Selling Your Restaurant – 6 Important Mindsets You Should Adopt

Want to sell your restaurant?

If you are like most owners the answer is a resounding YES. If not now, then certainly in the foreseeable future.

Sadly, most restaurants put up for sale never get sold.

To illustrate this fact consider the following: most business brokers operate on the assumption that they will need to list 5-6 businesses for sale in order to earn just one commission.

There is a thriving industry of attorneys, CPAs, brokers and M&A advisors who help owners sell their businesses.

Most of these professionals make a very nice living despite their industry’s low success rate.

Perhaps you have a great attorney, a brilliant accountant and the best consultants in town helping you. You may even have a restaurant broker who is great at his job. But none of these people have as much at stake as you do.

They each have many clients from whom they will collect their fees. Your team of professionals will be just fine whether you sell your restaurant or not. Regardless of how much help you have, it is your responsibility to take control for the selling process. It is you and you alone who has their financial security at stake.

The status quo within the business-for-sale world is this: the success rates are dismally low but the professionals that make their living within the field do just fine.

It is the business owners alone who suffer.

With these facts in mind, here are 6 mindsets I recommend you adopt to maximize your odds of success.

 

#1. The Best Buyer-Prospects Have The Most Options – You Will Have To Compete With Other Sellers For Their Money

Anyone who is qualified to buy your restaurant is qualified to buy lots of other restaurants too. You can be sure that buyers will consider many other opportunities besides yours.

And they will continually compare those other businesses to yours. Sure, they will tell you they are very interested and they like your business the best.

The more money, experience and motivation a buyer has, the more you can be sure your competition is targeting that buyer too. Those sellers are doing all they can to get a deal with that exception prospect. And that leads us to the next important concept.

 

#2. You Are The Person Who Is Responsible For Moving The Sale Along To The Next Step

Don’t wait for a buyer to follow up with you or initiate the next step in the process. Whenever you speak with a prospect always let them know what the next step is. Then set up a time to take that next step.

Never forget that one option buyers always have available is the option to do nothing. Not only are you competing with all the other businesses a buyer can choose from, you are competing with the status quo.

Earlier I mentioned that brokers average only one business sold for every 5 to 6 that they list. Well, the number of buyers they need is typically about twice that number.

The natural tendency is for people to maintain the status quo. To just keep doing what they have been doing.

Acquiring a new business is risky. Few people are in a situation where they have to buy a restaurant. But you must sell in order to retire or move on to your next venture, so you should be the aggressive one.

Whenever you share detailed information with a prospect give them some time to digest it. But not too much time. Send over the requested information and let them know you will followup with them in a day or two.

Setting the standard for quick followup sets the tone for the rest your interactions with that buyer. If you wait for buyers to take the next step or  make the next contact you may be waiting a long time.

 

#3. Having One Buyer Is The Same As Having No Buyers

Even if you do everything right, your favorite prospect may choose to buy someone else’s business. You can never let your success depend on the decision of just one person. You can’t control or predict what that one person will do.

A mentor once told me that all great marketers expect their campaigns to fail – so they are always thinking about what to do next. If an idea or campaign doesn’t work they already have the next option in the works.

I suggest you take a similar approach. If you operate on the assumption that your best prospect won’t buy, you’ll always be cultivating new prospects.

And you never know – the next prospect you cultivate may be the one who winds up buying your restaurant.

 

#4. Nobody Will Pay You Today For The Benefits Of The Work They Are Going To Do In The Future


“A new owner could explode profits by adding new items to the menu and staying open throughout the dinner hour (we currently are open just for breakfast and lunch). Also, there are a number of marketing and advertising opportunities a new owner could capitalize on to take this business to a whole new level.”

Owners often value their business based on what the business could be…. potentially…. in the future.

It’s common for sellers to say of their company that “a new owner with fresh ideas and energy could come in here and blow the roof off the place!!!!”.

That may be true.

But someone will have to put in the work and invest the money to make that potential a reality. If you are convinced it will be easy to transform your restaurant into a profit-machine then hold on to it and make those Sell A Restaurant full sizechanges yourself.

But you can’t price your restaurant today as if you have already realized that potential.

I am not saying the growth potential is not important.

Remember in Mind Set #1 we talked about how you are competing with all the other businesses that are for sale. Potential is one reason for a buyer to choose your business instead of all those other business he or she could invest in.

So do all you can to demonstrate the realistic upside.  It will help distinguish you from the other businesses on the market. But don’t expect to get paid for the work the new owner is going to do to make that potential a reality.

 

#5. Cash Sales Are Rare …. And Cost The Seller A Lot Of Money

I know you would like to sell your business for cash. But if you want to sell sooner rather than later and put more money in your pocket, you should be prepared to finance part of the selling price.

According to BizBuySell.com over 80% of small businesses sales include some form of seller-financing. And among those sales that include seller financing, the eventual sales price averages 89% of the original asking price. But businesses that sell for cash bring in an average of only 69% of the original asking price.

