Dominique Maddox of EATS Restaurant Brokers sell Papa’s Pizza To Go located in Crawford, GA. EATS Restaurant Brokers represented the seller and buyer. The seller will enjoy retirement after over 20 years of restaurant ownership.
The business experienced some troubles of staying open last year and this year due to various reasons. The residents of Crawford were worried this location would not open back up. This pizza franchise has been part of the county for over 30 years.
The new owner Dan is excited about the opportunity to keep the legacy of this location going. Dan is now a multi-unit franchise owner of Papa’s Pizza To Go.
Dominique says, “to help restaurant owners that needed to sell due to health and personal reasons and to find a buyer that is excited about the opportunity, this is why I love being a Restaurant Broker. This is the second Papa’s Pizza To Go franchise I have sold, and I’m truly thankful for their corporate team giving us an opportunity”.
In January of 1986, a small-town man and his business partner opened the very first Papa’s Pizza To Go in a small, closet-sized mobile unit in a vacant lot in McCaysville, GA.
Papa’s Pizza To Go was created with “small town USA” in mind and the mantra “think small, grow big” by offering a diverse menu to keep people coming back for more and locally focused marketing to allow restaurant owners to get to know their customers.
Papa’s Pizza To Go locations are in small towns with populations from 3,000 to 6,000 and focused all aspects of the restaurant to the pace of small-town life.
For over two decades of success, Papa’s Pizza To Go has remained committed to serving customers with an expansive menu to satisfy all appetites at a reasonable price with restaurants in Georgia, North Carolina, Tennessee, and Alabama.
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
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 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
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
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.
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
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 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
Dominique Maddox, Founder and President of EATS Restaurant Brokers has earned the CFE (Certified Franchise Executive) designation from the Institute of Certified Franchise Executives™ (ICFE). Dominique will graduate as a member of the class of 2021 at which time he will receive his CFE pin
Participants in the Certified Franchise Executive (CFE) program complete several course offerings in franchise management, leadership, and small business to gain insights into franchise strategy and operations. The mission of the Institute of Certified Franchise Executives (ICFE) is to enhance the professionalism of franchising by certifying the highest standards of quality training and education.
Dominique Maddox of EATS Restaurant Brokers says, “ I started this process in 2018 to get the CFE designation but money requirements and time did not allow me to make progress fast. I decided to recommit myself in March 2020 to finish the program and become one of the few Restaurant Brokers in the nation with a CFE designation.
The designation required 3500 credit hours which included online courses, classroom study, attendance requirements, and testing. I now can put the CFE behind my name, which gives me instant credibility in the Franchise Industry because it is comparable to having a master’s degree in Franchising”.
The Benefits of the Certified Franchise Executive Program are focused on the recognition and professional standing in the franchising community. The CFE designation is highly regarded and a symbol of continuance learning, years of experience, and a desire to grow in the franchise segment.
As a Business Broker focused on Restaurant Franchise Resales, Dominique plans to use his Certified Franchise Executive (CFE) designation to help franchise brands, multi-unit owners, and single-unit owners thru the resale process. Dominique is a Restaurant Resale Specialists that can guide customers thru the complex process of buying or selling a restaurant.
Thinking about selling a franchise 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