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. As business brokers, we have facilitated dozens of restaurant sales and have provided a few ideas that will hopefully help position a restaurant in the best light for sale and also make the process easier.
When Is It Time to Sell?
It is never too early to start planning to sell. Begin the process with contacting a broker to explore options well in advance of considering the sale of a restaurant. Ideally, the owner should start the exit strategy planning three years in advance. Having detailed financials for three years prior to the year the owner wants to sell is very helpful in determining an opinion of value of the business and what a fair market price would be.
In my experience, 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 not a 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.
Determining Sale Price
There are a number of different variables that 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.
As mentioned previously, having accurate books and records will go a long way in securing an accurate valuation. It is even better if the year over year sales are trending positively.
Maintaining Your Equipment
One piece to all of this that often goes unchecked, is 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? Additionally, it is hard to get a premium sale price for your restaurant when the buyer sees immediate capital expenses in equipment or otherwise, to get the restaurant operating. I am not advising in purchasing new equipment to sell, but to simply maintain the equipment and be prepared that if there are some assets that would need replacing, then there may be some push-back on the price.
Managing Your Online Presence
Buyers will perform their first line of due diligence on the business by performing an online search and read reviews. Managing the restaurant’s online reputation is important. Look to get new 5-star reviews and build up the goodwill of the restaurant and bolster positive reviews, driving down any old negative reviews.
Selling a restaurant can be a complex process, but by following these tips in preparation for a sale, then the owner will take important steps in positioning the business in the best possible light.
Bryan Vitagliano is the leading restaurant broker at Strategic Business Brokers Group, a brokerage firm in Scottsdale, Arizona. Collectively, they have helped dozens of restaurant owners sell their business.