Do you want to sell your restaurant and you need ideas on how to cash out big? If YES, here are 20 smart tips on how to sell your restaurant successfully.
The restaurant business isn’t an easy business to run, and a lot of people who have tried their hands at it may want out after some time. This could be because of financial difficulties or because you no longer have the desire to run a restaurant, or because the business has gotten too big for you to run or you’re simply tired of running it.
Other reasons for selling your restaurant business may be because you just want to liquidate your shares and take the money, you need it as seed capital for a new venture, or perhaps you want to retire et al. Whatever your reason for selling off your restaurant business, here are a few tips that can help you do it the right way.
20 Tips on How to Sell your Restaurant Business Successfully
1. Understand How Much Your Restaurant is Worth: anyone who is interested in buying your restaurant business will want to know in details the rundown of financials, whether those are positive or negative. Gathering all these data can be time consuming and as such, it is best that you give yourself ample time to get it sorted out and bolster your profits and business offerings in that time. Buyers will want to see quality sales and a steady cash flow.
It’s important to convince buyers of the quality and potential of the business, so it’s in your best interest to augment sales and reduce expenses to strengthen cash flow before listing your business. The average restaurant sale can take upwards of six months, so you do have a window in which to expand upon your profits and determine areas in which you could cut costs to come out on top.
When it comes to your assets it’s important to understand the depreciation involved. From state-of-the-art food service equipment to your restaurant technology options, everything depreciates the moment it’s purchased and installed. This may set your overall assets value at a lower price than initially anticipated, so it’s important to do your research and understand your exact worth when reporting to a potential buyer.
2. Prepare for It: One of the most important things you need to know about selling your restaurant is you shouldn’t go into this process blind-folded. You have a lot invested in this restaurant, and seeing it all go to waste because you didn’t take the time, or make the effort to understand the selling process can be catastrophic. Familiarize yourself with the process of how it traditionally works. Know what’s required of you and the rules you’ll have to follow.
There are so many things that can go wrong without proper preparation. A simple breach of confidentiality could spell disaster. Rules like this can derail an attempted sale at any time. Make sure that you have a good legal team to brief you before you move forward with this process.
3. Selling Off a Liquor License: even if the reason why you are selling your business is because of decreasing finances, you still have some very valuable assets to your businesses name. A liquor license is possibly one of the most lucrative (depending on your location). If your restaurant will be closing its doors, your license will be deemed inactive, but it can be sold to a looking buyer.
Some choose to use the services of liquor license brokers like License Locators, Inc. , because it takes the stress out of finding the right buyer. While you do pay a fee to these providers, it’s often worth the investment as they can help you garner a fair price in your current market and make sure the sale is legally sound.
4. Use a Restaurant Real Estate Specialist: When it comes to listing and working out a deal with a potential buyer, it’s in your best interest to use the help of trained real estate and business brokerage professional.
Brokerage professionals are specialists in the field, with insight into where the market is currently and where it will be, they know how to locate the best buyers, and understand the restaurant business, which can come in handy if you plan on selling your business as an operating entity.
Usually, the standard rule of thumb for the broker is 10 percent of the sale. There are certain minimums that might cost more than 10 percent, and for bigger deals, you will pay less than that. It’s on a brokerage-by-brokerage, firm-by-firm basis.
5. Make you exterior as appealing as the interior: just like when a house is being sold, it is very important to make the exterior appeal so as to encourage people to have a look at what the inside has to offer. Physical condition is just as important as financial condition and an ugly exterior will give the impression that a business is a less than desirable state.
You can improve the aesthetics of your exterior by hiring a professional painting company to revamp the paint job indoors and outdoors in addition, you should also clean and replace any broken windows. Keep trash off the curb and out of sight, and when it comes to the interior, stage the space in a way that will allow potential buyers to imagine its utility for their purposes.
6. Sell as a Commodity: Is your restaurant a successful one? Are your staff well trained and disciplined, are all the furniture still intact, and do you have a consistently filled reservation list? If this is the case, then it may be a better idea to sell your restaurant as an entire asset. For buyers looking to use the space as a restaurant, it may be more enticing to invest in an established eatery with great wait staff, a solid menu, and loyal customers already in place.
7. Sell at the right time: a lot of small restaurant owners do not have an exit strategy. This usually resort to selling the business when it’s too late. As a smart restaurant owner, you should plan your exit. Get your books in order and make sure your business is in great shape so it’s fully saleable.
Make sure you’ve done the necessary capital improvements so it will sell. You want to know market conditions, and the supply that is on the market. Is there a glut of supply or not enough demand? That would indicate whether it’s a good time to sell.
8. Keep it quiet: The best way to ruin a business is to tell people you’re selling it because employees, customers, vendors, and landlords worry they won’t like something about a new owner. In reality, the only people who will be happy that you are selling your business will be your competitors who will see it as an opportunity that they can capitalize on to improve their market share.
