Pros and Cons for a Restaurant Asset Sale
The Pros and Cons of buying or selling a restaurant as an Asset Sale can be a Win-Win situation for both parties. In an asset sale, the seller retains possession of the legal business entity name and stocks, and the buyer only purchases the company’s assets.
The assets include equipment, leasehold improvements, Goodwill, trade secrets, trade name, telephone number, website address, social media accounts, and lease assignment.
Dominique Maddox, a Dallas Restaurant Broker and Founder of EATS Restaurant Brokers, says, “there are only two ways to provide a restaurant valuation, selling a paycheck or selling as an Asset Sale.”
Restaurant Valuation – Two Methods
1st Selling a restaurant that is profitable with good books and records. The restaurant buyer can anticipate receiving a paycheck from the restaurant ownership. For example, restaurant nets a profit of $100,000 a year, the restaurant buyer can expect to receive that income.
2nd Selling a restaurant that is not profitable, open for less than 2 years, has terrible books and records is an Asset Sale. They are priced pennies on the dollar. A quick way to spot a restaurant for sale that is an Asset sale is to look at the cash flow or EBITDA. If these numbers are missing or show a $0, chances are good the restaurant for sale is an Asset Sale
Pros and Cons of buying or selling a restaurant as an Asset Sale
Pros for Restaurant Seller
- Can close quickly (if franchise training is not required)
- Requires cash buyer-don’t have to worry about lending
- Can ask the landlord to be removed as lease guarantor
- No longer has to worry about restaurant ownership
Pros for Restaurant Buyer
- Will receive the equipment free and clear of any UCC liens
- Easy to convert to a new concept
- Saves thousands of dollars on build-cost
- Can benefit from Goodwill like previous owners Google Reviews, website, and social media followers.
- Buying a restaurant for pennies on the dollar
- Transfer cost fee is less than the original new store franchise agreement cost
- The majority of Asset Sale deals are restaurants that are still open and have employees.
Cons for Restaurant Seller
- The listing price is usually a lot less than build-out expenses.
- A more significant number of restaurant sellers will take a loss to get out of restaurant ownership.
- Harder to sell a restaurant that is not profitable or shows a small amount of profit.
- Cash buyer required because banks will not finance an unprofitable restaurant for sale.
Cons for Restaurant Buyer
- Buying a restaurant that might not be profitable is risky
- Buying opportunities can be challenging to price correctly
- Lease Assignment is agreeing to the previous owner’s lease terms and obligations,
- Becoming a guarantor on the lease
Asset Sales can be a perfect opportunity for existing restaurant owners to expand or for new restaurant owners to save money on opening a new restaurant.
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@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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Restaurant Sellers vs. Restaurant Buyers-Different Mindsets
Restaurant Sellers vs. Restaurant Buyers have different mindsets when it involves buying or selling a restaurant. When a restaurant owner decides to sell a restaurant, the primary goals are to get the highest sales price, highest net proceeds, remove the lease as a guarantor, and close quickly.
A restaurant buyer’s focus differs slightly from the sellers and is directly focused on the terms, conditions, and stipulations on an Asset Purchase Agreement.
An asset purchase agreement between a buyer and a seller explains the terms and conditions related to purchasing and selling a restaurant‘s assets. The Asset Purchase Agreement will automatically satisfy the restaurant owner’s needs when filled out correctly. The agreement will document the listing price and closing date.
The restaurant buyer needs to confirm that they are comfortable with the conditions and terms of an Asset Purchase Agreement before signing and setting up an escrow account. The escrow deposit is a good faith deposit that can range from $10,000-$50,000. The buyer’s deposit is protected by the stipulations documented in the purchase agreement.
Dallas Restaurant Broker Dominique Maddox says, “restaurant buyers should make sure they have a trained Restaurant Broker prepare an Asset Purchase Agreement on their behalf. A Restaurant Broker knows the stipulations to add that give the buyer’s escrow deposit the most protection.”
EATS Restaurant Brokers has encountered several buyers that have lost their escrow deposit because they had an untrained Restaurant Broker prepare an agreement for them.
A restaurant buyer should make sure to cover the basics of a Purchase Agreement:
- Due Diligence Period
- Landlord Approval Stipulation
- Bank Lending Approval-if lending is needed
- Escrow Deposit Amount
- All UCC liens should be removed from Equipment
- Sales Tax Clearance letter supplied by the seller before the closing date
- All Equipment should be in working order
- Franchisor Approval stipulation-if restaurant is a franchise for sale
- Who pays for the Transfer Fee?
