When selling a restaurant, what documentation is needed from the seller? The answer is simple it depends on what type of sales transaction. Trained Restaurant Brokers use two methods when providing a Restaurant Valuation to a seller.
The most profitable and best way to sell a restaurant is based on past Profit and Loss Statements and Tax Returns. If these documentations are not available, the restaurant should be priced as an Asset Sale, meaning pennies on the dollar for the equipment and build-out.
EATS Restaurant Brokers breaks down the essential documentation needed for both types of transactions. We list the documentation that is provided during the due diligence period for the buyer:
Selling a Restaurant Business Based on Tax Returns and Profit and Loss Statements:
– Tax Returns for the past three years
– Profit and Loss Statements for past three years
– Copy of Lease and all amendments
– Sales Tax Clearance Letter
– POS Sales Report
– Bank Statements (sometimes)
– Balance Sheet
– Copy of Franchise Royalty Report
– Equipment List (only items owned by the seller)
– Franchise Agreement
– Sales Tax History
Selling a Restaurant priced as an Asset Sale:
– Sales Tax Clearance Letter
– Copy of Lease and all amendments
– Equipment List
– Limited Profit and Loss information
– Sales Tax History (sometimes)
– Bank Statements (sometimes)
Providing documentation for a successful and profitable business net the seller the highest asking price, can qualify for a restaurant for bank lending and attracts more buyers. Asset Sale is harder to sell and makes the Restaurant Broker work for their commission.
Asset Sale can be a challenging sale because you sell the opportunity or potential to a new buyer. You can tell when a restaurant is listed as an Asset Sale because Cash Flow and EBITDA will be low or nonexistent.
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a restaurant’s overall financial performance.
Dominique Maddox of EATS Restaurant Brokers says, “selling a restaurant business has two phases for a restaurant owner. First providing the documents needed for a valuation. Second, providing more detailed supporting documentation during the buyer’s due diligence period”.
Some restaurant owners can be frustrated and think they provided enough financial information during the valuation phase for buyers to confirm their numbers. This thinking is usually incorrect, and most buyers will ask and want to see more additional supporting documentation before arriving at the closing table.
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 email@example.com. Visit our website at www.EATSbrokers.comRead More
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.
-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 firstname.lastname@example.org. Visit our website at www.EATSbrokers.com.Read More
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.
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 email@example.com. Visit our website at www.EATSbrokers.com.
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 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.
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
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
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.Read More
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:
- 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.
- 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
- 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.
- 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.Read More
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:
• Cost of Goods Sold
• 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.
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.
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The Cares Act 2 has some generous provisions to help restaurants. EATS Restaurant Brokers wants to share some great news about the latest $900 billion coronavirus relief bill. The coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, Congress’s $2.2 trillion pandemic relief law passed in March 2020.
Congress passed the relief bill to provide support to help people and businesses get through the next several months of the pandemic. Most people are aware of $284 billion’s renewed funding for the Paycheck Protection Program (PPP) to provide forgivable loans to borrowers. It is essential to note that this bill offers a simplified forgiveness application process for loans up to $150,000.
The majority of the population knows about the PPP loans, EIDL Loans, and even the deduction for Business Meals, but many do not know about the 6-months of free payments for SBA loans. The free months of non-payment will help restaurant sales transactions”.
EATS Restaurant Brokers 3 Key Highlights from the Cares Act 2 Relief Bill
- FREE SBA Payments for six months-NO Principal or Interest required
Restaurant buyers purchasing a restaurant between 2/1/2021 and 9/30/2021 with an SBA loan will not have to pay principal or interest for six months. The non-payments are excellent news for restaurant owners that are considering selling their restaurant in 2021. Buyers have a strong incentive to buy a restaurant before the end of September. The waived principal and interest has a limitation of up to $9,000 per month.
For example, the buyer’s monthly SBA loan payment is $10,000 per month. The SBA will waive the first $9,000 owed, and the borrower would be responsible for a $1,000 charge for the first six months. Many of the deals on main street business brokerage will have lower monthly payments than $9,000 per month.
- Guarantee Fee Waived
This fee usually ranged from 2.5%-4% of the total loan amount to the buyer. Buyers can now take this savings on the closing cost to help fund their restaurant sales transaction.
- SBA Guarantees 90% of the loan amount
The SBA has increased its loan guarantee to banks from 75% to now 90%. Increased SBA loan guarantee is excellent news for restaurant buyers because now banks can take more risk and approve more lending deals.
It’s an incentive filled time to sell a restaurant or buy a restaurant using funds from the banks. EATS Restaurant Brokers are Subject Matter Experts in Restaurant resales. Let us provide you a complimentary Certified Business Valuation; contact us today at firstname.lastname@example.org or 404-993-4448.Read More
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”.
- Depreciation and Amortization
- Interest- on loan payoff
- Personal Travel and meals
- Seller’s auto expenses, including insurance
- One-time costs that are nor re-accruing
- Seller discretionary expenses, ex- life insurance, salaries to family members(not working)
- Severance and lawsuit settlements
- 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 email@example.com or 404-993-4448.Read More
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?
-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
-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 firstname.lastname@example.org. Visit our website at www.EATSbrokers.comRead More