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 firstname.lastname@example.org. 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 email@example.com. 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 firstname.lastname@example.org. Visit our website at www.EATSbrokers.com.
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
How to sell a restaurant in today’s market only months after the Covid-19 pandemic crippled the restaurant industry is a challenging task. EATS Restaurant Brokers understands selling a restaurant is just not about the tangible items or the goodwill. Buyers in today’s market want to know what the story is of the restaurant. How has covid affected restaurant sales?
Dominique Maddox a Restaurant Broker and Founder of EATS Restaurant Brokers says, “when I take a restaurant for sale listing, I want to know the story about the restaurant. Every Business Broker can look at the Profit and Loss statements, but most cannot tell the story of the restaurant to a buyer, because they did not ask the owners the right questions”.
When I am Telling the story of a restaurant, I want the potential buyers to understand the strengths, historical success, and possible future of a restaurant”.
EATS Restaurant Brokers provides tips to restaurant owners for “Telling the story”
1st Review the financial numbers from 2019 and get a monthly average for the sales, compare the numbers to the 2020 sales numbers. How much of a monthly decline or increase do you notice? In the past 3-months how close are monthly sales averages compared to 2020?
EATS Restaurant Brokers advice: If your sales have declined from 2019 to 2020, know your historical success. Is March-May your busiest months and your business was affected negatively by the pandemic? How were your monthly sales history from 2017-2019? What areas of your business were affected the most dining in, catering, and how are those areas now affecting sales now?
2nd Restaurant owners should understand the SWOT analysis of the business before they list for sale. SWOT analysis is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning.
Restaurant owners should be about to tell the story about the strengths and opportunities of the restaurant. The strength of the business is the “Sizzle”, meaning why should a buyer considering purchasing the restaurant. Think about how is your social media, how does your menu look online, do you have Google Reviews?
EATS Restaurant Brokers advice: Provide your Restaurant Broker with selling points about your business that would encourage a buyer to purchase your restaurant. Provide information on expenses that can be reduced ex. Food cost or labor cost. What changes can be made to improve the business, and why should a buyer make the changes?
Selling a restaurant is an art and science at the same. Telling the story of the restaurant helps a buyer understand the strengths, opportunities, and value of the business. Next time you want to sell your restaurant do not just list it for sale, tell the story!
Thinking about selling a restaurant contact EATS Restaurant Brokers. 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 email@example.com. Visit our website at www.EATSbrokers.comRead More
Did you know the statement “proof of funds” is not in the Merriam Webster dictionary? This information is interesting because the words, “proof of funds” are used daily in the Business Brokerage world.
Proof of Funds (POF) demonstrates how much money a person or entity has available in liquid assets. When purchasing a restaurant, you may need documentation showing your Proof of Funds to show the Seller or Listing Broker that you can cover the purchase costs of the restaurant transaction.
Dominique Maddox–Restaurant Broker and Founder of EATS Restaurant Brokers says, “I have experienced some serious heartburn from deals that I did not require a buyer’s proof of funds upfront. Restaurant Listings that are franchises with financial requirements, high-income listings, and SBA approved deals, I will require proof of funds before providing seller’s financials”.
A good Restaurant Broker will pre-approve buyers before sending the seller’s sensitive financial information to buyers for review. EATS Restaurant Brokers usually requires proof of funds in the form of a bank statement, 401 K statement, or letter from Bank. Once we have received the buyer’s financial information, we will send the restaurant name and profit and loss statements for review.
Proof of Funds should have the following information:
- Name of the account holder
- The balance of funds
- Date- needs to be within 3 months
- Letter from the bank-requires banker’s contact information
- Account Number is not needed
Proof of Funds not accepted
- Personal Financial Statement
- Copy of partner’s financials-if not involved in the deal
- Copy of mother’s or father’s 401K statement, but they are not part of the deal
- Copy of bank statement with balance amount blacked out
- Copy of a company’s Profit and Loss statement
- A verbal statement- I have more than enough to buy this business
- A verbal statement-I’m not showing my proof of funds until I see the restaurant’s financials
- A bank statement below the required liquid asset requirement
EATS Restaurant Brokers works with two different types of buyers. 1st the buyer that is willing to send proof of funds, and 2nd the buyer that doesn’t want to show proof of funds. Whom do you think a Restaurant Broker would prefer to work with and will respond to faster?
Some buyers feel entitled to view the seller’s financial information just because the restaurant is for sale. Imagine a buyer requesting a personal viewing for a home but doesn’t want to show their personal financial information.
