By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128
As with most businesses, price is a prime factor in selling a restaurant fast. However, restaurants can sell for their asset value alone, such as furniture, fixtures and equipment (FF&E) along with their permits and licenses. Knowing how to value those assets is the key to selling a restaurant quickly. Price is not the only [...]
As with most businesses, price is a prime factor in selling a restaurant fast. However, restaurants can sell for their asset value alone, such as furniture, fixtures and equipment (FF&E) along with their permits and licenses. Knowing how to value those assets is the key to selling a restaurant quickly.
Price is not the only determining factor in procuring a quick sale. You need to get into the “buyer mindset” and make sure a buyer sees the same value in your restaurant as you do. Here are some no nonsense step to getting your restaurant sold fast:
1. Price – Price – Price!!!
Just like anything else… the better the deal, the faster someone will snatch it up. Some factors that go into determining the price are location, FF&E replacement values, permits and licenses.
2. Make it easy to understand -
If you want to sell your restaurant above and beyond the asset value, make sure your books and records are in order. If someone can’t understand your books and records, they generally aren’t going to pay much for your restaurant.
- Put together a list of inventory and other assets such as furniture, fixtures and equipment (FF&E) and list their replacement costs.
- Make sure you have straight forward profit and loss statements for the last three years
- Find a way to prove cash sales (start keeping a handwritten record on the side, if necessary)
- List out your cost of goods sold (COGS)and monthly food waste costs, if possible
- Have any employment contracts organized and ready for review
- List out any debt that will need to be dealt with in the sale
3. Write up your story-
How and why you opened this restaurant, what are the opportunities and the obstacles and why you are selling. Also, list how you advertise to customers. Quote some reviews, etc.
4. Clean it up-
Make sure chairs, tables and décor are in good shape. The kitchen and bathrooms should be spotless and free of clutter and all equipment should be operational. Your staff should be friendly & knowledgeable and the general environment should be pleasant to customers. Also note that messy inventories tend to scare away buyers.
5. Review your lease- (unless you are selling property with the business)
Make note of your expiration date, what extension option you have and any transfer clauses. A buyer will either assume your current lease or negotiate a new one depending on the factors within your lease agreement.
6. Get a restaurant broker-
A good restaurant broker will help you get organized and help you determine the best price to expedite the sale. They will also advertise on the plethora of websites (I, for instance, advertise on at least 100 local, national and international sites dedicated to selling restaurants and businesses). A good restaurant broker will also discreetly market to people within the restaurant industry, help you negotiate the best deal and, most importantly, make sure the deal closes.
There is a lot that goes into selling a restaurant, much more than many other types of business. A restaurant needs be positioned for sale to get it in front of the right buyers. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call Restaurant Broker, Shelli Margolin-Mayer at (310) 882-2200 ext. 128. http://www.bizex.net/business-broker/shelli-margolin
Price is not the only determining factor in procuring a quick sale. You need to get into the “buyer mindset” and make sure a buyer sees the same value in your business as you do. Here are some no nonsense universal step to getting your business sold fast: 1. Price – Price – Price!!! Just [...]
Price is not the only determining factor in procuring a quick sale. You need to get into the “buyer mindset” and make sure a buyer sees the same value in your business as you do. Here are some no nonsense universal step to getting your business sold fast:
1. Price – Price – Price!!!
Just like anything else… the better the deal, the faster someone will snatch it up.
2. Make it easy to understand -
If someone can’t understand how you do business and how you derive your net profit, they generally aren’t going to buy your business at any price.
- Make sure you have straight forward profit and loss statements for the last three years
- Put together a list of inventory and other assets such as furniture, fixtures and equipment (FF&E) and list their replacement costs.
- Have any employment contracts organized and ready for review
- Organize your customer/client lists
- List out any debt that will need to be dealt with in the sale
3. Write up your story-
How and why you got started in this business, what are the opportunities and the obstacles and why you are selling. Also, tell the story of how your get and service customers/clients, etc.
4. Clean it up-
Make sure the physical business environment will present well. (Unless, of course, you are selling an internet business or a service that won’t prompt someone to visit you.) Serious buyers will generally want to meet with you at your place of business. Also note that messy inventories tend to scare away buyers.
5. Review your lease- (unless you are selling property with the business)
Make note of your expiration date, what extension option you have and any transfer clauses. A buyer will either assume your current lease or negotiate a new one depending on the factors within your lease agreement.
