58 – How to sell a Restaurant for the highest price

JAMES ELING: Hey there, it’s James from Marketing4Restaurants here. Welcome to episode 58 of Secret Sauce, the restaurant marketing podcast. How to sell your restaurant.

Voiceover: Some restaurants are quiet, lose money, and the owner works 70 hours a week. Other restaurants are busy, profitable, and the owners work a few hours a day. What’s the difference? They have a secret sauce. Join James from Marketing for Restaurants as he helps you come up with your recipe for restaurant success, your secret sauce.

James: So, I’m pretty excited about today’s podcast. We’re going to be talking with Robbie Doyle, the restaurant broker. Now, his business, Buy, Grow, Sell, based in Perth is a business brokerage, but he specialises in restaurant and he does that for a couple of reasons. One, he’s really passionate about the industry which really helps but two, he used to be a chef.

He has run successful restaurants. Now, he knows how hard and how difficult it is in this industry, so he brings not only the passionate but also the expertise that I think you really need to have when you’re dealing with such a complicated are as trying to sell your restaurant. And it’s interesting, a lot of people are quite interested when they’re looking to buy a restaurant. They do a little bit of research, but they don’t really do enough research I don’t think. They don’t have a business plan a lot of the time, they’re focusing on what they’re going to cook and the kind of experience that people are going to have. And, for me, this is really a recipe for disaster, literally. Because we see so many people who you talk to them and they’ve been in the restaurant for 12 months, 18 months, even just six months and they think, “You know what, this isn’t working out the way that I had it planned.” I really love Robbie’s approach, he’s very much about, “You should have your exit in mind before you purchase the restaurant.” So that you can actually plan and build it, so that you can actually get the reward that is really important for you if you’re going to put in all of that hard work. So, let’s get into it and our interview with Robbie Doyle from Buy, Grow, Sell on how to sell your restaurant. Hey Robbie, welcome back to the show.

ROBBIE DOYLE: Hi, James. Good to be back, good to be back.

James: Now, I’m really excited about this topic, because I think that this is the one that a lot of people are going to be really, really interested in, and this is: how do you sell a restaurant? I think it’s so important, because there’s a lot of reasons why people want to sell their restaurant and often they’re not well prepared for it. So, hopefully we can bring out some of the thing that people can do so that they can maximise their investment in the restaurant that they’ve had for maybe a short time, maybe for a long time.

Robbie: Sure.

James: So, the first question. When should you start to think about selling your restaurant?

Robbie: James, there’s only one answer to that question and that is before you even open your restaurant. You have to have a plan, an exit plan. And the problem that most people face is that they don’t ever think about, “How will I sell?” or, “When will I sell?” They’re just so excited, they just want to get in, they want to open. They’re just caught up with the euphoria, the adrenaline rush of in the planning the stages, and which furniture, and whereabouts, and what lease, and they just open. And then, it’s years later, when their accountant rings them up and say, “Do you want to come in and have a chat, we need to have a talk about how we’re chatting?” It’s always retrospective planning.

So, the best time, in my opinion, is when you’re writing your business plan is to actually say to yourself, “If I was to sell my restaurant, and you’ve been open for four years’ time, how much would I like to get for it? How would I get a return? And what would it have to look like for me to get that sale price? How much would I have to do a week? What would the margins have to be?” And then from those questions, you can set up your business plan.

James: Yup.

Robbie: That’s the place, but it’s never too late. Obviously, if you’re in, and the majority of people don’t have an exit strategy in their business plan. And even when they write the business plan, they never read it again because they just want to get a loan, so they need the business plan for the leasing agent. But, normally, the poor old business plan has floated away in a cupboard somewhere and never looked at again. But the best time is to give yourself, if you don’t have an exit strategy, then it’s never too late to start one.

So, even if you’re two or three years into it, there are steps you can take and you would liaise with your bookkeeper or your accountant. And it’s all about the quality of your records, because as soon as somebody wants to buy your business they’re going to use a professional and the professional’s going to scrutinize your financials. So, it’s about having a good relationship with a bookkeeper, keeping your records up to date, and being aware of where you’re tracking. Not six months after or eight months after but actually month by month. That’s the best way, James.

James: And I think the big thing would be that professional who the buyer has engaged, they’re going to be looking for all of the skeletons hidden in the closet. So, if your bookkeeping isn’t up to scratch, you know.

Robbie: Absolutely. Not only that, though, when an accountant looks at books – let’s say a person wants to buy a business and they go to an accountant and they say, “Look, Mr. Accountant, I’d like you to review those profits and loss accounts for me.” The first thing the accountant thinks about is his public indemnity insurance. If he makes a mistake, or she makes a mistake, and she says, “Yeah, that’s a good business. It’s actually making heaps of money,” and later on it transpires that the books were dodgy, the first thing a lawyer will look at is, “Did the accountant who gave you the green light to buy this business, do they have public indemnity insurance?” Because if they do, that’s the easiest target to take out, we can get money, we can get compensation. And, as a result, accountants by their very nature have to be uber cautious. They have to be so conservative, that they’re almost afraid to say, “Do you know what, that is a good business.”