Selling your restaurant is not the same as selling your house. Many people think it’s similar, but they are not. The real estate model is the more people you tell, the more houses you sell whereas when selling your restaurant, the more people you tell, the more businesses you kill.
So how exactly are you supposed to sell your restaurant if you are not supposed to tell anyone that you are selling your business? This is where the services of a qualified broker is needed. A lot of brokers have thousands of potential buyers that they can connect to you.
9. Build the Right Team: The sale of a small business is supposed to be confidential. In reality, most people will be aware that something is going on, but this doesn’t mean that you can start talking about it. Build a small team that will help consult you on the process that will keep all communications internal.
Prepare a document with information about your restaurant, including historical financial statements, employees, assets, and liabilities. To make sure that your team remains motivated through the transition period where their workload is likely to double, reward them accordingly.
10. Know what makes a business valuable: In order for your restaurant to look attractive to a buyer, you need multiple sources of income, a healthy customer base, and a solid management team in place. No one wants to buy a restaurant that has few customers.
If they lose any of those customers they are going to be out of business, and buyers are not going to buy those types of restaurants. You really have to work on not only building your brand and your brand loyalty but also you’ve got to work on what you are best at and hire people in areas that you are not so good at… people smarter than you.
11. Relationship with Your Investors: If you have investors, it’s important to make them part of the decision-making process. Most investors are also looking for an exit as they need to cash-in on their equity. Sometimes, investors may have connections that could help you get a better deal.
12. Have a strong legal Team: The sale of a business almost always includes lawyers. A good lawyer ensures that you are fully protected with a strong contract. All lawyers do not have the same skill level, and as such, you should choose a legal firm that specializes in dealing with “businesses for sale.” A generalist may not be a good solution in this situation.
13. Make the right deal: even with the aid of a broker, at times, getting a good buyer at the right price might be difficult. So entrepreneurs are usually in a hurry to sell. Take your time, and plan way ahead of time. It can take anywhere from 6 to 12 months to sell your restaurant business.
You may not always get the price you are looking for. You should also have a realist expectation. Don’t expect to sell your restaurant for a million dollars if it is not worth anywhere near that price.
Remember, your business is only worth what the highest bidder is willing to pay. If you get a really low offer, don’t take it personally. Keep emotions aside. If you don’t like the offer, you can politely decline, and revisit at a later stage if you don’t get enough buyers.
14. Transfer assets that won’t be sold: When you have made up your mind to sell your restaurant, you should begin to transfer assets into your personal name that you know that you will not sell alongside your business. Such assets can include your food trucks, recipes, et al. so they’re off the expense column of the balance sheet. This will show the buyer a clearer picture of cash flow potential.
15. Work yourself out of the business: If the restaurant looks like it is dependent on you or a few key chefs, a buyer may believe the potential for its growth will go away when you do. As such, you will have to make sure that your restaurant can survive without you being in the helm of affairs.
16. Deposits and NDA’s are very important: non-disclosure agreements are very important when selling your restaurant business. It is the first thing you should do alongside with getting a nonrefundable deposit. The buyer of your restaurant will likely gain access to the restaurant trade secrets and confidential information.
If for any reason the deal was not finalized, then the nondisclosure will help to ensure that the buyer will not be able to use your trade secrets to grow their other competing business. A nonrefundable deposit will ensure that the buyer is serious and will deter unserious buyers and time wasters.
17. Due diligence is sacrosanct: Due diligence is the integral part of any contemplated business sale. Due diligence is an investigation of a business to determine the ability of the other party to deliver on what was promised and to create protective firewalls to prevent surprises, to either side, once the deal is done. Carrying out due diligence does not come cheap, it requires a considerable expenditure of time and analysis on the part of both parties’ legal teams, as well as financial and technical personnel.
Due diligence representation lets the seller not only meet its disclosure obligations but also determine the buyer’s willingness and ability to perform. This means not only making clear and meaningful disclosures to expedite the buyer’s due diligence but also conducting a reverse due diligence on the potential purchasers and structuring the deal accordingly.
18. Don’t Lose Focus on Your Business and Employees: make sure that your employees are not just left high and dry from the deal. Make sure your employees are taken care of in their new role. Negotiate as part of your deal that they will have 18 to 24 month severance packages in case they are let go.
19. Make sure that you are up to date: if you want your restaurant to be more appealing to potential buyers, then you will have to make sure that all your licenses, permits assessments and approval for alcohol, food, music, fire safety, health and safety et al are all up to date. An interested buyer will want guarantees that all the legal requirements have been met and are up to date.
20. Have an eye for detail: the smallest detail that you overlook can let you down, such as not keeping your restaurant tidy or not having a members of staff on hand to attend to customers when they come in. Granted, these little things will not mean much individually, however, if you have ten of these tiny impediments then it will affect the way buyers perceive your restaurant. Each detail is magnified at the point of sale and most aspects are easily addressed and rectified.
In conclusion, selling your restaurant can a complex process. It’s important to plan early and package your restaurant to make it look attractive to buyers.