6. Get a business broker-
A good business broker will help you get organized and help you determine the best price to expedite the sale. They will also advertise on the plethora of websites (I, for instance, advertise on at least 100 local, national and international sites dedicated to selling businesses). A good business broker will also discreetly market to people within your industry, help you negotiate the best deal and, most importantly, make sure the deal closes.
There are many factors that determine the length of time it takes for a business to sell, price being the most important. Plus, there is a lot that goes into positioning a business for sale and getting it in front of the right buyers. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call me, Shelli Margolin-Mayer, at (310) 882-2200 ext. 128. http://www.bizex.net/business-broker/shelli-margolin
Drowning in business debt!?! Even when a company’s sales start increasing, debt can eat away at the profits… More and more small business owners are finding that profits are going to servicing their debt and keeping their business operational. In such cases, an option is to sell the business through a short sale. Especially if [...]
Drowning in business debt!?! Even when a company’s sales start increasing, debt can eat away at the profits…
More and more small business owners are finding that profits are going to servicing their debt and keeping their business operational. In such cases, an option is to sell the business through a short sale. Especially if a business owner is burnt-out, looking at shuttering the business and declaring bankruptcy.
Declaring bankruptcy is different as a small business owner. It’s not just an anonymous bank or bureaucratic phone company that is owed money; it’s often suppliers and vendors with whom there are long-term personal relationships. And often, friends and family have invested in the business or lent large sums of money to help keep the business afloat.
A short sale can provide creditors at least a portion of the funds owed to them, while alleviating the small business owner of having a bankruptcy tied to their name and credit. It can also save the jobs of the employees.
Special note for franchise owners – If the business is under a franchise agreement and the franchise payments are grossly in arrears, there is a chance the franchisor can take back the business, leaving the owner without a business and still holding all the debt. It is in the interest of the franchisor for the business to sell and bring in a new owner who will start paying royalties.
How it works –
An experienced and competent business broker will package the business based upon its net profit and assets. The debt and other non-operational expenses will be added back to the net profit and an industry appropriate multiple will be determined. If the business sells for less than what is owed, it is a Short Sale. If it sells for more than what is owed, the owner will receive whatever is left over after all the debt is paid.
In a normal sale, an escrow is used primarily to protect the buyer from successor liability – any debt attached to the business. In a short sale, the escrow process also aids the seller in settling the business’s debt.
Once all the debt is established, the escrow officer will prepare a seller’s estimated statement reflecting all secured and unsecured debt. Secured debt includes tax liabilities, private liens, judgments, etc. Unsecured debt includes private loans. If the sale price covers all the secured debt, the remaining funds are distributed pro rata to the unsecured creditors. If the sale price doesn’t cover all the secured debt, remaining funds are distributed pro rata to the secured creditors.
All creditors will need to agree on the payout in order to close the deal. Since the alternative is usually bankruptcy for a small business owner, creditors would prefer to receive something rather than nothing. Thus, they generally will agree to the pro rata payout.
Although short sales are messier than regular business transfers, they are a win-win for the buyer, the seller and the creditors. The buyer gets a good deal on the business; the seller avoids bankruptcy and is alleviated of their debt while their creditors get something rather than nothing.
Enlist an experienced business broker. They can help you overcome most obstacles and discreetly bring you qualified buyers. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call me. Shelli Margolin-Mayer, Business Broker: (310) 882-2200 ext. 128. I’m happy to help.
By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128How to Sell a Restaurant in 90 Days A True Story Restaurants are not necessarily an easy sell. However, if they are priced at their proper value and positioned to sell in the right forums, they can be sold in a timely manner to the satisfaction of both the buyer and seller. Preparing the [...]
How to Sell a Restaurant in 90 Days
A True Story
Restaurants are not necessarily an easy sell. However, if they are priced at their proper value and positioned to sell in the right forums, they can be sold in a timely manner to the satisfaction of both the buyer and seller. Preparing the restaurant’s books and records for sale is as important as bringing in the right buyer. The following is a true story of a restaurant that recently sold through an experienced restaurant business broker.
When the Johnston’s[1] bought their pizza deli in Los Angeles five years ago, the plan was to build a business for their children to takeover. Both Mr. & Mrs. Johnston had fulltime careers that they wanted to keep. With the help of their son, the restaurant was able to sustain a positive cash-flow for several years.
However, both of their children started pursuing college educations in an unrelated field. Thus, the Johnston’s dream of passing the business on to their children vanished. Mr. Johnston began spending more and more time running the restaurant while his son was in school. Working at a full-time career and working in the restaurant soon became extremely stressful.