- Who pays for restaurant remodels if required by franchise?
- Closing attorney contact information
- Restaurant Equipment included in the sale
- Inventory- paid outside of purchase price or included in offer price
For more information on the restaurant market and other available consulting services or restaurant valuations, contact 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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Commercial Lease Assignment: What should you know?
What should you know about a Commercial Lease Assignment before signing the lease? The lease assignment can be short and brief, but it has a tremendous impact on the capability of a restaurant owner selling a restaurant in the future.
When buying or selling a restaurant, it is essential to evaluate the strength or weakness of a commercial lease assignment language.
A restaurant owner that wants to sell a restaurant can easily be stopped by the language in their lease that covers the possibility of a lease assignment to a new tenant.
What should you know if you are negotiating a lease assignment language for a commercial lease? This blog presents a brief breakdown of some of the key points involved in a lease assignment.
When a tenant’s lease interest is assigned to a new tenant/buyer, this is called a lease assignment. The current tenant has already agreed to terms with the landlord; once the new tenant signs the lease assignment, they are now responsible for the lease terms. The landlord’s standard practice is to keep the previous tenant on the lease as a guarantor and add the new tenant.
Most negotiated leases will contain a provision requiring that landlord’s consent to an assignment is necessary, but such approval will not be unreasonably withheld. The tenant will likely also try to include the landlord’s obligation to not unreasonably delay or condition its consent, according to Attorney John G. Kelly.
Dallas Restaurant Broker Dominique Maddox says, “Selling a restaurant has multiple tasks/assignments that have to be completed before restaurant ownership is transferred. Practically every commercial lease will have detailed requirements for the assignment process.
Landlord approval for a lease assignment is a critical part of the selling process. The majority of restaurant owners are clueless about the provisions in their lease for a lease assignment”.
EATS Restaurant Brokers list language to know in a commercial lease regarding a lease assignment
Assignment Fee:
This fee is payable to the landlord before a tenant can transfer the rights to a commercial lease. The amount is usually not negotiated between landlord and tenant, most leases landlord input whatever number they want.
The assignment fees usually range from $0-$10,000 (listings for sale under $2 million); it really depends on the landlord and the language in the lease. The lease assignment fee majority of the time, is paid by the seller.
EATS Restaurant Brokers tip: Read the lease before signing and know how much the assignment fee will cost you.
Financial Qualifications:
Landlords have several different qualifying metrics a tenant should pass before getting approved for a lease. The lease assignment language should not be as strict as the current lease for a new tenant because the business is up and running, usually generating sales.
Depending on the landlord, EATS Restaurant Brokers has seen lease assignments that automatically approve a new tenant if they keep the lease space the same franchise brand. But also seen lease assignment language where the new tenant has to have as much or more liquid assets as the previous tenant. This can be an unreasonable requirement if the first tenant is financially well off when signing the original lease.
Renewal Option
The renewal option gives a tenant the right to extend a commercial lease expiring in the future. Lease options are usually extended by 3 years, 5 years, or 10 years.
Renewal options should have specific language on the conditions required for a tenant to extend an expiring lease. Many leases need a tenant to give 90-180 days’ written notice to confirm if the tenant plans to extend the lease.
Restaurant owners who are trying to sell a restaurant and lease are about to expire might think they will just have the new buyer sign the tenant.
If the window to provide a landlord with a written notice has expired, the landlord has the right to refuse to agree to a lease assignment.
EATS Restaurant Brokers Tip: The restaurant owner should know how far in advance written notice to extend the lease is required to the landlord.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Independent Owned Restaurants-How to Build Value?
As an Independent Owned Restaurant, how do you increase restaurant value for resale besides good food and environment? Independent Owned Restaurants for sale usually sell for less than Franchise Owned Restaurants.
Franchise Restaurants for sale provide a potential buyer with systems, training, and brand awareness to customers; these are non-tangible items that improve resale value.
The best time as a non-franchise restaurant to start thinking about organizing and operating your restaurant like a franchise is at the very beginning. Start thinking about training manuals, required training time for a position, social media presence, and misc.
60% of Independent owned restaurant operators will fail within three years of opening the doors for business. 80% will close within 5 years. The reality of opening a restaurant is you should always have an exit plan.