So, having a legitimate schedule of add backs – and an add back is benefit to a business owner. And in this instance if it was a restaurant owner it could be items like your restaurant might pay for your car, might pay your car repayments, your tires, your petrol, your servicing, your phone, your computer, travel, the repayments on borrowings. And these are all itemized and a good bookkeeper, and a good accountant will be engineering your business for sale with that in mind. And it’s not hard, it’s actually just as easy to do it from the very beginning or even if you’re a year or two, or even five years into it, it still be done. You can clean it up.

James: So, what are some of the steps that you would start to take once you’ve made the decision that, you know, you want to make a sale and, obviously, you make that decision as early as possible? What are the kind of things that you’re going to want to start to do? How are you going to start preparing it to be able to present the restaurant in the best light possible?

Robbie:  One of the main considerations for putting a restaurant up for sale is the relationship or the personality of the owner. The restaurant is heavily reliant on a character, or a front of house person, or a famous chef, or – the good will then is very questionable. So, you need to step back from a role of being a vital part of your business, and work on your business model rather than in the business. If you’re selling a restaurant and it’s owned by a famous chef, it’s nearly impossible to sell. And the hard work and all the craft and years of blood, sweat, and tears never really materialises, because as soon as that chef is gone well, what am I buying? You know?

James: Exactly, yup.

Robbie: It’s all over, red rover. So, yeah, it’s important that, if you’re thinking of selling it, you make it systemised. You just systemise it so that, almost like it’s a franchise. You know, you can hand a set of folders, or books, or booklets, or profiles to a would-be buyer and say, “If you do this, this is how you can run this business. And this is when you order, this is when you change the menu, and this is when you do Christmas marketing. This is what you do on Valentine’s Day, on Melbourne Cup day. And this is how to make money with my business.”

And you hand them that, it’s systemised. And they can go, “Wow,” and they read it. But, obviously, you would only give that information when you’re selling, and it’s unconditional and a substantial deposit has been paid. Because if you give that information out prematurely, you’ve just given them the secret recipe. You’ve just given them the secret sauce, if you like, for how to run the business, and they go, “Thanks very much,” they copy it, and they go, “No, thanks, I don’t really want to buy this one.” But you’ve given them a university education in a week, how to do things right. And they can plagiarise your ideas. So, be careful. It’s about when to give that information out.

James: Yeah. So, how is the price of a restaurant determined? And, I think, this is probably going to be the $64,000-question on everyone’s mind. How much is a restaurant worth? How would you go in and value a restaurant?

Robbie: Sure. The easiest way, and this is for an ordinary person in the street, the easiest way to look at a restaurant is the multiple of its adjusted earnings. So, when you when you have a profit and loss document, the words are interesting: ‘profit’ and ‘loss’. So, you can show a lot on a P&L (profit and loss). But that doesn’t mean that the business is making a loss, what it means is that you’re suppressing the amount of money that you have to pay tax on. So, then how do you interpret what a profit and loss means?

You do an alternative schedule and you list all the benefits that the owner enjoys by running that business. Because what the owner is doing, is using pre-tax dollars, or she’s using pre-tax dollars, to spend on items that give them comfort or make them wealthy. And that can be repaying loans, finance, leasing, vehicles as I said earlier, travel. You know, if I go to Melbourne, which I will be shortly, I will be trying to claim a portion of that travel because I’ll be calling in to see a fellow broker in Melbourne and I’ll be doing some business.

And like, if you’re going to a trade show in another state, or a coffee competition, your restaurant can pay that for you. But you list all of it, and one of the big things on the profit and loss is a thing called depreciation. So, depreciation is an amount of money that you write off for tax purposes, and what it does is it reduces your taxable income. But, in reality, it’s only figures on paper because your kitchen is still your kitchen. And in theory you may have depreciated your property by $40,000 over 12 months, but nothing has changed. Your equipment is still as good as it was, because you’ve maintained it and it’s clean.

So, your depreciation schedule is like the hidden value, and a good broker and an accountant, your accountant should do it for you and then lets your business broker review that. Because he might interpret, or she might interpret something different, and that’s added back to the net profit or the net loss. And then you get a true picture. Some of the things you could add back is, “Look, I work in my restaurant, then I take a $100,000 a year and I pay myself $20,000 in superannuation. So, I’m going to add back in 120 to the adjusted net profit.” And the buyer says, “Well, how does that work?” And you say, “Well, that’s the drawing I’m taking. That’s what I take out, I take $2,000 a week,” or $1,500 a week whatever it is.
James: Yup.

