Buying a Restaurant

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.

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

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.

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.

Selling a Franchise Restaurant-Transfer Fee

When selling a franchise restaurant, how much is the Franchise Transfer fee? This question is one of the first questions EATS Restaurant Brokers wants to know from franchisees interested in selling a franchise restaurant. Franchises have various Franchise Fees, but one fee is significant for reselling a restaurant, and it’s the Franchise Transfer Fee.

The most common Franchise Fee is the Initial Franchise Fee paid by the franchisee to the Franchisor. The initial fee is a one-time payment for the right to operate as a franchisee. This fee is typically paid at the time of the signing of the Franchise Disclosure Document (FDD).

Initial franchise fees can range from $10,000-$75,000, depending on the Franchise Restaurant Brand. Generally, franchise transfer fees are 50% of the initial franchise fee.

Potential franchisees are usually aware of becoming a franchisee they will be required to pay royalty fees, marketing fees, renewal fees, advertising fees but are unaware of the transfer fee.

Who pays the Franchise Transfer Fee can be negotiated between the restaurant seller and the potential buyer. Restaurant sellers naturally want the buyer to pay the transfer fee, and our company agrees, but why do we agree?

EATS Restaurant Brokers- Franchise Business Consultants explains why the buyer should pay the Transfer Fee:

• The buyer is paying for the Franchisor’s required training before a sales transaction can be complete. The new franchisee is required to train for 2-6 weeks, depending on the franchise brand.
• Sellers are commonly required to pay for restaurant upgrades before a Franchise Restaurant can be sold to bring the restaurant up to current franchise specs. This can include equipment upgrades, signage upgrades, POS sales system upgrades, new chairs, new tables, and other required upgrades.
• Restaurant upgrades cost to a seller can range from $5,000-$100,000. The buyer benefits from the upgrades.
• The buyer received the right to operate as a franchisee under the previous owners remaining franchise term years on the original FDD.
• The franchise fee is separate from the sales price. The restaurant seller does not benefit from the franchise transfer fee.
• The restaurant is turn-key for the new buyer.
• The buyer is usually paying half the fee of the initial franchise fee restaurant seller paid to have the franchise’s rights.

Visit our website at www.EATSbrokers.com for more information on selling or buying a restaurant. We are in the business of selling restaurants!

Who pays for closing attorney fees for restaurant sale?

Who pays for closing attorney fees for a restaurant sale, who does the lawyer actually represent? Once the buyer-seller has agreed to a purchase price, next, it’s time to open escrow and hire a closing attorney.

The closing attorney represents the buyer, and it’s the buyer’s expense to pay at the closing table. Most transactions only have a buyer closing attorney; occasionally, a seller will hire its own closing attorney.

Closing Attorney Fees for Restaurant Sales can differ from attorney to attorney. Unlike residential real estate transactions, restaurant buyers don’t need a closing attorney for the sales transaction to close, but it’s highly recommended.

What does a closing attorney actually do for the transactions? The closing attorney will provide a Bill of Sale, Non-compete agreements, settlement statements, and disburse closing funds to all parties.

Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers, says, “closing attorneys can be an asset or liability in a sales transaction. We always recommend closing attorneys that specialize in a business transaction rather than residential transactions.

The worst case I have experienced is dealing with a non-experienced attorney in Texas who was friends with the buyer. The buyer hired her “friend,” and he didn’t know what he was doing; he was actually learning on the job. He charged her $7,500 for a task that should have cost $1500-$2000”.

Closing attorney fees can fluctuate; find below three Attorneys EATS Restaurant Brokers recommends to clients for restaurant sales transactions and how the prices can differ.

Attorney #1

Base Closing: $1000-If cash transaction and includes a bill of sale, indemnifications, non-compete agreement, settlement statements, disbursements (wife fees included)

Base Closing with an institutional lender: $2000 includes all the above and dealing with lender requirements.

Seller Financing Docs: $350

Seller Wire $25

Lien Search: Cost but is included in the Base Closing fee

Draft Escrow Agreement: $350

Attorney #2

Base Closing $1200- If cash transaction and includes a bill of sale, indemnifications, non-compete agreement, settlement statements, disbursements (wife fees included)

Seller Financing Docs $400

Non-compete agreements-$200.

Lien Search $275-included in base closing.