When it’s time to sell a restaurant, how does a non-franchise restaurant for sale increase its odds of selling a restaurant to a new buyer?
Dallas Restaurant Broker Dominique Maddox says, “ my suggestions to improve value are create a story behind the establishment, cook from scratch, have fantastic food, and create systems easy to follow.
After ten years of selling restaurants, I have found that non-franchise-owned restaurants for sale that are not unique and organized usually don’t sell.
EATS Restaurant Brokers provides TIPS to improve value!
- Story behind establishment: Have a story behind your restaurant; people relate and remember stories. This is one of the best ways to build brand loyalty from customers. Make sure your customers can read your story by posting on the wall, website, cups, etc.
Has the restaurant been passed down from generation to generation? Did a unique passion project inspire the owner to start the restaurant? These are exciting stories that make a restaurant unique. Key take-away people remember stories!
- Create Systems: The POS system should be updated to record all valuable sales information. POS systems are useful tools to analyze to improve restaurant profitability.
Create Training Manual: A manual with all the training material needed for a new operator is a valuable tool. The manual should have the job descriptions for each position. The manual should describe the process and time requirements for new hires.
- Unique Food– Do you have a unique cooking style, use exciting ingredients, how is the presentation? Outstanding food and experience will always get customers talking about a restaurant. Word of mouth referrals is the best and cheapest way to grow your restaurant.
Create a unique style of cooking that customers have to visit your restaurant to enjoy. Besides the type of cooking is the taste of food. The best non-franchise restaurants cook from scratch.
Create a menu book that lists all of the cooking recipes, measurements required and cooking time.
The suggestions listed in this blog are intended to help an Independently owned restaurant owner sell a restaurant business in the future. These tips should help the restaurant operator stand out from the competition.
Want more help selling a restaurant? Contact 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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What restaurant numbers should YOU know?
What restaurant numbers should you know if you own a restaurant or want to buy a restaurant? Every independently owned restaurant is unique, while franchise concepts have common similarities. How do you compare the two different restaurants if you want to buy or sell a restaurant? Analyzing the Financial and Operational ratios is a great starting point.
What numbers should be significant to a restaurant owner that wants to sell a restaurant or a buyer that wants to buy a restaurant? Some key impact ratios compared to annual sales are food, labor, lease cost, and Sales per square foot.
Dominique Maddox, a Restaurant Broker at EATS Restaurant Brokers, says, “when analyzing Profit and Loss statements to provide a restaurant valuation, I always pay cost attention to the critical impact ratios.
The numbers and ratios can help explain the heartburn or opportunity in a restaurant.”
EATS Restaurant Brokers shares RATIOS to consider list:
Food Cost: Food cost as a percentage of food sales (costs/sales) is generally in the 28% to 32% range in many full-service and limited-service restaurants. Ratios can fluctuate depending on the type of restaurant.
Upscale restaurants can range up to 35%-40%, while pizza concepts can range from 20%-25%.
EATS Restaurant Brokers Tip: Food costs seem to always be higher at absentee-owned restaurants than Owner/Operator restaurants. The employees don’t operate the restaurant like an owner that manages the day-to-day operations.
Labor Cost: Payroll cost as a percentage of sales should not exceed 30%-35% of total sales for full-service restaurants and 25%-30% of total sales for limited-service restaurants. This percentage includes payroll taxes, insurance premiums, and other employee benefits.
EATS Restaurant Brokers Tip: Generally, you don’t want to see management salaries, including kitchen managers, assistant managers, and General Managers’ salaries to exceed 10% of gross sales.
Build-out-cost: The sales-to-investment ratio should be at least 1.5 to 1. This means a minimum of $1.50 in sales should be expected for every $1 of startup costs, according to www.Restaurantowner.com.
This means if you spend $300,000 on a restaurant build-out, the location should be able to generate at least $450,000 annual sales. The best restauranteurs know how to keep build-out costs at a minimum to increase the Sales-to-investment ratio.
EATS Restaurant Brokers Tip: Buying an Asset Sale restaurant is an excellent opportunity to save money on the initial build-out cost.
Rent and Occupancy: The ideal range for rent expense is 6% or less of total sales. This ratio includes costs such as common area maintenance (CAM) and other occupancy expenses.