Robbie: It could be $50,000. And you can say, “Well, if you do what I do, you can take that, too.” I see. So, some of the superannuation is not just for staff, it’s actually for the director. So, that could be out the back, as well. And what you do then is you come out with a very simple document and it says, “The adjusted net profit is $150,000.” We’ll just say, for argument’s sake, I’m looking for $300,000 for my restaurant. But if I had a business today that was making $150 [thousand], I’d be marketing as, say, $360 [thousand] or $375 [thousand] hoping to get above $300 [thousand] for my vendor. So that the multiple would be 2, but I’d start higher than that so it’d be nearly 2.5 times.

James: Yup.

Robbie: That’s probably the quickest way, and easiest way to do it. But it’s mathematical. And when you have mathematics in an equation, it’s very easy to defend them in a negotiation. Because if it’s kind of guess work, “Well, it makes about $125 [thousand], so I think it’s worth $250 [thousand].” You’re not going to get anywhere near that. You need to lay out your wares in a logical manner, because the person who’s buying it is going to using professionals who will attack your figures, they will make claims that, “No, that’s an inflated figure. I don’t agree with that.” So, they will whittle down. So, a good relationship with a bookkeeper or an accountant and having a perspective on preparing it so that it looks very attractive to a buyer.

James: So, in the market there’ll be all sorts of buyers out there. What kind of buyers are there? Who is it that’s likely who’s going to come in, have a look at the restaurant, want to have a look at the books, and maybe put some cash down?

Robbie: There are all different types of buyers at the moment, James. Funny thing, in WA at the moment we have a lot of fly-in and fly-out workers who are unsure of the future.

James: Yup.

Robbie: The mining industry has gone into a lull. So, what they do is they go, “Uh-oh, I’m used to earning $250,000 a year. I’m only on a six-month contract, I used to have a five-year contract. What am I going to do?” So, they look around and they think, “I know I’ll open a restaurant.” Or, “I know I’ll open a café.” And they think it’s easy, and they have this naiveté about, you know, “It’s a cinch and it’ll be a bit of fun and my wife used to work in a restaurant years ago before we got married, so she can do front of house and I’ll work the bar.” And they hire a cook or a chef.

That’s the one type of buyer I’m dealing a lot with at the moment, and I try and prepare them for buying, perhaps, a franchise business, where the system’s in place already. Because if they don’t have the skill set, they will inevitably fail, and they will lose money or bury a lot of their money in it. So, that’s one type. Another type that we have in Australia, as well, is people who buy a business for visa purposes.

James: Yup.

Robbie: You know, they’re comfortable with food, it’s cultural, in their background, you know, they’re very comfortable in the kitchen, they’re good at hospitality. So, they gravitate towards restaurants and that’s what they think, it’s easy, but they’re prepared to put in the hard yards. Then you have the young people whose parents might be middle-class or upper, and have lots of money to, maybe there’s some inheritance, or they’ve done well in the stock market or something. And their son or daughter wants to open their own place, and it’s a bit of a family fantasy because they have great recipes from Nonna and they think, you know, everyone’s going to queue up to get this dish that everyone’s on at our dinner parties. That’s, again, a naïve type of buyers. But you know the sad thing is, James, and it breaks my heart. When I meet a young, ambitious chef who wants to buy the restaurant, and they’ll be in their mid-30s, and you know, they’ve done the hard yards for someone else. They never earn enough to set themselves up to get, you know, a step up into the game. And they’re the ones that would make a good go of it.

James: Yup.

Robbie: But they just don’t have the money. And at the moment, having a relationship and demonstrating to a financial institution, that you have either bought a property so you can release some equity in it, that’s the cheapest way of getting into buying a restaurant. It’s a mortgage line of equity, because it’s cheap at interest rates and the least amount of information that you have to get. You know, you just say, “Look, I want a line of equity. I want to do repairs in my house,” or, “I want to start a shared portfolio,” or whatever it is. Once you have that established, you have it. So, the buyers at the moment, you have people who are very experienced, they pick up bargains. When people fail, they swoop and they can pick up – people burn their money on over capitalizing and then shrewd experienced buyers just get what they want. That’s the type of buyers I have at the moment. We have like a cocktail of buyers, and they’re attracted to different models from entry level, sub 100, up to, you know, just under two million. There’s a whole cross section of different buyers.

James: So, one thing that I think’s really interesting there, because like I think I see it, as well. The person who has been working for someone for all of their life, they’ve obviously got skills and they want to be able to start taking the menu and the restaurant in their creative direction, not somebody else’s. And it is really difficult.

Robbie: Yeah.

James: I think this is why we see pop-up restaurants, food trucks as well, because the capital investment is a lot lower. Do you see, even then you know, by the time you’re 35, particularly in a market like Australia, you probably don’t have a lot of equity. Do you see any other ways that they can get in? Do you see people going into partnership with financial backers?

Robbie: Yeah, I do. And I find that the talent always shines, and I’ve noticed over the last two years that there’s quite a few chefs who say, “I have two or three people that would want to come in with me, but they’re just going to be silent partners.”

James: Yup.