EATS Restaurant Brokers advice to any buyers looking to purchase a restaurant have your proof of funds ready to show. Restaurant Brokers are looking for RAW(ready, able, and willing) buyers to convert into a closed transaction. Restaurant Brokerage is a 100% commission sales job, the buyers that are serious and ready to show proof of funds get the best customer service.
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.com
EATS Restaurant Brokers talks to 3 Types of Buyers after the Covid-19 pandemic outbreak about buying a restaurant. The conversations we had before Covid-19 were much different than the conversations now. Today’s conversations come with a collection of unknown factors.
Today’s market is buzzing with a large number of buyers and sellers entering the market. Some want to become an entrepreneur while others want to sell a business. According to BizBuySell.com traffic has increased with Buyers and Sellers activity and now exceeds pre-Covid-19 levels. Traffic to the website was up 19% May 2020 compared to May 2019.
Dominique Maddox of EATS Restaurant Broker says, “ it’s a golden opportunity for savvy buyers in today’s market. Restaurants that were for sale at high valuation prices before Covid-19, now need to be reevaluated and the listing price lowered”.
3 Types of Buyers in today’s market after Covid-19:
- Sit on the sideline– these buyers are pessimistic and believe that the worst will happen with the Covid pandemic. These buyers will sit on the sideline to watch and wait. They are waiting to see what emerges next. These buyers will look but will not move forward to purchase.
- The Savvy Buyer– has the Entrepreneur Spirit these are the people looking to buy up businesses at some attractive prices. These are the buyers looking for value at a great price. We saw this in the real estate recession in 2009 and 2010 when prices were low, the savvy buyers were bullish and bought properties.
- The recent unemployed buyer– according to CNBC the employment-population ratio of the number of employed people as a percentage of the U.S. adult population plunged to 52.8% in May. This news means 47.2% of Americans are jobless, according to Bureau of Labor Statistics. As the coronavirus-induced shutdowns tore through the labor market, the share of the population employed dropped sharply from a recent high of 61.2% in January.
With 42 million people out of job, some of those people will be looking to buy a business. These buyers have been furloughed from corporate jobs, or buyers wanting to use their 401K to purchase a business.
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 email@example.com. Visit our website at www.EATSbrokers.comRead More
If you’ve reached the point where you’d like to sell your business, odds are you’ll want to engage a business broker to help you through the process. The relationship between a Business Broker and seller is a key element to getting a business or restaurant sold. As a seller, a broker can help you streamline everything from pricing your business to marketing it to buyers.
The relationship between a seller and a Business Broker should be honest and open, with ALL negative information provided to the Broker upfront. Founder of EATS Restaurant Brokers Dominique Maddox says, “the worst feeling is to have a seller not disclose negative information on the listing and you find out later in the process”.
The act of withholding information from a Business Broker can decrease the chances of a business getting sold. Business Brokers are consultants with a job of keeping a deal together, this becomes increasingly difficult if they don’t have all the details of the business.
EATS Restaurant Brokers provides 3 things a Business Broker should know about your business.
Do the tax returns match the copy the IRS has on file?
When a buyer goes to a bank and provides Tax Returns provided by the seller, the bank will request tax returns directly from the IRS to confirm they match. Form 4506-T is an Internal Revenue Service (IRS) document that is used to retrieve past tax transcripts that are on file with the IRS. The document must be signed and dated by the taxpayer, thus giving third-party permission to retrieve the taxpayer’s data.
This is extremely important because if a seller has provided false tax returns or filed an amendment on his/her tax returns the Broker needs to know this information. Yes, as a Restaurant Broker I’ve had sellers provide false tax returns to a buyer and it was uncovered once the form 4506-T was signed.
Do you own the equipment?
Landlord these days when a tenant defaults on the rent they will evict the tenant and keep the equipment. This process makes it’s easier to lease the space to a new tenant. Savvy buyers can get a fully equipped restaurant to lease to convert to a new concept. This works well when you are opening but when it’s time to sell, what do you have to sellAn experienced Business Broker will have a seller provide an asset list to include only items owned by the seller. This makes a big difference in the potential list price. I’ve experienced sellers trying to sell a restaurant, but they don’t own the equipment, these deals rarely close.
UCC liens on the business?
UCC filing, also known as a UCC lien or a UCC-1, is a financing statement that lenders can file against your business with your secretary of state. ). This form is filed in order to “perfect” a creditor’s security interest by giving public notice that there is a right to take possession of and sell certain assets for repayment of a specific debt with a certain priority
Liens can be placed on business equipment, a vehicle, property, or even a blanket lien naming all your assets. Most Purchase Agreements will have language that a business or restaurant has to be free and clear of UCC liens before a sell can happen.