Many operators are satisfied with an occupancy cost of 8% or lower. Once a restaurant owner-occupancy cost reaches 10% or higher, the charges start to deduct from the owner’s net profit.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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Restaurant Seller and Buyer Meeting: Tips for Success
EATS Restaurant Brokers decided to create a Restaurant Seller and Buyer Meeting-Tips for Success checklist. The initial meeting between the buyer and a seller can dictate how the working relationship will be in the future.
The goal of the initial meeting is to familiarize both Restaurant Seller and Restaurant Buyer, view the back of the house, buyers get an opportunity to ask probing questions and review restaurant financials. The most straightforward deals are when the buyer and seller like and respect each other. When the personalities don’t mix, the restaurant closing process could be filled with turbulence.
Dominique Maddox of EATS Restaurant Brokers says, “ The best method to minimize differences in personalities is to keep the deal flow managed by a specialized trained Restaurant Broker. When Restaurant Sellers and Buyers communicate directly without a skilled Restaurant Broker, a deal can crumble quickly”.
EATS Restaurant Brokers 7 Tips for a Successful Seller and Buyer meeting.
- Buyer and seller should both have face masks on, even if social distancing is done.
- Walk around the restaurant to get the seller talking and to get the buyer more comfortable. Great way to break the ice between parties.
- We recommended starting with the back of the house (BOH) to show the kitchen area and cooking equipment. This task can range in time depending on the size of the restaurant and restaurant owner explaining items.
- Sit down for a meeting- This is a great time to introduce each party to start talking about why one party wants to sell and the buying party to explain the interest in buying.
- The sit-down meeting allows the buyer to ask questions about the restaurant operations, restaurant equipment, lease, employees, financials, and willingness to negotiate on price.
- Restaurant sellers should be prepared to explain the Cost of Goods (COGS), Labor, Sales, and potential to increase sales.
- Buyer should review financials before meeting with the seller. The buyer should come to the meeting with prepared questions to ask the seller.
- Follow-up questions after the meeting should be directed to Restaurant Broker to share with the seller.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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How to validate For Sale by Owner sales numbers
How to validate a For Sale by Owner sales numbers can be a challenge for buyers. A For Sale by Owner listing is a person that decided instead of hiring a Restaurant Broker; chose to represent themselves.
People decide to represent themselves as a For Sale by Owner for several reasons: they don’t want to pay a commission, think the restaurant sales process is simple, and lastly, the clueless restaurant owner that educates themselves on Google.
EATS Restaurant Brokers provides 3 Ways to validate For Sale by Owner sales numbers:
1st-Request a copy of Sales Tax Filings–This represents the gross sales amount the restaurant owner reported to the state government. Restaurant owners who keep accurate books and records pay the correct amount owed for sales tax.
Independent-owned restaurants have many restaurant owners who do not report the correct amount of gross sales to reduce their sales tax bill. Restaurant buyers should only look at the amount reported to State Government.
Sales Tax filings amount can fluctuate from state to state. The statewide sales tax rate is 4% in Georgia, but local rates typically vary from 7-8% (4% for state, plus an additional 3 or 4% for local).
2nd-Request a copy of Tax Returns filed with the IRS, confirm tax returns are the correct ones reported to state government. Tax Returns provide vital information regarding the Gross sales and net profit of a restaurant.
Dominique Maddox, a Restaurant Broker for EATS Restaurant Brokers, says, “I would recommend requesting a Request for Transcript of Tax Return(Form 4506-T) form. Filing this documentation allows the buyer or bank to request tax returns directly from the IRS.
I have experienced instances were the tax returns provided to the buyer did not match the tax returns the IRS had on file”.
3rd-Request a copy of the POS Sales report– The POS Sales report can help buyers understand and simplify the restaurant sales breakdown.
4th- Count the number of customers during peak hours– This is the least recommended method for confirming a For Sale by Owner’s financial numbers. Some buyers like to visit and sit around for a while to monitor the customer traffic count and buying habits.
EATS Restaurant Brokers Tips when buying a restaurant from a For Sale by Owner:
- Inspect the equipment during the due diligence period. Confirm that the restaurant owner owns the equipment and is not leasing it or the landlord owns it.
- Make sure the closing attorney does a UCC lien search days before the closing.
- Ask Restaurant Seller to provide a Sales Tax Clearance Letter before closing.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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How to qualify for a SBA loan
What is essential for underwriting SBA loans, and how to qualify for a SBA loan? EATS Restaurant Brokers receive this question often when talking with restaurant buyers.