Robbie: That’s popular. But, you know, one of the best ways, James, is how I started myself, and that was to go to an established premises, which was a café premises. And it was a café by day and at night time I opened up my little restaurant, and we shared the premises. And eventually I bought it out, that’s how I started my first restaurant. I had no money, and I was married, and I had a little baby. I only had a motorcycle at the time, I was a chef but I had this burning ambition to have my own restaurant. And I used somebody else’s premises and we shared the premises, which is something that hasn’t been fully explored in Australia. You have a great structure and you have an extraction, and you have toilets, and you have facilities. Well, why not use them at night time when you’re not there? Why not lease them or sub lease them and do it professionally if you can? That way you’re paying rent 24 hours a day, 7 days a week, so why not get some return for your property.

James: I was just going to say.

Robbie: That’s an interesting idea.

James: Exactly. If you’re only open four nights a week, then you’re paying your lease over those four nights and it gets very, very expensive on a per hour basis. So, obviously it makes a lot of sense to have someone coming in.

Robbie: Absolutely.

James: And on top of that, you’ll have people who had a great breakfast, and then they’ll come in for the dinner.

Robbie: Absolutely. Because you already have a flow of foot traffic coming through. If any of the listeners are interested, I’m happy to discuss and explain how to do it properly, safely. Because I’ve done it more than once. And I encourage other people to do it too, and I’m happy to share that knowledge and to, you know, guide people through the process. They can refer to me and I’ll double check their agreements, or I’ll give them guidance that they need how to do it. I’m really excited about it James, because it’s like the pop up and it gives income to one party, the sitting tenant, it allows a young person the opportunity to open their restaurant without having to put their hand in and spend two or three hundred thousand.

James: No, I think there’s a lot to be said for it, because it is low risk and, you know, you get that opportunity. You don’t need the huge capitol investment that’s required. And if it goes really well in your case, then you can buy the café out. Or, you know, you’re putting money in your own pocket which is setting you up for when you are going to open your own restaurant. Which I think’s really exciting.

Robbie: Absolutely. So long as you have the safeguards in place like insurance, public liability, and you’re covered and you know what your plan is. You can field test your concept, your menu, and prove to people, “Look, I do so many covers a week, this is the arrangement I have.” People take you really seriously. And what happens is, because it’s almost like super cool or trendy, I’m trying to pick the right true word, you attract leasing agents and landlords who admire people who think outside the box.

James: Yup.

Robbie: And suddenly people are chasing you, saying, “I have a premises, you know, do you want to come into my premises, do you want to do this, do you want to do that?” But it’s just about being different and thinking about how to get into your own restaurant as quickly as you can. I’ve probably gone off subject here because we’re talking about selling it, but it would be great if you were selling a restaurant, say, a daytime restaurant or a night time restaurant, and you could demonstrate that you’ve got extra income by subleasing it out. I mean, that would be really attractive, then you’d get a very good return on your investment then.

James: So, obviously you want to try and avoid the smart buyer who’s looking for a distressed sale, that’s not the one that you want to be dealing with if you’re trying to sell.

Robbie: No, no. Absolutely.  When you get to the stage where you’re in trouble and they can smell the anxiety, they can sense the stress, and you attract a lower class of buyer, and they’re not very nice. And some [potential buyers] of them are very manipulative, and they take advantage of you, and they’re very cunning and it’s like a shark. You know, a shark will come up to you, take a bite out of you, retreat, watch you haemorrhage, and then say, “I’ll wait until he’s a bit weak, and then I’ll come in and take another bite.”

And that’s what they do. And at the moment, not just at the moment but throughout my working career, I deal with people in distress. And I’m currently dealing with somebody at the moment who’s considering going into liquidation and desperately trying to get out of the sand. She advertised on a low-cost website and the calibre of people that are calling me, you know, I just feel like I need have a shower every hour. Just the type of people that come out, they slip out from under the stones, they slide out from under the ponds where they dwell, and they just try and manipulate. Because they sense stress.

James: Yup.

Robbie: And they really do take advantage. And that’s why it’s important having a broker, because if you’re in trouble, emotionally, you’re not strong, you’re at a weak point, and you’re not capable of logical thought. So, it’s good to have a broker who can deal and shield and work with a filter. I just dismiss the cowboys and I try and deal with people who happen to come out in that process. You know, when you’re discounting prices you just get people who are interested in bargains.

James: Yup, yup. So, what are the things that you should be looking to do to maximise the price that you get? So, obviously, it all comes down to revenue. What are the things that you see as, you know, something that you can do over a maybe three-month or six-month period, to sort of increase the sale price?

Robbie: Well, the thing about it is one of the hidden things is your lease, without a lease you have nothing to sell. The remaining term on the lease is what can determine your sale price. For, example if you have a five-year lease or a seven-year lease, that’s good. You have time for the next buyer to get a return on their investment. But if there’s ambiguity about the lease being renewed, then what happens is, as part of the sale process you have to have a very serious conversation with your landlord about will they renew the lease, if it’s two years left or even three years left.

