The time to sell your restaurant may come for many reasons. Whatever the motives are behind this difficult decision, the process of selling your establishment needs to be handled carefully to make sure you get the right price at the right time. Achieving that is often the result of a long, tedious process, with many pitfalls along the way. Some tips to help you through:
Broker or go it alone? The very first decision you have to make is whether to use a broker to market and sell your restaurant or whether you want to try to sell your business yourself. Brokers have some great advantages. They already have a network of buyers, they know where to advertise, and they can qualify potential buyers very well. The downside of using a broker is they will take a cut of the sale price, usually to the tune of 10% – 25%. If you go it alone, be prepared to spend A LOT of time fielding inquiries, managing advertising, and qualifying buyers.
Prepare your restaurant for valuation. In an ideal world, you would have at least a year leading up to the sale of your restaurant to maximize profit and loss statements and make sure equipment and infrastructure are up to snuff. In the real world, you may have much less time than that. No matter what your time frame is, a few key factors will bring you the best price for your establishment:
- Profit. If your restaurant is making money, then you’re good to go. Try to minimize expenses in the months leading up to the sale to boost your profits even more. However, remember that fraudulently inflating profits is a serious crime.
- Maintenance. Make sure all your equipment is up to date on scheduled maintenance and that it’s in good working order. Even if this means replacing that ancient range you’ve been riding for years, you’ll make that investment back when you sell. Of course, these expenses have to be weighed against your profit statements.
- Cash or charge. Decide if you’re willing to finance a deal with a potential buyer or if you want all the cash up front. Cash up front is much less risky and puts a nice chunk of change in your pocket all at once, but the buyer will expect a discount for paying a lump sum, often in the 20% – 30% range. On the other hand, if you are willing to finance, you can charge a higher than average interest rate and still get a pretty hefty deposit without having to lower your price.
If you don’t own the building, talk to your landlord! By far the biggest deal breaker in a restaurant transaction is your landlord. They must be willing to assign your lease to your buyer for the sale to work. If you lease, involve your landlord early and keep them involved throughout the entire buyer qualification process.
Qualify buyers. Prepare a tiered system to filter out good buyers from bad buyers. Start by getting some references and feeling out their business capabilities and professionalism. Next ask for financial records that reflect their ability to pay the price you’re asking. Finally, run them by your landlord if you lease to make sure he/she is willing to assign the lease.
If you have a broker, they will help you with this process. If you don’t, be vigilant about qualifying buyers before you reveal financial information about your restaurant! Only show your profit/loss statements to buyers who have been thoroughly vetted. It’s also a good idea to agree on the price and have the buyer sign a confidentiality agreement before you show these records. The last thing you want is private financial information getting back to your competitors.
If you’re going it alone, get some help. If you’ve hired a broker, they will probably require you to get a lawyer and an accountant or they may even provide those services. If you’re going it alone, get a lawyer and an accountant! You’ll need the lawyer to prepare the purchasing agreement. You will especially need a lawyer if you plan on financing the buyer. You’ll need the accountant to make sure you pay the proper local, state, and federal taxes associated with the sale of your business. These services cost money, but they are absolutely essential to a successful sale.
Selling a business takes a lot of time and energy, but if you carry it out properly, you should be able to walk away with a fair price for your restaurant. Making sure you have all your bases covered is the essential ingredient to getting you to a successful closing.