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Will Our Financial Statements Keep Us From Selling Our Business

The Question

We have a small Bistro that we purchased 3 years ago. It has yet to turn a profit and we no longer have the financial resources to keep it going. We understand the the financials are crucial to selling a business. We believe what our issues are that we have too much debt service to keep the business going. We believe that someone with enough financial resources to purchase the business outright would do fine with this little business. We would like to sell the business for what we initially put into it which was $300,000.00. The Bistro is in a beautiful location near Charleston, SC. We have an attractive long-term leasing arrangement. The ambiance is really unique and future growth is a given. We personally just do not have the funds to keep it going! Do you have any sellers that are in this same boat? Will our financial statements will keep us from selling the business?

The Answer

Yes, unfortunately, we do have sellers who are in your same position. Especially with the down turn in the economy these past 2 years. So, if you put your business on the market you will not be the only business for sale that has not been profitable.

But, you may be better off than some other unprofitable businesses - if your debt service is the only thing keeping your from being profitable that will be easy to demonstrate to a buyer.

If you subtract your debt service from your expenses, are you now profitable?

It's likely that any buyer will have to take on their own debt to buy your business so they will have do some projections to see if the restaurant would be a profitable business for them with their debt situation. And an all cash buyer will look at your profits before your debt payments are subtracted to see if the restaurant is generating enough revenue to make it a good return on their investment.

The offers you get from buyers will based on theses calculations and not on your own personal situation. So be careful that you don't try to justify an asking price of $300,000 because that is what you have invested so far in the business. A buyer will not be persuaded by that. To value your business and come up with an asking price that can be justified to the buyer I suggest you use the "Owner's Benefit" as the basis for any valuation. You can click thislink for a more detailed discussion of business valuation and owner's benefit. If your restaurant is not profitable even after removing your debt service from the equation, then you will have to set a price using an asset based valuation.

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