If you have a just only five-year lease, and it’s three years are used up and your two years left. You’re not going to get a high price for your restaurant, no matter how well it’s doing. Your strategy should be to secure your lease, and the way to do that without over committing yourself is to try build in an auction. So, instead of having a straight five-years or a straight ten-years, you could do five plus five or a three plus three plus three. Landlords don’t really like giving options, because it gives the power to the tenant and it leaves uncertainty as to whether or not the person will renew. They prefer longer terms.

But, again, getting your lease sorted with the term of your exit price, a lot of the time it’s kind of, “Well, the landlord’s not too bad and I’ll have a chat with them.” And when you do have a chat with them, they go, “You’re leaving? Who’s going to replace you? I don’t know whether I want to give a long lease to the next person, because I don’t know them. I’ll tell you what I’ll do, I’ll sign the next two years and if they’re nice and if they’re good tenants, I’ll give them the lease.”

And if you go back to a buyer and you say, “Well, the landlord‘s not too bad, but he’s only going to give you two years and if you pay your rent on time and you keep your nose clean, he might renew your lease.” That’s not a very reassuring position to be in as a buyer, because you kind of go, “Huh, realistically I only have two years left.” There’s a huge uncertainty, so secure your lease is the first thing. And the second thing is to look at your labour costs and look at your food costs, and work your menu so that you’re focusing on high sales, high margin items, and not expensive items and just running it really tight so that if the buyer comes along you can demonstrate, “Our labour cost is only 21 percent, our cost of goods is X amount, and our gross margin is 70 percent or 80 percent,” whatever it is. Demonstrate that you have a knowledge of your business and how to run it. It’s like looking at a sports car, just gauges on the dashboard. What’s its engine temperature, how much fuel have you got, what is the revs doing? And they’re the things that you need to do, to demonstrate an awareness of them and how the lease is secured.

James: And that would be a big step for a lot of restaurants. Because I know when we talk to restaurant owners, it’s actually quite rare for someone to say, to be able to give a really strong story about, you know, “This is how much I’m spending on food, this is what the markup is, this is our most popular item but we don’t make much money on it. This is the most profitable item and we’re looking for more ways of selling more of those each week.” I’d love to have that conversation a lot more often, but sadly, people are just, “I don’t really know where all the money goes.”

Robbie: I know. It’s like as if it’s a great mystery to them. James, I had this conversation yesterday with a lady whose husband is an accountant.

James: Yeah.

Robbie: And she told me this herself, she said to me, “Yeah, I went home last week and we were slaughtered, we had a huge day. And my husband said to me, ‘So, what did you do today?’” And she said, “’Well, we took three grand,’” and she said, “’I made loads of money.’ And he started asking me all these questions, and then he demonstrated to me on a scrap of paper that I hadn’t made as much as I thought I’d made. And it kind of rained on my parade.” But that’s the kind of, I mean you have a free accountant, you should scientifically know, it’s like taking your blood pressure. “What is my blood pressure?” You should know, and it’s not that hard. You know, the chef in the kitchen should be capable of doing recipe costings and sheets and have an awareness, demonstrate that they have industry knowledge. And the same with the beverage sales. And then your occupancy costs can be expressed as percentage of your sales. So, if your rent is 100,000 then you’d better be doing the million dollars, or you’re in trouble.

James: Yes.

Robbie: You know, there are little guidelines and benchmarks but, James, the amount of people that have this kind of naïve optimism – and by nature I’m an optimist but I often shake my head and go, “Oh my god, how do you sleep? How do you sleep at night?”

James: It is scary, and a lot of it is about creating the art, creating the experience, creating those magical moments for their customers. And the one thing that allows them to do that is the money that’s coming into the door, so that they can open the door tomorrow. And it gets lost on people.

Robbie: Absolutely.

James: I just think it’s really sad, because you need both. You need to create those magical moments, but without the money there ain’t no magical moments.

Robbie: Absolutely. James, I have a client at the moment, she’s at her best when she’s in the kitchen baking.

James: Yup.

Robbie: And then she takes a photograph of her product and she puts it on Instagram, and gets all these likes. And she gets a buzz, I mean a real adrenaline lift from that. I just say to her, “I would be more inclined to be saying, how can I sell a hundred of these cakes every day, rather than getting applause from people who haven’t been in my café or in my restaurant looking at the cake, or eating the cake.” She’s more of a technician than an entrepreneur. Her joy is in execution and the precision and the presentation, whereas I’d rather her say to me, “How can I help sell these cakes?” Or, “How can I sell them?” Or, “How do I put them in a hamper?” Or, “How do I deliver them?” Or, “How can I make money from them?” And it’s a skill that’s kind of, the artist takes over from the banker.