The stress and loss of motivation, along with a family illness, spurred the Johnstons to sell. At the listing meeting, two pertinent questions were asked, 1) is your hood, floor drains and refrigeration exhaust in working order with valid permits and 2) what are your gross sales & net sales? These are the two most import issues regarding readiness for sale and determining price.
All the equipment and permits where in order. Thus, replacement costs were determined for the furniture, fixtures and equipment (FF&E).
Unfortunately, they didn’t have organized books and records. Plus, a fair amount of sales where in unrecorded cash. Once they reviewed the documentation they had and came up with annual totals for sales and expenditures, a legitimate profit and loss statement was created that a buyer could understand.
Because they hired staff to work the hours the family couldn’t, their net profits were negatively affected. The profit and loss statement was then adjusted to show what the restaurant would earn if the restaurant was owner-operated.
There was still the problem of the cash revenue. Some of the cash was pocketed as profit and some was used to pay employees and for inventory purchases. It was expressly explained that onus was on the seller to prove the cash sales to a buyer.
Once there was a legitimate the profit and loss statement and the FF&E replacement cost was established, an asking price was determined based upon a multiple for restaurants selling in Los Angeles.
Twenty-one days after the listing was launched, an acceptable offer was presented. The buyer was not exactly a good match, as he was looking for an investment and not a hands-on owner-operated restaurant. However, the buyer was enthusiastic and he wanted to pursue the sale. The Johnstons agreed. During the due-diligence period, the buyer wasn’t convinced of the cash sales. He made a formal request and was released from the offer.
Within two weeks another acceptable offer was presented. This time the buyers were a family, the Garcias[2], who wanted to run the restaurant as onsite owner-operators. They understood the concept of cash sales, however they needed proof. Thus, the Garcias spent more time with the Johnstons during the due-diligence period. Through an on-site visit, they gained confidence in some of the cash amounts that were stated. However, it was not enough to justify the full asking price. Together a price was negotiated with which everyone was comfortable. The deal closed within 90 days from the time the listing was launched.
If a restaurant is marketed to the correct audience and can prove its net income, the right buyer is out there. There is a lot that goes into selling a restaurant, much more than many other types of businesses. The above story is just one example of restaurants I’ve sold. We currently have over 3,000 buyers in our database alone. For a free consultation, please don’t hesitate to call me. Shelli Margolin-Mayer, Restaurant Broker: (310) 882-2200 ext. 128. http://www.bizex.net/business-broker/shelli-margolin I’m happy to help.
[1] The real names have been changed to protect privacy.
[2] The real names have been changed to protect privacy.
If you are considering selling your restaurant, preparation is essential in order to make the sale easier, faster and more profitable. Buyers will usually estimate the value of a restaurant beyond a wonderful menu and steady clientele. Their assessment will determine what they are willing to pay. Having all aspects of your restaurant in order [...]
If you are considering selling your restaurant, preparation is essential in order to make the sale easier, faster and more profitable. Buyers will usually estimate the value of a restaurant beyond a wonderful menu and steady clientele. Their assessment will determine what they are willing to pay. Having all aspects of your restaurant in order is the key to a successful sale.
Many of the steps below may seem like no brainers. However, often restaurant owners are so engrossed in their day to day operation that they over look simple things that can drastically effect how buyers will perceive their restaurant.
It is crucial to look at your restaurant through the eyes of a buyer and ask yourself some key questions:
- Are your books & records organized?
- Can a buyer clearly understand how much profit you make?
- Is your profit provable on paper?
- Do you have cash sales? Can you easily prove those sales to a buyer?
- Can you show on paper what your costs are (food, labor, waste, etc)?
- Can a buyer clearly understand how much profit you make?
- When the restaurant is closed to the public, what does it look like?
- Is it clean?
- Are the chairs, tables and décor in good shape?
- Is the kitchen spotless and free of clutter?
- Are the bathrooms spotless?
- Is all your equipment operational?
- When the restaurant is open, how well does it function?
- Is your staff friendly & knowledgeable?
- Is the environment pleasant to customers?
- Are all your permits and licenses valid?
- Is the restaurant in compliance with the County of Los Angeles’ new food handler’s regulations?
- Do you have any outstanding violations?
If you answered no or wavered on any of these questions, then you need to take corrective measures before you place your business on the market. In order to sell your restaurant for the best price, all of the aforementioned elements need to be in place.
Coherent financial data is vital. There are ways to mitigate messy books and records. However, if buyers can’t determine your revenue, costs and profit, then selling your restaurant becomes extremely difficult and you most certainly won’t get the price you want.