Again, it all comes back to the fact that qualified buyers have options.  They will compare your offer to all the others that they can choose from. It is hard to convince a buyer to pay the entire price in cash up front without a steep discount in that price.

I know this is not a popular position to take. In our 15 years in business we have consistently seen that about 70% of owners who list with us – at least initially – ask for all cash. WQe talked before about the ways that asking for all-cash shrinks the pool of potential prospects while also increasing the amount of competition

If you have your heart set on getting all your cash up front, fine. But if 6 months or more go by with no results you may need to adjust your expectations in order to make a deal happen..

 

#6. Keep The Sale A Secret For As Long As PossibleFind Qualified Buyers For Your Business

It can take a long time to sell a restaurant. 6 months to a year. If not longer. That is a lot of time for things to go wrong. Employees may become distracted and possibly start searching for a new job. And news of your
sale could make suppliers less likely to extend terms.

Earlier I said you need to compete for buyers just like you compete for customers .

But that doesn’t mean you should market your business-for-sale like you market your food.

Increasingly I see people marketing their business with video.  Just because the technology has become cheap and easy doesn’t mean using it is a good idea. When you include your company name, pictures and video in your advertising you are giving up any control you may have had over the selling process. Strangers will have the ability to show up at your place whenever they feel like it. And when they do show up they may talk to whomever they please, including your employees and customers.

When it comes to advertising your restaurant for sale, less is usually more.  Give the public just enough information to peak their interests. Then prospects will be motivated to respond to your advertisements so they can learn more. From that point you can gather some basic information on the prospect and then decide if they are qualified to hear more.

 

Selling Your Restaurant – 4 Ways To Maximize Your Selling Price


Everyone who has ever opened a restaurant has probably also dreamed of selling that restaurant – and for a nice chunk of change.

When it comes to selling a restaurant we can group owners into two groups.

In one group are owners who have a long term plan to grow their restaurant and increase its value over the next few years.

In the other group are owners who were ready to sell yesterday.

If you are in that second group it will be hard to make meaningful improvements in your company’s value in the near term. But there are steps you should take now that will insure that you get the highest possible price when you sell.

Here are 4 of those steps.

#1. Continue to run your restaurant like you always have until the sale is complete

One of the more destructive mistakes owners make is that they mentally check-out once they decide to sell. All their focus goes into the sale and their plans for after the sale.

Believing that the business will soon belong to someone else, many owners stop doing the things that made them a success in the first place.

But selling your restaurant is not like selling your car or your house. Even in the best of circumstances the process can take 6 months or more. And the higher your asking price, the longer you should expect it to take.

  • Make the decision now that no matter how long the sale takes, you will continue to do all the things that have made your place the success it has become.
  • Continue your marketing, training and maintenance efforts as if nothing has changed.
  • And most importantly, keep treating your customers to the red carpet treatment. Customer service is usually the first area to go go south once the owner has decided to sell.

Continue to run the place as if you were going to own it forever. Otherwise, it may not be as attractive months down the road you finally find the perfect buyer.

 

#2. Keep your plans to sell as secret as possible for as long as possible

The extra time it will take to sell your restaurant also means you should keep your plans to sell a secret. When it becomes known that a business is for sale usually only bad things happen. Suppliers will likely become hesitant to extend terms. Competitors may try to use that information against you.

And worst of all, employees will begin to worry about job security – their energies will be focused more on finding a new job then on performing the one they’ve already got.

Owners often feel obligated to tell employees and customers of their plans to sell. That’s understandable. But in most cases your employees and customers can’t do anything to help you sell. Yet their emotional, sometimes angry, response to news can complicate the entire process.

We’ve already discussed the fact that one of the keys to selling your business successfully is to continue to operate the business usual. And you can’t do that with all this uncertainty among your suppliers and employees.

So keep your plans to sell a secret . This will allow you to have the most control possible over the long and often complicated process of selling.

 

#3. Think about developing  a “pool of prospects”. Don’t think about finding that perfect buyer

The most attractive and qualified buyers have the most options. Any prospect who is qualified to buy your business will be qualified to buy lots of other similarly priced businesses too.

Unfortunately, many owners, in their rush to sell, fall in love with the first good prospect they find. And they immediately stop looking for additional buyers.

But there is an old cliche in the business brokerage world:

Having one buyer is the same thing as having no buyers

Your one and only prospect may choose to buy someone else’s business – through no fault of your own.

But even if that one prospect does decide he wants your business, you will be at his mercy when it comes to negotiating price and terms. If you don’t give in to his demands for price cuts he can go on to the next business for sale. But what will you do?

To maximize your selling price you need to negotiate from a position of strength. And nothing will strengthen your position more than having multiple buyers interested in your business. So always be in the process of locating and qualifying additional prospects.

The more potential buyers you find the more secure you will be when you sit down to work out a deal with your best prospect. If for some reason you can’t close the deal with that person, you will be secure in the knowledge that you have other quality prospects that you can immediately turn to.