And it’s more of a creation and a feeling of fun, making stuff and selling it, you know table eight said the food was the best they’ve ever eaten. You know, that’s great, how do we get 20 more people in to say the same thing? And that comes back to, if she spends as much time marketing her restaurant or her café and other methods that lead to sales. You know, on social media if people like something, that doesn’t mean that they’re necessarily going to come in and buy it. You have to focus your marketing, so they want to buy what you’re selling rather than liking what you’re selling.

James: I always say that the likes on Facebook are only important if you can meet payroll with it.

Robbie: Absolutely, yeah.

James: I haven’t found anyone who’s been able to employ a front of house who’ll get paid in, you know, 200 likes a week.

Robbie: That’s the sad thing, you know.

James: Exactly, it’s the cash that comes in it’s not the likes, yup.

Robbie: Cash is like oxygen. So, you can be an Olympic gold medalist, but if you can’t breathe in sufficient oxygen, you’re not going to win the race. You’re not going to be there, you won’t hit the finish line. Doesn’t matter, doesn’t matter.

James: Exactly. Now, so a broker is really important because I think it’s fundamental, too, because this is one of those things that you probably are doing a couple of times in your life. It’s not one of those things where, “I’ve bought 20 restaurants, I’ve seen everything, you know. I’ve got a really good understanding of how this process works, I know exactly what I’m doing.” I know how to sell a restaurant. This is one of those things where it’s a really big financial investment, and a time investment, and a life investment really. So, you want to get it right. What are the tips – now, obviously if you’re in Perth it’s pretty easy to find a great broker because they just need to give you a call – if you’re not in Perth, how would you go and talk to a broker and work. What questions would you ask a broker if you were looking for one?

Robbie: The first thing I’d do, James, is I would go on and visit all the websites that sell businesses. So, just type in ‘restaurant for sale’ and see what comes up. So, that brings me to seek, or brought me to any business dot com, or business to sell, or whatever. Whatever website takes your fancy. I would click on that, and then I would scroll down and I would look at the profile of the calibre of businesses that a particular broker is selling. And I’d try and find somebody that has sold or is selling something in the same genre. So, if it’s a big restaurant, or a small restaurant, or upmarket restaurant, or a fast food restaurant, whatever it is. I’d try and find somebody that’s working in that area, that knows and owns that chunk of the market.

And I would then read the way they write. So, read the text of the advert. Is there a flow to it? Is there a good communication skill set? Is it well presented? Because, like food, an advert for a business for sale is how, your first impressions are vital and you only have a couple of seconds to grab somebody’s attention and make them read more. And the trick to a good advert and a good broker is to, it’s like an appetizer. It whets the appetite, but it doesn’t satisfy. So, you give enough information to make them want more, so that they want to contact that broker.

And then the broker engages with them, either phones them or emails them, and then sends a confidentiality agreement, a non-disclosure agreement. And establishes trust, and established the parameter of, which is very important because what you don’t want is someone to go on, see that it’s for sale and go, “That’s for sale, I know that restaurant. I’m going to go in there tomorrow.” They walk in, up to the manager, up to the girl at the reception and go, “Hi, is this restaurant for sale?” And then guess what, everyone looks around and goes, “What?” “Yeah, yeah, I saw it on the internet. Yeah, it’s for sale isn’t it? It is for sale?” And so, I’ve seen that happen. And the owner hasn’t told the staff. So, then there’s a phone call to the owner going, “Hey, what’s going on? The restaurant’s on the market?” So, how it’s stage managed by the broker.

Sometimes I’ll advertise to sell a restaurant but I won’t describe it, I won’t give the name. I’ll give the area, a rough guide, the type of restaurant it is, the returns. And only when I’m satisfied that I’m dealing with people that will respect the confidentiality and be sensitive, do I go forward. So, if you’re looking for a broker, you need to see their styles, you know, online. If they’re throwing the kitchen sink at you online, then they’re going to do the same when it comes to selling your business, they’re going to be – the word will be on the street and how you manage your staff’s reaction to the knowledge is vital. Because if they get wind it’s on the market, then they may feel uncomfortable, they may feel insecure, they may feel like in the relationship that you’re cheating on them, that you’ve broken their trust and friendship and loyalty. And they may feel insecure enough to seek an alternative job. So, choose your broker very carefully, and then you need to instruct them, say, “Look, I don’t mind if everyone knows. All the staff knows, I’ve been upfront. They know I have a back injury and they know I’m going to retire.” Or, “No, it’s a secret.” So, you need to have that, set the parameters with your broker. And interview them, and say, “What have you sold recently?” And if they’re really good you can say to them, “Can I have the phone number for two or three vendors that you’ve dealt with recently,” and ring them and say, “How is this person? Would you recommend them?” If they’ve done a good job, the answer should be, “Absolutely, the guy – or she – was brilliant. I really enjoyed working with them, and they took a lot of the stress out of it.” Nobody does that, James.

James: Yup.

Robbie: And the biggest mistake, the biggest, biggest mistake – James, I’ll ask you a question. If you needed brain surgery, would you look up the internet to find the cheapest brain surgeon. Or would you want the best?

