Selling a restaurant can be a challenging and time-consuming process. Often the most difficult part of the sale comes with managing emotions as the owner and approaching the sale objectively. Here are a few suggestions to help position a restaurant in the best light for sale and also make the process easier.
Plan ahead, with detailed financials.
A restaurant owner owner should ideally start the exit strategy planning three years in advance of a sale. Having detailed financials for three years prior to the year the owner wants to sell helps determine an opinion of value of the business and a fair market price.
Many owners tend to value their restaurant based on what they heard another restaurant sold for or what a colleague, friend or even financial advisor tells them it is worth. There is no standard multiplier or way of valuing a restaurant because they are all different.
The best approach is to have detailed profit and loss statements for three years total and meet with a restaurant broker active in the market to help with setting a justifiable and competitive asking price.
Determine a viable sale price.
A number of different variables go into what a restaurant could sell for. But at the end of the day, a restaurant sells when the amount a buyer is willing to pay and the amount a seller is willing to accept match. The right sales price will ensure that the restaurant gets sold at a price and in a time frame that makes all parties happy.
Some of these variables are the financials, the owner’s role and hours spent in the business, the experience of the staff in place and whether a manger is present or not; the quality of the assets, and how the business is trending year over year.
A profitable restaurant will typically be 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 level of discretionary earnings will determine how attractive the business opportunity is to a buyer and ultimately the sales price. Again, having accurate books and records will go a long way in securing an accurate valuation; it’s even better if the year-over-year sales trend positively.
Maintain your equipment.
One piece to all of this that often goes unchecked: the quality of the restaurant equipment and the appearance of the restaurant. In short, try to keep the kitchen and front of house clean.
Buyers tend to draw conclusions based on the cleanliness of a restaurant, with the idea that if the owner was this careless with cleanliness of their kitchen, how clean could their books and records truly be? What’s more, it’s hard to get a premium sale price for your restaurant when the buyer sees immediate capital expenses in equipment or otherwise that will be needed to get the restaurant operating.
That’s not to say that you should purchase new equipment in order to sell; rather, you need simply maintain the equipment. Be prepared that if there are some assets that would need replacing, there may be some pushback on the price.
Manage your online presence.
Buyers will perform their first line of due diligence on the business by conducting an online search and reading customer reviews. Managing the restaurant’s online reputation is important.
Look to generate new 5-star reviews and build up the goodwill of the restaurant. Bolstering positive reviews will help driving down any old negative reviews online.
Selling a restaurant can be a complex process, and preparation is key. Following these tips will help position the business in the best possible light.
Bryan Vitagliano is the leading restaurant broker at Strategic Business Brokers Group in Scottsdale, AZ.