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:
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.
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 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
How do you write a letter of intent for a lease is a struggle for inexperienced brokers representing clients or unrepresented potential tenants? Once a potential tenant finds a commercial lease space, the process to negotiate with the landlord begins.
A letter of intent (LOI) is a document declaring one party’s preliminary commitment to do business with another. The letter outlines the key points of a deal that will be negotiated between all parties involved.
LOIs are useful when two parties, usually landlord and potential tenant, work together to hammer out the broad strokes before resolving the finer points.
Letter of Intents can be drafted and presented by either party. The receiving party can accept the terms or redline and revise the words to send back to the original sender.
Key Points on a Letter of Intent Include:
- Tenant Improvement Allowance (TI)
- Rent Abatement
- Personal Guaranty
- Rent structure
- Term of Lease
- Options to extend
- Permitted Use/Exclusive Use
- Rent Commencement Date
- Landlords Delivery Condition
- Lease Assignment Rights
- Security Deposit
- Advanced Rent
- Repairs and Maintenance
- Brokerage Disclosure and Commission
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “the letter of intent is an essential part for a potential tenant to address all concerning issues before signing a new lease.
Landlords pay lawyers to draft leases that protect all their concerns. In this business, I always say the landlord is not your friend. Potential tenants need to have a professional on your side when negotiating the lease”.
EATS Restaurant Brokers suggest hiring a professional Business Broker or Restaurant Broker to review the following items on a Letter of Intent (LOI):
- Personal Guarantees- how long will the tenant be a personal guarantor.
- Exclusivity-does the tenant have any protection from incoming tenants competing with their cuisine.
- Covenants, POA rules, and regulations
- Zoning issues
- SBA leases
- Renewals- Provides information on renewals and rates.
- Dispute resolution
The detailed information to consider when evaluating a new lease can be overwhelming to an inexperienced restauranteur or real estate professional. Most landlords hire property management companies to negotiate new leases. These hired professionals’ job is to get the landlord the best deal possible.
To all potential tenants, remember when you call the “For Lease” sign on a vacant restaurant space, you are letting the landlord know you are representing yourself in lease negotiations.
Visit our website at www.EATSbrokers.com
I wrote a blog last year about my daily activities by the minute as a Restaurant Broker that received great interest and replies. I have decided to start a series of blogs about some of my most exciting days as a Restaurant Broker. This blog covers a day where I drove 900 miles round trip in a day to visit four potential restaurant listings and two restaurant owners.
I was super excited about the potential to get four restaurant listings, and one of the restaurant owners operated three locations. My Day was planned out the night before with an 11am face to face listing appointment in Jasper County in South Carolina.
After my 11am scheduled appointment, I was scheduled to meet the restaurant operator of three locations in Florence County, SC, at any time because he would be working that day. His restaurants were located in three different cities. My strategy was to visit all his locations before I met with him in Florence County.
Let’s see how this goes:
4:00 am – Wake up and put on a pot of coffee, and drink water. Review my Cash Scoreboard with my to-do list for the Day. Add any items that come to mind.
4:15 am- 4:30 am – Pack snacks, candy, and energy shots for the day trip. Kiss my wife good-bye, say a quick prayer, and I’m in my car on the way to Sumter County, SC.
4:30 am- 4:45 am- I drive my wife’s car on my long road trips to visit customers. As usual, when I take my wife’s car, her gas is empty, so before I can really start my road trip, I stop for gas. The 1st restaurant location is 290 miles away from my home.
7:45 am – 8:00am- First stop of the Day to refuel the gas, respond to customers’ emails, stretch, and grab some Bojangles for breakfast.
8:30 am- Arrive at 1st restaurant location. I take notes about the restaurant’s appearance related to street visibility, the shopping center’s condition, lease vacant spaces, and other tenants in a shopping center. The restaurant is not open, so I can only look thru the window.
8:45 am- Jump back in the car to make my way towards my 11am scheduled face-to-face meeting with a restaurant owner located 145 miles away.
10:45 am- I arrive early in the surrounding area to drive around to have a better feel for the location. I take notes on the surrounding competition, businesses, residential properties, and the appearance from the outside.
11:00 am – 12:00 pm- Meet with the single unit owner. They would like to sell to relocate outside of the state. I educate them on the current restaurant resale market, provide a restaurant price valuation, and review the lease.
12:15 pm- Respond to buyer inquiries from my car, finalize my notes from my meeting, and input location three in the Waze App. I’m headed to the 2nd restaurant of three owned by the restaurant operator in Florence County, located 165 miles away.
2:45 pm – I arrive at the restaurant, and instantly I’m impressed with the beautifully built restaurant with a drive-thru. I was impressed with the street visibility and design of the restaurant. It was a fantastic improvement from the seller’s first location in Sumter County.
3:00 pm- I take a couple pictures of the restaurant building, outdoor signage, patio space, and drive-thru window. Finalize my notes from my car and head towards the face-to-face meeting with Restaurant Owner 2; the location is 25 miles away.