James: Exactly. I’ve only got one, and I kind of want it to go – it’s a fairly high-risk thing – so, I would be looking around.

Robbie: James, you’d want referrals. Was that surgeon good? Did you recover? You know, was is what you expected? James, the amount of people that ring me and go, “Yeah, I’m thinking of selling my restaurant, how much do you charge?”

James: Yup.

Robbie: And you go, “What?” You know, “Excuse me?” I take it back a step. And literally if your hope is on the fee for your broker, that’s your only motivator, then you’re actually on the wrong path and you may appoint somebody that hasn’t got the skill set. They may be cheaper, but that doesn’t mean they’re going to get you the best price. They’ll get you any price. And the wording in the relationship between the listing authority and the agency agreement, you need to read the small print.

Because even if an exclusive listing period expires after, say, 180 days in the small print there may be an alternative that the agent still has another six months to run on a non-exclusive basis. But anyone that they may have introduced prior to the expiry of their appointment date, if they do buy they’ll get a full fee. So, it’s difficult. If anyone, again, is listening and they want any kind of guidance, just drop me an email. I’m not looking for work, I’m busy. I’m blessed, I have loads of work and I’m doing really well. But if somebody is confused or they need help, again James, just give them my email address. I’m happy to answer any queries or just basically guide them through the process. Because, as you said, they might only have one chance to sell. I’m selling all the time and I do this quite regularly. They might just sell once in a lifetime.

James: Yeah. And that’s where that expertise comes in. and I think it’s a very generous offer, because someone who has seen the industry from both sides, you know you’ve run a successful restaurant and you sell lots of restaurants all the time. So, it’s a unique perspective and, you know, I’m sure a lot of people will take you up on that offer of just, you know, getting a little bit of advice.

Robbie: Yeah.

James: Because it is, it’s a tricky and risky proposition to do something like that.

Robbie: Absolutely. If you were selling a house, as well, you know, who’s the agency you pick? You’d want somebody that represents the calibre of your property, who’s proven track record – and sometimes the fee that they charge might be slightly higher. Sometimes it might not be. But it might just be slightly higher than someone at a discount agent who are just going to whack a sign in the front lawn and hope somebody rocks through at the home open. I have buyers, in Perth for example in WA, I have buyers, I have a database, I constantly have people ringing me up saying, “If this comes on the market, this is what we’re looking for.” And before I even advertise something, I’ll make five or six, or seven or eight phone calls and emails saying, “This is an off-market opportunity, hasn’t gone viral. Would you like to have a look at it?” And sometimes they will go, “It’s exactly what I want, Robbie. Thanks, mate.” And they’re in. And the sale is done discreetly and quickly.

James: Yup. Which is what you’re paying for. On top of that it’s a bit of a false economy, because you have an idea about what you want. There’s probably, what, a fair market price, a good broker is going to work to get the most money out of it. Whereas one of the cheap brokers – and I have seen a couple of our customers who’ve gone through this process and they get a sale done really quickly, but it’s nowhere near what they thought it was.

Robbie: Yeah.

James: And then they’re left wondering, “Yeah, well could we have got more?”

Robbie: James, do you know what another hidden peril is that you’ll have a broker and they’ll say, “Okay,” and they’ll present really well, they’ll rock up in a nice suit, they’ll have a nice professional business card, they’ll be articulate, they’ll have brochures with them. They go, “This is what we can do,” blah, blah, blah. But some of the brokers in Australia, and worldwide, what they do is they actually make money by having large volume of listings, of which they charge people to do advertising and the production of the brochure. So, for example, if you have 100 people listing their business with you, restaurant, cafes, bars, franchises, hotels, motels, blah, blah, blah.

And you have 100 listings, and each of those people give you $1,800 or $2,000 just for the brochure, well there’s $150,000 to $200,000 straight up. They then, how much are you advertising? What’s your advertising cost? If you go on Seek and you want to have a 30-day listing privately, it costs you roughly 290 odd dollars plus GST to have a 30-day ad. But a broker will have a cheaper subscription and will be able to post it onto maybe six websites, and charge you perhaps as low as $125 a month. However, there are brokers out there that will charge you two to three hundred dollars for that same amount, and the surplus income, it compounds. So, if you have 100 listings and they’re all giving you, so you’re making $100 a week off them.

On top of the brochure. Nine times out of 10, that broker is not hungry, he has income or she has income. And they’re not motivated to be out there pounding the streets, or meeting people at 5:30 on a Friday evening to show them through a closed down restaurant. Will they answer the phone on a Saturday or a Sunday? Are they strictly Monday to Friday? Because there’s a lot of hidden, and it’s a new trend in broking, brokers are earning significant income passively, simply by getting paid for the brochure. And you need to disclose that and ask up front. There’s famous brokers in Australia, I’m not going to name them, and they make I would say, each state would make an excess of three to four hundred thousand dollars a year income among four or five brokers, simply by multiple listing as many businesses as they can. It’s not about selling businesses, because as soon as somebody falls off one end, they’re listing at the other end. And they promise you the sun, the moon, and the stars. But all you’re doing is paying for their lifestyle. It’s not a well-known fact, but there’s a lot of brokers out there aware of that model and I don’t like it, I think it’s morally wrong.