Base Closing – All Cash (includes Bill of Sale, indemnifications,

Non-Competition Agreement, Settlement Statement and disbursements) $1,400

Closing Attorney #3

Base Closing – w/Seller Financing Documents $1,900

Base Closing – w/Traditional Loan $2,500

Base Closing – w/Small Business Administration Financing $3,500

Lien Search (the business name for UCCs and up to 2 individuals) $200

Escrow Agreement $350

Escrow Service Only $525

Mail Away Service $100

EATS Restaurant Brokers advice for using a Closing Attorney:

• Use a business attorney who commonly closes business transactions. Confirm your transaction will not be the 1st restaurant sales transaction they have completed.
• Agree on price and terms upfront for the restaurant sales transactions. Do not let the attorney charge you an hourly rate.
• Use the Restaurant Brokers Asset Purchase Agreement and have an attorney review. Do not ask the attorney to draft an agreement. This can be expensive, and some attorneys charge by the hour.

A closing attorney can be an asset or liability. It’s highly recommended to use a closing attorney for all restaurant sales transactions. If you don’t have a closing attorney, your restaurant broker should be able to recommend a good one.

Visit our website at www.EATSbrokers.com for more information on selling or buying a restaurant.

Selling a Franchise Restaurant vs Non-Franchise

What are the Pros and Cons of Selling a Franchise Restaurant vs. Non-Franchise is a common question EATS Restaurant Brokers receives from sellers? Franchise Restaurants for Sale make up 60%-70% of all restaurant sold listings annually. Why is the number so high compared to independently owned restaurants?

The hard facts are only 30%-40% of restaurants listed on the for-sale market will get sold to new buyers. Why does a Franchise Restaurant have a better chance of being sold than a non-franchise restaurant for sale?

EATS Restaurant Brokers discuss the Pros and Cons:

Franchise Restaurant for Sale 

Pros:

• Trade Name: Franchisees have the right to use an established trade name, marks, logo, and goodwill. Buyers are generally knowledgeable about the concept and menu.
• Restaurant Valuation: Franchise Restaurants usually get a higher price valuation.
• Franchise Business Consultant: New buyers are assigned a Consultant from the franchise brand to receive additional training and support.
• Books and Records: Franchise Restaurants are known to have better books and records to provide to buyers. Franchise concepts typically require Franchisees to have updated POS sales systems.
• Landlord Approval-: Landlords, are most comfortable approving restaurant concepts for lease spaces. Occasionally lease assignments will have guaranteed landlord approval for franchise concepts.
• Bank Lending: Banks view franchise restaurants as less risky loans compared to an independently owned restaurant. The approval process, at times, can be quickly done.

Cons:

• Franchise Fee: Initial Franchise Agreement Fee ranges from $20,000-$100,000+ depending on Franchise. When a restaurant transfers to a new buyer, a transfer fee is generally required, usually up to 50% of the Franchise Agreement fee.
• Royalty: This operating fee is calculated based on Gross sales ranging from 3%-10% (it could be higher).
• National Marketing Fee: Required fee each franchisee pays to the franchisor to help with the franchise marketing cost. Expenses can range from 0%-6%.
• Remodel Cost: Franchises require locations to date on current specs before a sales transfer can take place to a new buyer. Restaurant remodels cost can be prohibitive depending on the Franchise’s current location requirements. Required upgrades can range from updated tables, chairs, signage, POS system upgrade, lighting, and cooking equipment.
• Required Training: New franchisees are required to complete a certain number of hours working in the restaurant before a buyer can achieve a sales transfer. This process from start to finish can range from 2 weeks-3 months.
• Franchise Approval: Buyers have to get approved by the Franchise.
• Vendors: Franchises have a list of preferred vendors that the franchisees must use.

Independent Owned Restaurant for Sale 

Pros:

• No Royalty: Buyers are not required to pay 3%-10% to any franchise; this could equal hefty savings yearly.
• No Required Training: The buyer can schedule training with the seller, but a certain number of hours working in the new buyer’s business is not required to complete the transaction.
• Time to close: Once the buyer and seller agree to terms on an Asset Sale purchase and the landlord approves the new buyer, the deal can close. One of the most significant advantages of non-franchise sales is the lack of time to complete this deal. Instead of 2-4 months to close on a franchise concept, a buyer can close on a non-franchise restaurant in 2-4 weeks.
•  Remodel Cost: Sellers are not required to do any upgrades unless buyers request.
• National Marketing Fee: Buyers are not required to pay an automatic marketing fee to anyone.
• Freedom: Have the ability to make changes with getting franchise approval. Owners have the freedom to choose their vendors.
• Local: Customers like to support local restaurants that are not national franchise concepts.