3:30 pm- I arrive at destination number four. During my ride, I was thinking about the difference between the owner’s two locations. I thought about the Pros and Cons of both places. I was ready for my face-to-face meeting. By this point, I had driven 625 miles in the Day.
3:45 pm – I walk-in a restaurant, and instantly, I’m impressed with the restaurant’s layout, bar area, and stand-alone building. I ask for the owner, grab a menu and take a seat.
The management team lets me know he is not there. I sit down and look at the menu order food. My food arrives, and it’s delicious, but the owner has not arrived yet.
4:15 pm – I start to get nervous, and doubt starts to kick in. I made the cardinal sales professional mistake; I didn’t confirm the scheduled meeting the night before with the owner. I sent a text and get no response.
4:30 pm- Management team members come over and let me know the restaurant owner will not make the meeting.
4:45pm – Disappointed, I get back in my car and start my journey home, located 300 miles away.
5:15pm – The Owner calls to apologize for missing the scheduled meeting. We talk on the phone for about 30 minutes (I have Bluetooth). He agrees to send his Profit and Loss statements to me via email to provide him a restaurant valuation for all three of his restaurants.
9:15 pm- I finally arrive at home after driving over 900 miles. I was mentally tired, my body ached, and my stomach was empty. I was lucky because my wife had dinner ready.
I returned home with zero signed listing agreements. Most would think my trip was unsuccessful, but I feel different.
I was able to show my potential listing clients I will go the extra mile to provide exceptional customer service. I was trying to show Restaurant Owner 2 that I’m not a Broker that will just sit in an office and rarely visit clients at their restaurants,
EATS Restaurant Brokers commits to visiting potential clients within a 300-400 miles radius if needed to get a deal done. We can sell restaurants in Tennessee, South Carolina, North Carolina, Alabama, Texas, Kentucky, Missouri, Louisiana, Virginia and Georgia.
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
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
How should I sell my restaurant is a question most restaurant owners will have to deal with before exiting their business. Similar to residential real estate owners, restaurant owners have multiple options to choose from. Each option has pros and cons, but which one is actually better?
Today’s internet has tons of information on selling a restaurant, how to do a valuation, and ways to market a restaurant for sale. Some people think they can actually become experts in Restaurant Brokerage overnight.
Dominique Maddox a Restaurant Broker and Founder of EATS Restaurant Brokers says, choosing the right option to sell a restaurant makes all the difference. Only about 30-50% of all restaurants listed for sale on the market will actually sell, the best way to increase your odds of selling a restaurant is working with a trained professional in restaurant sales.”
Restaurants for Sale by a Restaurant Broker– Restaurant Brokers are specifically trained in the Restaurant Resales process. On a daily basis, they view restaurant owners’ profit and loss statements, negotiate lease terms with landlords, work with banks for SBA approval, and work with Franchise Restaurant Resales.
-Expert in Restaurant Sales Industry
-Knowledgeable about the Restaurant Sales Process
– Understands industry specifics and comparable financial data for specific restaurant concepts
-Has experience working with buyers thru the Franchise Approval Process
-Has resources and vendors to help during the buying process
-Has forms and documents for an Asset Purchase Agreement
-Will require an exclusive listing agreement for 6-12 months
-Commissions range from 10%-15%
Restaurants for Sale by a Business Broker- Business brokers, also called business transfer agents, or intermediaries, assist buyers and sellers of privately held businesses in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial potential buyer interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the due diligence investigation, and generally assist with the business sale.
-Trained on Business Brokerage
-Have knowledge of business valuations
-Jack of all trades-sells everything ranging from a gas station, laundry mat, hair salon, and etc.
-Not specifically trained in selling restaurants
-Most do not understand the usual cost in restaurants for food cost, labor cost, rent cost, and normal add-backs.
Restaurants for Sale by Owner (FSBO)- For Sale by Owner, or FSBO, is the process of selling a restaurant without the representation of a broker or agent. Restaurant owners may employ the services of marketing or online listing companies or market their own restaurant. Typically, they represent themselves with the help of a lawyer.
-No Broker Commission to pay
-Have 100% control of the sales process
-Can dictate listing price with no logical reason
-Emotionally attached to the sale of the restaurant
-Most Owners will overprice restaurant for sale
-Do not understand the sales process of a restaurant, UCC lien search, Sales Tax Certificate, and lease obligations
-Do not have the right paperwork to write an Asset Purchase Agreement, Amendment to change the contract, escrow docs, or any other document related to the closing.
Franchise Restaurants for Resale by Franchisor-The Franchisors are in the business of maintaining open locations and getting new franchisees to build out new restaurants. Franchisors are not in the business of resales. Franchisors have started to try helping current franchisees sell their franchise when they want to exit the business.
