Article by Bryan Vitagliano
Selling a restaurant is a difficult thing to do.
Owners tend to carry an emotional attachment toward their business and often treat it like an extension of themselves. Owners generally look to sell to a buyer capable of continuing to operate the business at greater or comparable level of success. The owner is looking to capitalize on the successful business they built, but also take care of the employees and customers by transitioning the business to someone who will care for them as successfully as they did. I have helped many restaurant owners successfully position their restaurant for sale; and here are a few tips to help get the highest price.
Is It Time To Sell?
The process of selling your restaurant can never start too early. However, regardless of when the process begins, your restaurant will be valued based on the prior year’s performance. So, if the goal is to maximize the value of your business, then you will want at least two years of financials and ideally a positive gross revenue growth trend. This will make your restaurant more attractive to prospective buyers. Simply put, a successful restaurant is easier to sell than an unsuccessful one.
Selling your business is a full-time job. Between marketing the business with a level of confidentiality and vetting the financial position of the buyers, there is not much time to spend actively running the restaurant. The last thing you would want is for your business to suffer because your time has been shifted to selling the business, rather than running it. If you do this the value of your business will decrease.
Contact a professional business broker to provide an opinion of value and guidance. They will serve you well as you focus on the continued success of the business. Your will also help bring in qualified buyers to purchase your restaurant.
Set Realistic Expectations
It is rare to find an owner who can objectively price their business. Often times they have never sold a restaurant before and they are to emotionally invested in the business to give a fair valuation. Like all economics, the market sets the price the business will sell and there are a number of variables that either increase or decrease the value of your restaurant.
A helpful exercise is putting yourself in the position of a prospective buyer. Ask yourself the tough questions and look objectively at your role as the owner, number of hours you put in the business a week, duties and responsibilities, and the net income. If you have a sale price you believe you “should” get for your business, ask yourself, would you pay that amount, to have to do all you do, to make your level of net income. For example, if you wanted $250,000 for your restaurant, and you consistently made $70,000 a year working 40+ hours a week; ask yourself, would I pay $250,000 to buy myself a job that pays $70,000 a year? This is the first question any buyer will ask themselves when presented with the asking price and cashflow amount of a restaurant on the market. Work with your broker to help gain a better understanding of the market and how prospective buyers approach think about a purchase. Setting realistic expectations will help you find more suitable buyers.
Figure Out The Sale Price
The value of your restaurant depends on multiple variables. These include, but are not limited to; financials, the owner’s role and number of hours a week spent in the business, organizational structure, presence or absence of management or key employee(s), quality of the financial bookkeeping, level of cashflow, and how the business is trending year over year.
Ideally, financials should consist of the last 3 years of income statements and balance sheets, and corresponding tax returns. A profitable restaurant is valued based on the seller’s discretionary earnings. These earnings are the pretax and pre-interest profits before non-cash expenses, one-time investments, and any non-related income expenses. The higher the discretionary earnings amount, the greater the multiple of that number the market will bear; thus, allowing you to sell for a higher price.
Maintain Your Equipment
Maintain high-quality standards while you are actively trying to sell your business. No one wants to purchase a dining establishment they would not eat at themselves. A clean restaurant is a sign you care about the business and this attention to detail will also strengthen the buyer’s belief in the health of your business.
A buyer won’t to spend top dollar to purchase a business that requires immediate repairs to the equipment. Either replace the equipment or be prepared that you may be asked to adjust the sales price following due diligence. I am not advising spending money to upgrade your restaurant with the sole purpose of getting a better price; something that is common in residential real estate. Just maintain your equipment and keep both the front and back of the house clean.
Maintain an Online Presence
Smart buyers will do their due diligence in researching your business. They can easily see the publics’ perception of your restaurant through online reviews. Maintaining a good reputation while obtaining new 5-star reviews is important. Good reviews go a long way in solidifying the goodwill associated with your restaurant.
Bolster your positive reviews while driving down any old negative reviews. You drive down negative reviews by having people post positive ones. Restaurants with bad reviews are unappealing to buyers; since the benefit of buying an existing brand is purchasing the established good will and customer base of that brand.
Familiarize yourself with common complaints such as cold food or slow service and fix those issues before a potential buyer sees them. Being familiar with the complaints will help you be prepared to answer questions relating to this complaints from potential buyers.
Respond politely to negative reviews about your restaurant. This shows you take an interest in all aspects of the customer experience and by improving these issues today will help your chances of selling for the highest value in the future.
These situations are perfect examples of why planning an exit is so important. A two-year gap since your last negative reviews will make it easier to sell your restaurant.
Selling your restaurant can be a complicated and emotional process but putting together a plan with your broker will help you sell your business at the best valuation.
Bryan Vitagliano is the leading restaurant broker at Strategic Business Brokers Group, in affiliation with American Realty Brokers. Bryan has helped dozens of restaurant owners sell their restaurants across Arizona. Learn more at their website.