 

#4. Offer to finance part of the selling price

It is not a popular idea but is true – to sell your restaurant for the most money possible, you will probably have to finance a portion of the sale price. According to BizBuySell.com over 80% of small business sales include some form of seller financing.

Remember that the type of buyers who are capable of paying cash for your business have options. You are competing for these buyers with all the other businesses – not just restaurants – that are for sale.Sell A Restaurant full size

So let’s take a moment to look at things from the perspective of a qualified buyer.

  • Let’s say an individual has $250,000 to invest. And let’s say you want to sell your restaurant for $250,000.
  • You would love to get all your money up front from this person. But she looks around at other businesses that are for sale and sees that she can put $250,000 down on a business worth $500,000.
  • Then she finds another business for sale where she can get even more leverage – she can put 33% down on a business worth $750,000.

Of these three options, few buyers will choose to pay all cash for the smallest, least profitable business.

In the best case scenario the buyer might offer you $200,000 – fairly pointing out that she deserves something in return for paying cash. After all, the bigger more profitable businesses are not demanding 100% cash up front.

  • So you are putting yourself at a competitive disadvantage when you ask for 100% cash.
  • And when you demand all cash for your business you are automatically eliminating all the buyers who have a 50% down payment.
  • And you eliminate everybody with a 70, 80 or 90% down payment too.

In other words, demanding cash shrinks the pool of prospects we talked about expanding in the previous point. But when you offer to finance part of the sale price you automatically increase the size of that pool.

The bottom line is that when you offer to finance part of the sales price you make more money. Tom West, author of one of the most influential books in the business brokerage field,T he Complete Guide To Business Brokerage, states that businesses that sell for all cash bring a price that is only 69% of the original asking price.

Meanwhile, in BizBuySell.com’s most recent survey of businesses sold through their site, the average sale price was 89% of the original asking price.

Selling your restaurant can be a long, sometimes frustrating, experience. Fortunately there are certain things you can do to increase your odds of success.

Keep running the business asif it were not for sale. Keep the sale a secret. Keep looking for additional qualified buyers. And meet those buyers halfway on the price and financing terms. Do these few, simple things and you will have gone a long way towards maximizing the amount of money you take away from the sale of your restaurant.

Why The Value of Your Business Depends On Who Buys It

When it comes to selling small businesses we tend to use very inexact language. Every business that is not traded on the New York Stock Exchange is labelled “small”. This leads to the fualty assumption that all small businesses are valued in the same way.

In this video we go into detail about how truly small busineses, or 1-20 Businesses, (under $1 million in sales and under 20 employees) are actually valued.

The main idea to understand is that when a smaller owner-operated business is sold, the new owner will run the business much the same way that the seller has run it. Therefore the valuation will be based on the recent, historical earnings of the business. What we hear about most in the media however has to do with much larger businesses, often ones that are acquisition targets of even bigger companies. Often these acquisition targets are priced on what they can become once the bigger company has bought them.

That is why it is useless to talk “in general” about business valuation. Until you know the size of the business and the sized of the acquirer you don’t know anything. Watch this short vide to learn more.

Restaurants Sell For A Slightly Higer Price In The Second Quarter

If you want to sell your restaurant I have some good news for you.

BizBuySell.com has released their Insights Report for the second quarter of 2015, and the trend for restaurant owners continues to move in the right direction.

The median selling price for all restaurants sold in Q2 was $152,500. That’s up from an even $150,000 for all of 2014. The median asking price for these businesses was $184,000. So the selling prices – at least based on medians – was just under 83% of the original asking price.

Interestingly, the median asking price for restaurant for all of 2014 was just $169,000. So the median asking price has gone up almost 9% from just last year and the pace at which restaurants are selling is going up.

But I think it is important to put things into perspective. Across all industries in the BizBuySell survey the median revenue was $450,000 (compared to $500,000 for restaurants). And the median selling price was $200,000 (compared to $152,500 for restaurants).

And the average multiple at which restaurants sold has held steady for some time at about 1.9 to 1.95 times cash flow. Meanwhile for all industries the average multiple is steady at 2.2.

So the situation for restaurants is good but not great and it is stable.

Restaurants are by far the most popular category of small business. That means there are more buyers out there than in any other category. But there are also more restaurants for sale thanin any other category.

What we have seen in the last few years is that  as the economy has increased more buyers are coming into the market. But the rate at which existing restaurants are going up for sale has increased even faster. All this means a lot of restaurants are changing hands but at a modest valuation multiple of just under 2.0 on average.

So if you are ready to get out of you business the news is good. And the data shown here should give you an idea of what to expect for a typical establishment.

To get your selling price above and beyond the multiple of 2.0 or less you need to do two things; be able to show strong growth in revenues and profits in recent years; and locate more than just one qualified buyer.

If profits have been stable but not growing, that may be fine. And it should get a you a fine selling price – just not an exceptional one.
And because there are so many restaurants for sale it will be hard to succeed with just one qualified buyer-prospects. You only prospect may choose to buy one of the other restaurants that are for sale. even if you do everything right.