-Franchisors have the power to approve any potential new franchisees
-Franchisors have the sales information for restaurants
-Receive customer inquiries seeking to join the franchise
-Do not have a dedicated department for franchise resales
-Are not trained on doing restaurant valuations based on profit and loss statements, tax returns, or an Asset Sale
-Conflict of interest
-Too much time required for franchise resales
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
Every restaurant owner wants to know, how can I sell my restaurant fast? The art of selling a restaurant is different than selling a residential home. The element they have in common is both a restaurant and a home need preparation before hitting the market for sale.
When selling a home, you can usually expect an offer within 1-3 months before owners start to panic. The average time to sell a restaurant is 6-8 months. Restaurant Brokerage Firms will usually ask for a 6-10-month listing agreement, some companies will require a 12-month listing agreement.
Dominique Maddox an Atlanta Restaurant Broker and Founder of EATS Restaurant Brokers says, “ restaurants with good books and records, goodwill, and location sell the fastest. The best sellers to work with are the ones that prepared their restaurant to sell for the highest and best price.”
EATS Restaurant Brokers provides a checklist of the items to be prepared and available before listing restaurant for sale:
List of fixtures and equipment – only items owned by the seller. Fixtures belong to the landlord. Broken equipment should be repaired before listing for sale. Restaurant equipment that does not work should be removed from the building.
Three years of profit and loss statements– is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. Once a buyer has signed a non-disclosure and qualified financially, they want to see the financials for the restaurant.
Time kills deals and buyer enthusiasm towards buying a restaurant. One of the biggest mistakes a seller can do is list a restaurant for sale and not have financials available for buyer review.
Three years of Federal Income Tax Returns for the restaurant- the tax returns should be the same ones filed with the IRS. Banks will request a Form 4506-T, Request for Transcript of Tax Return before approving a buyer for a bank loan.
The original lease and lease-related documents- besides financing the lease can be one of the most complicated parts of selling or buying a restaurant. Some restaurant owners have never reviewed the language in the lease they signed.
It is important to have a copy of the original lease and other docs associated with the lease, available for buyer review.
A copy of the franchise disclosure document (FDD), if applicable- A franchise disclosure document is a legal document that is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States.
Restaurants can sell quickly but the real fact is that restaurants will take 6-8 months to sell. To improve the odds of selling a restaurant quickly, restaurant owners should treat the restaurant like a home. Prepare the restaurant for the market, collect and gather all docs before hitting the market. Once you do find a ready, able, and willing buyer, all the docs needed for closing are available to share.
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.com
The million-dollar question for buyers should be,” what are the benefits of buying an existing restaurant”? The Restaurant Industry has a high failure rate, around 60 percent of new restaurants fail within the first year. And nearly 80 percent shutter before their fifth anniversary according to CNBC.com
Knowing these tremendous odds of failure, there are precautions prospective restaurant owners can take to help their odds of being successful. The biggest precaution is to limit your exposure to unknown expenses. How do you accomplish this task? The answer is to buy an existing restaurant for sale or 2nd generation restaurant lease space.
Dominique Maddox of EATS Restaurant Brokers says, “ I have a countless number of horror stories of new restaurant owners going broke on the build-out of restaurant space. I recommend to my buyers to look for an established restaurant to keep or convert to a new concept. I have seen restaurant owners spend over $500,000 on a build-out and sell a year later for less than $100,000.”
1. Established an Open– Why wait to open a restaurant when you can buy one and be open the same day of the closing day? When you buy an established restaurant that has been open for a significant amount of time, it comes with an established customer base and goodwill.
Why wait to build up Google Reviews when you can buy a location with great reviews and an online reputation. Some restaurants come with professional websites, great social media following, and email customer marketing lists.
To a restaurant owner the sound of the POS sales system taking orders, delivery orders coming in, and pick up orders on the 1st day of ownership is a priceless feeling.
- Staff- One of the hardest tasks for new owners is to recruit, hire, and train staff members. Established restaurants usually come with a trained employee workforce, these individuals are trained on the basic skills that are necessary for performing their roles. Inheriting experienced employees can be a valuable asset.
- Existing Business Relationships– The current owner has established relationships with food vendors, suppliers, printers, insurance companies, service companies for restaurants, and banks. Some of these relationships can easily be transferred at the time of closing.
- Price and Expenses– The current seller usually has everything in place for a new buyer to take over the operations. When purchasing an established business, the buyer knows exactly what he or she is getting for the price. The buyer in most cases can review the seller’s profit and loss statements and learn from the seller’s success and failures with expense control.
- Furniture and Fixtures– One of the biggest misconceptions for restaurant owners is that they own everything in the building. Restaurant owners can spend hundreds of thousands of dollars to install a grease trap, hood system, walk-in coolers, walk-in freezers, and sinks. Only to find out once they are ready to sell all the leasehold improvements belong to the landlord (read your lease). Building a new restaurant requires you to convert an existing space into a restaurant.
Why go thru the troubles and heartburn of a build-out when you can buy an existing restaurant, that is fully equipped with restaurant equipment for pennies on the dollar.
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