Cons:

• Restaurant Valuation: Normally are lower than Franchise concepts. Unless the restaurant has good books and records, goodwill, and has been open and established for years.
• Training: New buyers are on their own to learn the concept, operations, employees, and marketing. The buyer usually completes no formal training before or after the sale transaction.
• Trade name: Building up the trade name is 100% the responsibility of the operator. The new owner has to maintain or establish a new identity for the restaurant. 
• Books and Records: Keeping updated and accurate books and records can be challenging for non-franchise concepts.
• Landlord approval: Landlords will frequently do more due diligence on a non-franchise concept before they approve a lease assignment. From the landlord’s standpoint, it is riskier to approve a non-franchise compared to a franchise concept.

Franchise Restaurant ownership and independently owned restaurants have tons of pros and cons to consider when buying a restaurant.

EATS Restaurant Brokers are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbrokers.com or 404-993-4448.

How to review a Restaurant Profit and Loss Statement

Understanding how to review a Restaurant Profit and Loss Statement is a crucial variable for a Restaurant Valuation to determine the restaurant’s actual value. Restaurants are one of the industries that the ratios on a profit and loss statement can give valuable clues on how a seller operates his/her restaurant.

Unexperienced buyers will look straight down to the Net Income number when reviewing a Profit and Loss Statement. Experienced restaurant operators/buyers will start from the top and work down; they will check the key variables’ ratios.

EATS Restaurant Brokers -5 Critical Categories to review ratio percentages on a Profit and Loss Statement:

• Sales
• Cost of Goods Sold
• Payroll
• Rent/ Occupancy
• Net Income

Let’s start from the top of the Profit and Loss Statement:

1. Sales: This category is the most critical number because all the other key variables are based on the net sales number. Today, restaurant owners can automatically pull the total sales numbers from an integrated Point of Sale( POS). Total Sales is a good indicator to show if the restaurant sales are improving or declining yearly.

2. Cost of goods sold (COGS): Refers to the direct costs of producing the goods sold by a restaurant. Cost of Goods should typically run around 28%-32% of sales. This number can increase or decrease depending on the restaurant concept.

Example:
Pizza restaurants COGS are usually lower, ranging from 25%-28%
Full-Service Restaurants COGS are higher, ranging from 33%-36%
Sub Sandwich Franchise COGS typically range from 28%-33%

3. Payroll: Includes labor cost, including hourly and salaried, payroll taxes, 401K contributions, and other employee benefits. An average payroll rate should be around 25%.
Restaurant Brokers come across some diverse Payroll expense ranges when providing restaurant valuation. Here are some scenarios:

-Low under 20%- Restaurant has family members working extensive hours, or husband and wife are working over 40 hours weekly
-Low under 20%-Owner debits some payroll expenses under Cost of Goods Sold (COGS).
-Low under 20%-The most common scenario is CASH-owner is paying employees in CASH, aka under the table.
(These factors are essential because they make a difference in the restaurant valuation)
4. Rent/ Occupancy Expense: Occupancy costs are costs related to occupying space, including; rent, real estate taxes, personal property taxes, and insurance on the building. Occupancy Costs should be between 7%-11% of sales.

EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Occupancy Costs that are 5% or less and 12%-18% should get an experienced Restaurant Broker’s attention providing a restaurant valuation. Leases that have a monthly occupancy cost of 12%-18% are an indication of a bad lease. This ratio number for rental occupancy can be challenging for restaurant owners trying to sell a restaurant to a buyer.

On the opposite end, Occupancy Cost that is 5% or less should be explained in detail. In most cases, the restaurant seller owns the building and pays a low mortgage, or the landlord provided reduced rent as a concession.

5. Net income (NI), also called net earnings, is calculated as sales minus the cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expense.

Restaurant Net Incomes usually range from 5%-10%, a well-managed restaurant can see percentages increase up to 15%.

EATS Restaurant Brokers Tip-PAY CLOSE ATTENTION TO THIS LINE:
Net Income over 20% should be analyzed and explained. Most times, sellers are not deducting all expenses, under-reporting numbers, or combining multiple restaurant expenses.

