There’s been a noticeable uptick in restaurants going on the resale market. For those who either own a quick-service restaurant or who are thinking of getting into the industry, it may seem concerning. The increase in restaurant turnover isn’t a reason to worry, but it is worth taking notice and knowing how to respond to it.
One of the biggest reasons for the increase in restaurants going on the market is the current period of inflation we and in along with the anticipated recession. While economic experts say we are not in a recession by its official definition, a recession is likely in the near future. Recent reports show the prices of goods have inflated 8.2 percent as of September 2022. When expenses go up, it affects customers’ buying habits and organizations’ budgets, including those of restaurants.
Quick-serves have proven that they’re strong business concepts able to withstand difficult circumstances, as we’ve seen during the COVID-19 pandemic. But not even they are immune to increased expenses or people cutting back on their discretionary spending. The restaurants most susceptible to these difficulties are low-volume restaurants or restaurants with high fixed costs such as those with expensive leases.
As a restaurant broker, my advice to quick-service restaurant owners, particularly multiple location owners and the franchisors themselves, is to create a structured resale plan for your units. Having an established system and strategy to prepare units whose owners are ready to put their locations on the market, or who want to tighten up their footprint by selling under-performing units, will make the process smoother and will ensure everything is done to maximize a location’s resale value and potential.
Some franchisors and franchisees might question if reselling units has much chance of success. I can say from personal experience that there are plenty of buyers with capital who are willing to purchase previously owned units. My brokerage alone has around 100,000 buyers looking for resale opportunities. Potential buyers often consider already-established units to be a better investment choice than trying to build an entirely new unit in an untested location with an unproven concept or business model.
Turning over a restaurant location, quick-serve or otherwise, has the potential for profit, but the seller should keep in mind that various factors can affect the sale price. These factors include the historical results in the location, the timing, the strength of the operation, and its structure. Assemble a team to assist you in the discussion as each will bring expertise to the transaction. Your accountant can assist you in understanding the tax implications of a sale, your attorney will be able to advise on language to release you from any ongoing liability while a Restaurant Broker will be able to price, market, and sell your business.
Selling a valuable asset, like a business, can be a lengthy and complicated process, especially when you’re trying to run an operation at the same time. Franchisors should be careful of diverting the focus of their development team, with transfers. You are better off having them focus on establishing new locations than dividing their attention between that and marketing existing units for resale.
The resale process is best started well in advance of putting a restaurant on the market, usually about a year ahead of time. This will give you time to make the location as appealing as possible by doing things like improving financial records and solidifying a customer base. You should also make sure your financial records are organized, with tax returns dating back a few years for reference. You need to be sure you have option years remaining on any lease term so buyers can assume any favorable terms. Finally, you should be ready to keep things afloat while you look for a buyer. The sales process can take a long time, and require consent from multiple parties, like the franchisor and landlord, lengthening the sales cycle.
Quick-service brands have shown that they’re able to endure and even prosper in tough economic times. But no business plan is foolproof, and sometimes it takes a newcomer with fresh capital to take a location having difficulty and rework it into a thriving restaurant. Struggling restaurants aren’t a lost cause and can be marketed with their potential to bounce back. Quick-serves have demonstrated this rebound quality in spades, with adaptability, versatility, and a penchant to employ the latest technology. If you’re looking for a buyer for your location, your chances of finding one are good. You just need to put in the time and the effort to prepare your location for market.
Robin Gagnon is the CEO and Co-Founder of We Sell Restaurants, the nation’s largest restaurant brokerage firm and the only national franchise specializing in restaurant sales.