Qualifying for SBA loans has multiple vital factors to consider; we will cover the critical points in this blog.
The process to qualify for SBA loans has changed and evolved since the pandemic began. In today’s post-Covid environment, securing financing for RV parks and campgrounds is more easily approved, while fitness centers and restaurants are challenging.
When providing restaurant valuations for restaurant owners, EATS Restaurant Brokers always let them know, based on their financials, if the restaurant will get approved for SBA lending. Dealing with the buyers to get qualified for lending is a much different story.
Dominique Maddox, a Restaurant Resale Specialist, states, “selling franchise restaurants with SBA loans today has far less failure rate than independently owned restaurants. Established franchise restaurant brands give buyers better odds to qualify for bank lending.
Franchise Restaurants for sale have systems, brand awareness, training, Financial Disclosure Document (FDD), and they are proven to have success”.
Selling a restaurant? Here are the 5 Key Factors for Buyers to get qualified for SBA lending:
1. Background
Underwriters are always curious about a buyer’s background. They want to know about the previous work experience and education that could help a buyer be successful. Previous or current ownership and management experience is a huge plus.
If a buyer does not have restaurant experience, then underwriters will consider what current or previous experience they have to help them be successful? The buyer might have a background in sales, marketing, management that can be very useful in their new role.
2. Credit Score and Debt-to-Income ratio
To be safe, a restaurant buyer should have a credit score of over 700. Yes, lower credit scores get approved, but sometimes the lender will ask for additional supporting documentation.
A debt-to-income ratio is derived by dividing the monthly debt payments by the monthly gross income. The ratio is expressed as a percentage, and lenders use it to determine how well a borrower manages monthly debts — and if a borrower can afford to repay a loan.
3. Skin in the Game
Today’s lender will ask for a range from 10%-30% down depending on the borrower and situation. Bank wants to make sure the borrower has skin in the game. EATS Restaurant Brokers recommends that buyers have at least 20% down or do not consider lending.
In some cases, the SBA lender will require the seller to carry a seller financing note up to 10%, so everyone has skin in the game, and the buyers have to bring less to the closing table.
4. Collateral
Besides money down, the SBA lenders want some collateral attached to the loan. Collateral will not always be requested for loans under $350,000. Collateral can be described as something pledged as security for repayment of a loan, to be forfeited in a default.
Disclaimer-if a borrower has a house that is free and clear of payments and wants a loan, typically, the bank will use the personal home as collateral.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com
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Why You Can’t Sell Your Sell Restaurant?
Have you ever wondered why you can’t sell your restaurant? It’s a fact only about 30%-40% of restaurants for sale listed under 1 million dollars will transfer to new buyers via a sales transaction.
Buying an existing restaurant for sale can be a quick approach to become a restaurant owner. This approach eliminates some of the difficulties of starting a new restaurant.
Today restaurant for sale market is unique and selective compared to the number of restaurant listings for sale last year before the Covid pandemic. Some states have seen the number of restaurant listings for sale decreased by 20%-40% or more.
Unlike the residential market, where it’s a seller’s market, it’s a buyer’s market in the restaurant brokerage industry. The number of buyers in the market looking for restaurants for sale far outnumbers the number of sellers willing or able to sell.
There is an old saying In the Restaurant Brokerage Industry of “there are no bad restaurant listings for sale; they are just not priced correctly.”
Selling a restaurant can be a process that takes 6-9 months before a transaction is complete. Most Business Brokers or Restaurant Brokers require listing agreements of 6-12 months.
There are several reasons why a restaurant doesn’t sell;
EATS Restaurant Brokers has created a list of the most commons reasons:
1. Overpriced Listing– This is the obvious way to keep a restaurant from selling. It’s an emotional challenge for restaurant owners to put a monetary value on their restaurant. The value should be based on the Tax Returns or priced as an Asset Sale.
2. Bad Books and Records– The Tax Returns and Profit and Loss statements tell the story about a restaurant’s financial success or failures. The majority of buyers are only interested in verifiable sales numbers.
Restaurant Owners leave a lot of money on the table when they manipulate their books and records to pay the IRS less in taxes. This approach hurts when it’s time to sell the restaurant and impress the buyers.
3. Lease Terms– In some cases, the lease terms can make the restaurant more attractive or less attractive to new buyers. A majority of restaurants for sale under 1 million dollars will involve a lease assignment or transfer. This means the landlord will approve the new tenant, and they will be responsible for the lease terms agreed upon by the restaurant seller.