James: Well, and this is the interesting thing, it’s a great business model for them.

Robbie: Yeah.

James: But probably not for restaurant owners.

Robbie: I’ve had people ring me saying, “I’ve been six months with such and such business broker,” and they’ll describe the person as being illegitimate. And they’ll say, “That person never chased me. He took my listing, he took my advertising money. I had two phone calls, and that illegitimate person never brought anyone to my premises.” And they’re really anxious and emotional. Because what they’ve done, if you’ve invested $2,000 and perhaps another $1,500 to $2,000 over three months on advertising, you have skin in the game. And you’re reluctant to move because you kind of think, “Shit, I’m going to have to pay this money to the broker, I’ll just wait.” But by that stage, that same broker has listed another 70 businesses. So, you’re on page 19 or you’re on page 11 of 24 units per page.

And you’re going to get lost in the background noise, you’re not standing out. So, talk to your broker, ask them do they have a database, what is their sales strategy? Are they simply hoping to put the ad up, or do they have buyers lined up? And the broker should have good second agents, good lawyers to handle liquor licensing applications. They should have access to finance brokers that can put, you know a buyer who might need good advice. If you go to a bank, the bank will say, “No.” But a good finance broker would have maybe seven or eight banks or financial institutions to get your land at a good rate. So, the broker should have a collection of associates that they can refer people to, that are really good at their job.

James: Excellent.

Robbie: They’re the things to look at, yeah.

James: Well, thank you very much Robbie. I think we’ve covered a lot of ground today, and we’ve covered a really, really wide topic. Yeah, yeah. So, thank you for sharing your experiences so widely. Thank you for the offer, too, for people to reach out and ask you, you know, just a couple of questions to try and demystify the process that is selling a restaurant. And yeah, I’m sure we’ve lifted the covers on this process, and so hopefully people will be able to start working towards maximizing the value that they get when it comes time to sell their restaurant.

Robbie: James, they deserve it. The amount of work you put into a restaurant, you should have the reward at the end of it, instead of walking away with empty pockets. So, I’m there to help.

James: Exactly. I think that 98 percent of the people who sell a restaurant deserve probably a damn sight more than they will get.

Robbie: Absolutely.

James: So, hopefully some of these people can move towards getting something where they actually are getting, you know, the kind of return that they should be getting for their restaurant.

Robbie: Yes.

James: Excellent.

Robbie: It’s all about just planning that, you know, and yeah. Just talk to people, talk to professionals.

James: Plan. Start going through that process.

Robbie: Yeah.

James: Excellent. Thanks, Robbie.

Robbie: Yup. No worries, James. Happy to help.

James: There you go. The good word from the expert on how to sell a restaurant, and I think, you know, there’s a couple of things that I’ve really taken out from this. One, you should be trying to build your business up from day one, from when you takeover. You know, you want to have that plan, that business plan, the marketing plan, that you’re actually working towards. You’re actually trying to put in place. And I know, it’s not one of those things that you do in a day, or a week, or a month.

These things take years to do, to put all of the systems in place, to hire the right team, to build the right culture. It’s not a simple job, but what we want to do is to put all of those steps in place so that when it does come time to sell, and it might be because, you know, you want to take a bit of a break or – and this is the thing that’s really heart breaking, is that there will be people who are planning on running a restaurant for the rest of their life, and then they have an injury, or then their financial circumstances change. And that causes them to have to go through that process of going through a distressed sale. And then you get the vultures coming in and they’re going to be picking up all of your good work, all of the customers who love your restaurant for a bargain. And no one wants to see that happen.

So, have a business plan and work your way towards it. Try and make sure, try and cut yourself away from the restaurant. And I know, we’ve done a little bit of research on evaluations in the past, and one of the things that was really interesting is, if you’re doing a Monday to Friday café that’s turning over a million dollars and making X amount of profit but it’s a café, so doing you know breakfast and lunch. That is going to sell for a lot more than someone who’s open seven days a week, turning over a million dollars and making the same amount of profit.

Because the person who’s going to be purchasing that, they’re thinking of the lifestyle, as well. So, that’s one of the things that you want to be thinking about. Set it up like a franchise. Plan everything out. Have processes in place. And I think we covered some really interesting ground around how young chefs can get their first start in the market. That’s about it, hopefully we found some ideas for you to avoid, the smart buyers getting in and sell a restaurant for a really, really good price. Hopefully when it comes time for you to sell a restaurant, you’ll be getting top dollar and you’ll get the reward that you deserve for all the hard work that you put in. That’s about it for today, have an outstanding day. Bye.

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