Cooperate and Provide – Prior to the listing, provide all documentation necessary to assist with setting the price and completing the business analysis. During the selling process, provide whatever additional information is necessary. Find a good, confidential way for prospective buyers to tour your business. Have a sense of urgency—help the selling process any way you can. In real estate and business brokerage, there’s a saying, “time is of the essence,” which means DO IT NOW or run the risk of losing an opportunity.
One final note—expect the unexpected. I could try to outline every conceivable occurrence in the process of selling a restaurant, putting forth years of experience in restaurant brokerage and restaurant operations and STILL not list everything that might happen. Every day and every week, with every listing and every sale, someone puts a new twist in the process of buying and selling a restaurant business.
By Brian Harron, CBB
Arizona Restaurant Sales © 2018