If you stand to make a profit, selling a restaurant can be exhilarating. If you're selling after a hard-fought battle that didn't work out, it can be heart-wrenching. Either way, it's a very intense process. And either way, there's a lot of work (including tons of paperwork) involved, and given that most restaurants are true labors of love for their owners, it's often also an emotionally charged endeavor.
One good reminder: After pouring blood, sweat, and tears into your business, it’s easy to take a lowball offer personally. But try not to. It’s in a potential buyer’s interest, sometimes, to talk down your restaurant and offer what may feel like an insultingly low price. That’s just a negotiation tactic. Hang in there.
By keeping your financial records complete, accurate, and organized, you can make your restaurant far more attractive to prospective buyers, which will help you sell your business at a fair price. Maintain at least a year's worth of profit and loss statements in a standardized format, broken down by sales and costs, including cost of goods sold, labor costs, and operating costs. A simple accounting system like QuickBooks can help, or find an accountant who specializes in the restaurant business.
Restaurant valuation is complex, especially in the age of Covid. Some believe in a relatively simple formula: Take the profit and multiply it by 3 to 5, meaning that if a restaurant nets $200,000 in annual profit, the asking price should be between $600,000 to $1 million. Others factor in more considerations: the current economy, how established the business is, whether your equipment is included, and how much the community cares for the restaurant. Other valuation methods include the Assets-In-Place Method (generally used when a restaurant is no longer profitable), the Going Concern Method (similar to the formula mentioned above), and the Market Valuation Method (which considers future potential as much as it does earnings).
First, slay on your first impression. Appearance matters, so make sure your restaurant's curb appeal is as strong as possible. Inside, your dining room, bathroom, and kitchen should be spotless. Outside, the restaurant should look well-maintained and clean, including the parking lot, if there is one. Your equipment should be in good working order, so remove or replace any broken equipment before prospective buyers visit. And the restaurant's website should be updated, functional, and tasteful.
This is a big decision. If you've already negotiated a price with a buyer, if you're selling to someone you know and trust, or if you've sold multiple similar businesses before, a broker might be an unnecessary cost. However, many people feel that a broker is well worth the cost of their commission. Selling a business requires intensive, sustained effort, and taking focus away from making your business run smoothly. Brokers who deal specifically in the restaurant business will know better than anyone where to find quality buyers, and are adept at keeping sales discreet so your employees don't find out before you're ready to tell them. Before choosing a broker, you may want to ask them some well-considered questions.
Whenever you're negotiating a sale, especially for something as big as a restaurant, it's a good idea to brush up on negotiation tactics. Start by arming yourself with data, practice negotiation before you get into the room, and ask for more than you expect. Get as much third-party valuation as you can on your assets—it helps to make your case for your business's value. And make sure you get paid for signing any non-compete agreements.
If you want to sell your restaurant equipment either to a separate buyer or as part of the sale of your restaurant, you should expect to get back only a portion of what you originally paid. The average resale value of most restaurant equipment is between 10 to 30% of the original price. Its working condition, cleanliness, and working order will all affect that value. To make the most of the sale, make sure you clean it to gleaming, find any manuals and warranties you may have held onto, and consider consulting an equipment appraiser.
[Photo: Jason Leung via Unsplash]
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