If a seller doesn’t want to tell a Business Broker about a UCC lien it will come up once the closing attorney does a lien search. Talking upfront about these issues with your Business Broker about your UCC lien situation can help the sale of the business. Your Broker should be able to help you through each situation, but they must know first before they can help.
The trust relationship between a Seller and Business Broker can be the difference between a business selling or not. Nobody hates surprises more than a Business Broker when they think they know all the details about a business they are trying to sell. Your Business Broker is like your lawyer, they need all the details before they can successfully represent you. The best piece of advice is to Disclose, Disclose, Disclose!
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.com
EATS Restaurant Brokers Blog
Timing is defined as the choice, judgment, or control of when something should be done. Most Realtors would tell you the best time to sell a house at its highest price point would be May-August. What is the best time to sell a restaurant? EATS Restaurant Brokers would tell you January is the best time to sell a Restaurant!
The months of November-December are the slowest months for restaurant resales. Buyers are spending more time with their families, wrapping up year-end items, and not worried about buying a restaurant. The number of buyers inquires decline on restaurant listings for sale and spike back during the months of January-April.
Once the New Year arrives the Restaurant Buying Season begins and it’s a beauty contest. The number of listings increase and buyers have more inventory to choose from. Restaurant owners should keep one thing in mind. It takes time to sell a restaurant. It typically takes 6 to 9 months to sell a restaurant, but for planning purposes, you should plan for a year.
Fierce competition with the number of restaurants for sales on the market makes the restaurant listing package extremely important. The decisions Restaurant Owners make in January can have a big factor in if the restaurant sells or fails in selling in 2020.
EATS Restaurant Brokers provide 3 Tips for Selling Your Restaurant in January
1.Tax Return numbers are important when selling a restaurant:
Restaurant owners can deduct legitimate restaurant expenses against the revenues they take in. Restaurants, however, have some unique expenses that they can deduct against their taxable income. The most common deductions include food costs, server and kitchen labor, operating and advertising expenses, and capital expenses.
I have seen some very interesting deductions that are not restaurant-related. The most-odd deductions have been $10,000 Hawaii Trip for Restaurant research, luxury car for marketing, food cost for a personal family reunion, and private school tuition for kids.
These expenses save the Restaurant Owner liabilities on taxes owed but devalue the business for resale. The first line item most buyer looks for when reviewing a Tax Return or Profit and Loss statement is the Net Income. Writing off non-restaurant expenses on the restaurant’s books and records actually hurt the chances of the restaurant selling.
Restaurant Brokers Tip: Pay the IRS upfront on total sales with limited deductions, to increase your chance of selling on the back end for maximum profits. Consult your CPA or Tax Professional on ways to increase your chances of selling your restaurant.
January is the perfect month to list a restaurant because you haven’t completed your tax returns for the previous year. This is a great time to review your past tax returns with a Restaurant resale specialist for a valuation. This strategy can help you talk with your CPA or Tax Professional on how to file your upcoming tax return. The difference of writing off $10,000-$50,000 of unnecessary expenses, could cost you $30,000-$150,000 on resale value using a 3x multiple.
2.Use a trained Restaurant Broker
When someone gets sued usually the first task, they accomplish is to hire a lawyer to represent them legally, explain the court process, and to be a consultant. Lawyers will usually charge a retainer fee or consulting fee to address your concerns. Why do people hire a lawyer and not represent themselves in court? The obvious answer is that lawyers are trained in law and the general public is not.
One of the most common statements in Restaurant Brokerage is that operating a restaurant is much different from selling one! Restaurant Brokers are trained in real estate and business brokerage professionals. Restaurant Brokerage professionals are specialists in the field of restaurant resales and restaurant consulting.
The best part of hiring a Restaurant Broker is no upfront fees in most cases. EATS Restaurant Brokers only earn a success fee when the restaurant is sold. We know how to locate the buyers in the market and understand the restaurant resale process.
3.Clean up the restaurant and books and records
January is a perfect time for restaurant owners to focus on any tax liabilities, suspended licenses, lawsuits, claims, UCC liens, or landlord default payments owed. All this information is important to know and to be working on before your restaurant is listed for sale. The closing attorney does a UCC lien on the restaurant equipment and will require a sales tax clearance letter from the seller to conduct a closing.
Cleaning a restaurant and fixing broken equipment could make the difference to a buyer with so many restaurants for sale on the market. The primary factor of what a restaurant will sell for is determined by its earnings, or owner’s cash flow, and the market multiple. Using these tips can help a restaurant owner sell in 2020.
January-April is the restaurant buying season if you are a restaurant owner who wants to sell this year, you should be listed on the market now. Restaurant sales decline in the summer when the home buying season is hot.