You’re Thinking It’s Time to Sell.
For whatever reason, you have decided to throw in the apron and sell your restaurant business. This is the time where you need to pump the breaks and educate yourself.
First step, you want to assemble your team (think of it like the cartoon Thundercats). You need your first lieutenant, an experienced Restaurant broker who is well-versed in the nuances of this niche market to help you through the process.
Your next team member should be your accountant, so you can learn about the timing and tax implications of a sale. Now your team is assembled!
Selling your business can take time to complete – which can be a very frustrating reality for the Seller who wants their business sold quickly. In order to get the best outcome, we have assembled a few topics that will help you prepare.
Knowing Your Business’ Value
When we ask Sellers how much they want to sell their restaurant for, it is almost always more than what it ends up being listed at and it is understandable. Your blood, sweat and tears have been poured into every Waldorf Salad and craft cocktail to make it successful, but that doesn’t mean a Buyer will place the same value on that business when making an offer.
This is where a valuation is beneficial as it will provide you with a range for how much you can realistically expect to get for your business, without being clouded by sentiment, and provides justification for the listing price. An experienced restaurant Broker will be able to assist the Seller with determining what method to use, all based on the Seller’s circumstances.
When we are on your team, we include a business valuation as a part of our listing process.
Pre-Qualify for an SBA 7(a) Loan
As a Seller, you are hoping for a cash offer, but many Buyers in the market for a restaurant will need to finance the purchase. This poses a few challenges for Buyers as many Sellers do not want to provide financing and many Lenders won’t approve traditional loans for a restaurant due to what they perceive as being a high-risk industry; however, the SBA 7(a) loan is an option.
An SBA 7(a) loan can be used for the purchase of an existing business, the space from where the business operates and equipment, to name a few. While this loan is a popular choice for Buyers purchasing a restaurant, satisfying the equity injection requirements, in some cases, we have seen 30% hand money down; this can pose a challenge!
Pre-qualifying your business beforehand will help you know from the start whether your Business is “lendable” or whether you may have to offer partial or full Seller financing. While pre-qualifying is not a requirement, it is something for you to consider in this current climate.
Market Your Business Confidentially or Publicly?
Now you will need to determine whether you want to sell your business confidentially or publicly. In our experience, most Sellers will opt for a confidential listing. Here is why we see this as the most common choice:
The most important part of your marketing efforts, and the best way to keep rumors that your business is selling off the market, is to hire a responsible restaurant Broker. Your broker should have processes in place to protect the confidentiality of your business. If any potential inquiry can obtain the name and address of your business, is your listing truly confidential?
If you are less concerned about your employees and customers knowing your business is up for sale, listing publicly can provide benefits in finding the right Buyer for your business. Public listings tend to receive a higher volume of Buyer inquiries. Each scenario and business is different. We will advise you on which path will make the most sense for your scenario.
Qualify Your Buyers
Is your Broker talking to qualified Buyers or “looky-loos” and “tire kickers”? This can be especially tricky if you have opted to keep your listing confidential. That is why a good restaurant Broker will qualify potential inquiries prior to revealing your business is for sale.
Let’s talk about qualifications. Does the potential Buyer have the funds or ability to obtain financing to make a legitimate offer on your business? Do they have any experience in the restaurant industry? If you have a liquor license, will they meet the necessary requirements from the Liquor Control Board?
When we consider sharing information on one of our Restaurant listings, we don’t want to make it too easy to obtain any information about your listing. That would be irresponsible. In our experience, if a potential Buyer is not willing to do some work, then they aren’t going to stick it out for the long haul when it comes time to making an offer.