Buyers will want to tour the restaurant when guests and staff aren’t around in order to ask questions and assess the furniture, fixtures and equipment (FF&E). You’ll want to take whatever steps are feasible to make the restaurant as presentable as possible. Buyers need to have a positive emotional response on first sight. The cleanliness of a restaurant affects the overall desirability and thus the ultimate price.
While you are cleaning, take a second look at your staff and overall operations. Buyers will be scrutinizing how your restaurant runs. If they are sophisticated buyers, they will not only come in to get the costumer experience, they will send others to check out the service and environment too.
During due diligence, the potential buyer will want to see your permits and licenses. You’ll want to make sure they are all valid and any violations are corrected well before the due diligence period. If they aren’t in order, your risk losing the sale.
There is a lot that goes into selling a restaurant, much more than many other types of business. For a free consultation, please don’t hesitate to call Restaurant Broker, Shelli Margolin at (310) 882-2200 ext. 128. I’m happy to help.
By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128
As written for ehow.com… There are several reasons for appraising a restaurant, along with many nuances to the appraisal itself. Let’s review how a prospective buyer can appraise a restaurant for purchase. There are three general ways that restaurants’ sale prices are established: based on profits, assets, or “key costs,” referring to its location value. [...]
As written for ehow.com…
There are several reasons for appraising a restaurant, along with many nuances to the appraisal itself. Let’s review how a prospective buyer can appraise a restaurant for purchase. There are three general ways that restaurants’ sale prices are established: based on profits, assets, or “key costs,” referring to its location value. The buyer should be aware of whether the restaurant is making a profit and what furniture, fixtures and equipment (FF&E) are included in the sale. If a restaurant is profitable, a buyer can take a financial approach to the appraisal. If the restaurant is not turning a profit, it still has value in its equipment. In some cases, a restaurant is sold for key costs: its location, property/lease value and entitlements.
Instructions:
Profitable Restaurants
1 Review all the financial data available. This includes a minimum of the past three years’ tax returns, profit and loss statements, and any additional records of cash sales (cash sales often are not reported on tax returns or elsewhere). Note that cost of goods sold (COG) is usually around 20 to 40 percent of revenues depending on the type of restaurant.
2 Obtain a list of all FF&E that will be included in the sale price. Although the sale will be predicated on the annual profits, the restaurant can’t operate without equipment that has the required permits.
3 Review the entire lease thoroughly before signing it. Understand the monthly rate and any common area maintenance (CAM) fees, along with any other charges and fees. Also, review the term and option to extend.
4 Use a multiplier of the annual profits to determine the restaurant’s value. In a good economy, the rule of thumb for profitable restaurant value is two to three times the restaurant’s annual profits (or discretionary earnings) plus inventory. In a bad economy, it is more likely a 1.5 to 2 multiple of discretionary earnings plus inventory.
Unprofitable Restaurants
1 Examine the hood, floor drains, three-part sink and permitted refrigerator units to make sure they are functioning. The restaurant industry is probably one of the few industries where you can sell a business that isn’t making a profit, as the biggest barrier to entry is the initial build-out cost. A restaurant will sell for its permitted and functioning equipment or sometimes for its location and entitlement to operate at that location.
2 Determine what, if any, FF&E are included in the sale, as the restaurant build-out and obtaining the permits for equipment is expensive. Appraise the hood, floor drains, three-part sink and permitted refrigerator units. Ranges, ovens and other equipment are valuable, too, but they are easier to replace without requiring permits. The FF&E should be appraised upon replacement costs in order to determine the value. Don’t overlook the employees; they are often an important asset to consider too. Get a good understanding of their salary and benefit structure
3 Make a thorough review of the lease or the real estate purchase agreement. Make sure the zoning and alcoholic beverage licenses are all in order, before you sign any binding agreements.
Tips & Warnings
It is always a good idea to enlist the aid of a professional. An experienced business broker will provide well-rounded guidance in the appraisal and purchase process. A buyer can engage attorneys and accountants, but a business broker is much more cost-effective. Also, consult your local Small Business Development Center (SBDC). SBDCs are funded by the U.S. Small Business Administration and offer free and low-cost business assistance.
References
- “CNNMoney”: What’s My Restaurant Worth?; Ingrid Tharasook; December 2007
- Quantified Marketing Group: Restaurant Financial Analysis
- The Appraisal Foundation
- QSR: Valuing Your Store
http://www.ehow.com/info_8360777_typical-restaurant-business-worth.html By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128
http://www.ehow.com/info_8360777_typical-restaurant-business-worth.html
By Shelli Margolin | BizEx Business Broker Profile | 310-882-2200 Ext 128
