In many ways, selling a restaurant is no different than selling a business in any other industry. Every sale requires addressing certain business fundamentals: improving profitability, creating a repeatable business model, identifying growth opportunities and reducing dependence on key staff who may leave after the sale. But those tasks carry some unique challenges for restaurateurs who want to make the most profitable exit from their business.
Here’s how you can cash out and walk away with a satisfying profit.
Getting Ready to Sell
Before hanging a “For Sale” sign, look closely at your business to be sure it stands out from the competition and is worth more than others in the market.
That’s the great challenge of this industry, where the competition for buyers can be as tough as it is for customers. At any one time, restaurants make up as much as 25 percent of businesses up for sale – no surprise, considering the industry’s lower-than-average profit margins, high staff turnover and limited growth potential for single-location eateries. Many are selling for pennies on the dollar.
Differentiating yourself is about value, not identity like branding, décor or cuisine style. Problems need to be fixed, of course, but changing the basics will only turn off potential buyers – they want a tried-and-true model with room for growth, not a whole new business. Your buyer should also avoid changing anything in the first six months of ownership, instead spending that time getting to know the company and learning as much as they can about what’s working and what’s not. This status quo period also gives guests and employees time to get to know the new owner without fear of change – humans hate change.
To stand out to potential buyers, work on the fundamentals. Raise profitability by cutting expenses and scrutinizing prices to be sure you’re charging what you should. Streamline operations and processes to offer a business model the next owner can pick up and run with. How’s your staffing? Are you short-staffed, so guests are waiting in long lines, and the dining room is messy and unclean?
The National Restaurant Association has many good suggestions for improving profitability, such as by using data analytics to determine your best-selling menu items and how to deploy staff strategically. Use social media and customer reviews to drive sales – but make sure you’re getting a steady flow of guests, not a temporary bump. Create a positive experience for your guests, the association recommends, by “making it easy to do business with you” and providing excellent customer service.
This industry has tight profit margins, but so do many others – construction and real estate, to name just two. The key to overcoming them is knowing what the benchmarks are for profitability in terms of gross margin, net margin, and EBITDA (earnings before interest, taxes, depreciation, and amortization). Work with a professional exit strategist to understand your margins and then budget backward to determine your optimal overhead and expenses.
During the Sale Process
Patience will be a critical business skill during this time. On average, it takes 100 inquiries to identify the right successor. The sale gets more complicated for franchises and multi-unit locations. They are typically more valuable than single-location independents due to the multiple earnings they receive; however, involving the franchisor and multiple landlords in the process can add as much as a year to the process.
This can become a full-time job, which is why it is best to hire a licensed business broker to help you vet and negotiate terms with any buyer.
A broker will carry you through the due diligence period, steering you through the plethora of checklist items that need to be covered in a business sale. Your strategist should start even earlier, with a pre-diligence checklist to prevent surprises, such as learning that the liquor license isn’t transferable, and the buyer must apply for a new one.
Start Now for a Strong Finish
A successful sale starts early in the process for any business, as we found when managing the exit of a healthy QSR whose exit value and growth potential were reduced. Margins were low because of the high cost of their ingredients. Staff turnover was high, and their landlord didn’t want to transfer the lease to a new owner. We were able to overcome the limitations and help them make a profitable exit, with strategies like negotiating a small piece of equity in their building, giving them control over the future of their lease. But the restaurant didn’t go up for sale until we had all these solutions in place.
When it comes to planning your restaurant exit, the sooner you start, the stronger your restaurant will be, which means the greater your profit will be.
Jessica Fialkovich is the founder and president of Exit Factor, a growing franchise brand of trusted advisors and consultants who assist entrepreneurs in preparing their businesses for sale and maximizing their value. Exit Factor is part of the United Franchise Group family of affiliated brands and consultants representing the best of their industries.