EATS Restaurant Brokers provides-ISSUES TO CONSIDER WHEN EVALUATING A LEASE
Commercial leases can have various rent structures that can make it challenging for a restaurant owner to sell a restaurant.
-Rent Structure- can range from a Net Lease, Single Net Lease, Double Net Lease, or Triple Net Lease (NNN Lease. Landlords can also add verbiage for a percentage of sales.
-Yearly Increases
-Stipulations on Lease
-Lack of Option Years
-Landlord Financial Requirements
-Common Area Maintenance(CAMS) yearly increases.
-Landlord owns the equipment
4.Seller unrealistic with listing– Today’s restaurant sellers have to be realistic when it comes to the resale market. Some restaurant owners expect their restaurant to be sold in a month. Some restaurant owners want to price their restaurant at 4x-5x earnings.
Today’s restaurant owners that want to sell have to be willing to negotiate and be flexible.
5. Lack of Financing-All restaurants for sale do not qualify for bank lending, and a majority of buyers can’t pay a 100% cash price.
It’s a known fact that restaurant owners that offer owner financing get a higher asking price from a buyer. This option does come with a certain amount of risk for a restaurant owner, but it does allow more buyers to qualify financially.
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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Why Do Restaurant Sales Transactions fall apart?
Restaurant Sales Transactions fall apart for a collection of reasons. Some of these issues can be resolved before they derail a deal from closing, but several problems are discovered along the way.
Once the restaurant seller and buyer have agreed to terms and signed an Asset Purchase Agreement, the due diligence period will start, and the buyer will deposit $10,000-$30,000 in escrow with a closing attorney. The due diligence period for a buyer is similar to a monopoly get-out-of-jail-free card. This gives the buyer the right to cancel the agreement for any reason and get their 100% escrow deposit back.
Due diligence on a main street restaurant sales transaction usually ranges from 10-30 days.
A main street restaurant can be described as a business that:
- Have less than $3 million in sales revenue.
- Have a restaurant valuation of $1 million or less.
- Have adjusted earnings or EBITDA of $1 million or less.
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “I can handle the lion’s share of the problems if I know about them at the start of the selling process.
The more information I can collect upfront can help me resolve future issues that might happen. I have been specializing in selling restaurants for over 8 years now, and I encounter new problems every day helping a buyer and seller arrive at the closing table”.
EATS Restaurant Brokers provides the Top 2 Reasons Restaurant Sales Transaction fall apart?
The Restaurant Seller does not tell the truth and is not upfront with important information.
The restaurant owners know the restaurant’s pros and cons better than anybody (or they should). The individual can be upfront with information or hold back valuable information, hoping it will not come back and hurt the deal.
When working with a restaurant brokerage, sellers are usually required to sign a listing agreement that indemnifies the Restaurant Broker from any future liens or lawsuits because they are only representing the information provided by the seller.
The biggest lies or half-truths a seller will provide will cover:
- Books and records-Profit and Loss Statements and Tax Returns
- Tax liens or UCC liens
- Kitchen equipment working status
- Partnership status
- Franchise required training
- Their current financial situation-includes monthly lease status (do they owe landlord money for back rent?)
Buyer changes mind about buying the restaurant
Owning a restaurant is a lifestyle choice that buyers have to realize before they buy a restaurant. During the diligence period, the buyer will start to poke and analyze the restaurant under a microscope. The buyer begins the buying process with tons of enthusiasm and thoughts of being a successful restaurant operator.
The buyer can easily change their mind once they start noticing errors and mistakes in the financials provided to them to analyze. Restaurant buyers will look at the kitchen equipment with a heavy microscope and detect if the restaurant kitchen equipment is outdated or not working.
The most significant issues for buyers to cancel contracts during the due diligence period:
- Books and records were not accurate
- They don’t like or trust the restaurant seller
- Can’t agree to terms with the landlord
- Can’t attend the required franchise training
- Spouse disapproves
- The restaurant lifestyle and hours are not a good fit
- Want to renegotiate the sales price and terms
- Can’t get approved for bank financing
For more information on the restaurant market and other available consulting services or a complimentary restaurant valuation, contact Dominique Maddox at 404-993-4448 or by email at sales@eatsbrokers.com. Visit our website at www.EATSbrokers.com.
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