**Disclaimer if the seller provides a net income over 20% for numerous years on the TAX RETURNS, then it makes it easier to believe.

Restaurant Sellers should understand their Profit and Loss statement and be ready to explain specific ratios if they are irregular from the average ratio ranges. EATS Restaurant Brokers reviews restaurant Profit and Loss Statements daily. We understand the restaurant business down to the percentage numbers.

EATS Restaurant Brokers are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Restaurant Valuation; contact us today at sales@eatsbrokers.com

or 404-993-4448.

Understanding Add Backs when Selling a Restaurant

Understanding Add Backs when Selling a Restaurant can be difficult for inexperienced restaurant buyers and restaurant sellers to understand. The real value is more than just the bottom net profit number on the profit and loss statements and tax returns.

When it’s time to sell a restaurant, how do you know what to add back to calculate the earnings before interest, taxes, depreciation, and amortization(EBITDA)? These calculations are essential to evaluate the value of the restaurant.

The EBITDA for restaurant valuations used for positive cashflow restaurants is crucial to discovering its actual value. This financial information is critical because today’s buyers will use multiples of the EBITDA to determine their offer price.

Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “I let restaurant owners know the only add-backs I will include are the ones accepted by SBA lending professionals. Restaurant owners deduct many personal expenses from the restaurant’s books and records, but not all costs qualify as add-backs for a Certified Restaurant Valuation.

I have years of experience of providing Restaurant Owners restaurant valuations based on the EBITDA on their financials”. Once I find out the EBITDA, I can then assign a correct multiple to find out the recommended listing price”.

EATS Restaurant Brokers-Lender add-back cheat sheet: These are the following add-backs most bank underwriters will accept.

1. Depreciation and Amortization
2. Interest- on loan payoff
3. Personal Travel and meals
4. Seller’s auto expenses, including insurance
5. One-time costs that are nor re-accruing
6. Seller discretionary expenses, ex- life insurance, salaries to family members(not working)
7. Severance and lawsuit settlements
8. Manager salary-if seller is an absentee owner

The team at EATS Restaurant Brokers has expertise in factoring in add-backs when selling a restaurant. We know which add-backs and adjustments will get approved for SBA lending. Let us provide you a complimentary Certified Business Valuation; contact us today at sales@eatsbrokers.com or 404-993-4448.

Virtual Brands do they work for restaurant owners?

By now, most people have heard about Ghost Kitchens and Virtual Brands, do they work? Virtual Brands are restaurant concepts that are online-only brands that offer pickup and delivery. Virtual Brands help restaurant owners create multiple brands to represent its existing menu.

Restaurant owners have complained about third-party platforms only allowing restaurants to choose a couple searchable terms for customers to find them on. This is a big problem because what happens if your restaurant has a diverse menu? Only 2-3 searchable terms will not cover most restaurant owners’ menus.

Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers, says, “ I can see more restaurants creating Virtual Brands in 2021 to help with the decrease in business and with indoor dining restrictions. I know a restaurant owner that owns a bar/tavern; they created a Chicken Wing, Hot Dog, and Hamburger virtual brand. Now their portfolio has 4 different restaurant brands under one roof.

The most successful virtual brands understand their labor cost, food cost, marketing cost, and delivery party commission to make them profitable”.

What are the Pros and Cons for Virtual Brands? 

Pros:

-Helps restaurant owners create 2nd and 3rd streams of income

-Helps restaurant owners increase food delivery sales

-Does not require multiple locations

-Great way to add new food options to customers

-Can make money by charging for shared kitchen space to other Virtual Brand operators

Cons:

-Food cost can increase due to adding new items to the menu

– Most restaurant owners are too busy marketing and branding their central concept that they don’t have the time to focus on building up the Virtual Brand.

-Adding Virtual Brands can make restaurant owners a jack of all trades but a master of none

-Increased labor costs can be an issue with making various food cuisines.

-Virtual Brands don’t allow you to promote your primary restaurant

-Google Reviews are usually done on brick-and-mortar locations and not Virtual Brands

Virtual Brands and Ghost Kitchens will continue to grow in 2021. Some restaurant franchise brands and restaurant owners are experiencing success with Virtual Brands and Ghost Kitchens. Others are not experiencing success because they don’t have time to build up and market the new concept. The concept of having a brick-and-mortar location for customers to dine-in is a concept that some restaurant owners are moving away from, and they are much happier with virtual brands.

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