Preparing to sell your restaurant – Tips to improve your chances of selling and the price you get

Date: 25-03-2014

someguyAt Marketing4Restaurants, we speak to a lot of restaurant owners every day and there are some restaurant owners who are looking for help in selling their restaurant, café or take away.  This is either because of a change in circumstances in their life, discovery that running a restaurant is not for them, wanting to trade up to a bigger restaurant or wanting to cash out some profits after building a restaurant up.  We spoke to Ahmet Ali to find the secrets of preparing to sell your restaurant.  Ahmet is the Director of AA Business Brokers, who specialise in selling restaurants and getting the best possible price for Vendors.  Here are his top tips for preparing to sell your restaurant.

The first thing to do is to start preparing 6 months out.  On average, a restaurant takes 3 to 4 months to sell, so restaurant owners need to be aware that the process does take some time if they want to achieve the best possible price.

Most buyers fall into two types of categories, those with the cash to spend, either from a payout or a previous restaurant sale and those who will be financing through a bank.  If the buyer is looking to purchase with a bank loan, they will be relying heavily on the financials presented by the business.

Restaurants operating 7 days a week doing breakfast, lunch and dinner each day are at the bottom of the pile.  This often equates to extremely long hours required turning off prospective buyers.  Restaurants.  Having the restaurant run under management can make a difference though.  Many buyers are looking for the kind of lifestyle that they will receive when they purchase your restaurant.  It is much less appealing for a potential owner to think about the prospect of running the business 7 days a week, breakfast, lunch and dinner, compared with going in and checking on the general running of the business knowing that there are managers in place.  Some will purchase a restaurant with long hours with the plan to put them under management, planning to extract value from the fact that new owners are buying more of an income stream rather than a 60-80 hour a week job.

How much is your restaurant worth?

The appraisal of a restaurants value can be broken down into 4 main areas:

  1.  The Location – Is there a lot of foot traffic?  Is there a good lease in place?  Is the lease amount cost effective and is there sufficient time on the lease to run.  This is an area where owners need to be proactive, ensuring that the lease has been negotiated on the best terms possible and has as long as possible to run.  Potential owners want to be buying certainty.
  2. Presentation – The presentation of the dining area, kitchen and outside are a major determinant of the appraisal.  If it is run down, it means that ongoing maintenance may have been skimped on, suggesting that there is an underlying issue with profitability.  This extends to the online presentation of the restaurant, especially the website.  A professional website generating significant sales is one less thing a new owner will need to worry about.  This goes hand in hand with your Facebook presence.  If your official Facebook page has only 100 likes, it creates serious doubts in the mind of a potential buyer.
  3. Financials – This can be a sticky situation, with some restaurants running 2 sets of books.  If the purchase is being financed, it often means that the valuation will be lower because the revenue and profit reported to the ATO will be lower.  Buyers should always seek to verify revenue figures and a 2 week trial is often used to ensure that the information given is a true representation of the state of the business.
  4. Management – a Restaurant that is under management and has been for a while will be worth significantly more, because the new purchaser is buying a revenue stream and will have time to improve it, rather than a restaurant where they will be conducting the day to day operations.  People pay more for a revenue stream and less to buy themselves a job.  Restaurants open 7 days a week for breakfast, lunch and dinner without management are the least desirable, as the restaurant needs to be open those long hours to be profitable and the hours can be extremely difficult to maintain for any owner.

Ahmet stated that “Running a restaurant is more than cooking food, it is about dealing with customers and running a business.”  Potential sellers need to ensure that they have a good grip on their figures and the running of their restaurant.

Developing a Database of customers is also an important step.  Marketing to that database will increase the profitability of the business over time, allowing for a higher valuation and a large database (over 2,000 email addresses) gives potential buyers scope to increase the revenue for the business, rather than relying on the good will of past customers to come back.  Online booking widgets (which don’t share your customer details) are a great way of increasing your customer database without any work on the restaurant owners behalf and it also means that the restaurant appears more professional.

If you are looking to sell your restaurant or hospitality business in Victoria, please contact Ahmet Ali, Director at AA Business Brokers:.

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If you need help with your website or building your database quickly and easily, or building your Facebook presence quickly,  please contact Marketing4Restaurants.

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