How do you prepare a restaurant owner for the entire sale process so it can be successful?

Dennis Serpone, New
England Restaurant Brokers

Getting the owner to agree to our terms of engagement is only the first step in the consummation of a sale. Explaining the various steps and the mutual commitment to a successful closing is crucial. Unless the seller understands, and believes, that we’re working in his best interest the process will not work smoothly.  The ultimate success of a sale is in this beginning stage...determining the ‘real’ reason he is selling.

• Is he selling because he says he wants to retire or is it that he’s losing money?

• Is he selling because he’s having partnership problems or is it because competition is increasing?

• Is he selling because his health is deteriorating or is it because he can’t find good help?

• More importantly, is he selling because he thinks the broker will get him ‘his number’ versus what the real value is? This is where the general business, or commercial broker who needs a listing, gets into trouble.If the broker doesn’t know what the ‘market value’ is for his type of business, the business won’t sell.

1) ESTABLISH MARKET VALUE As restaurant specialists, we intuitively know what the market value is. Why? Because we work with it everyday. It’s not just about the numbers. It’s not just about the volume of sales, the cost of goods, occupancy cost, and payroll – it’s about the supply and demand for places like his, it’s about the terms of the offering...all cash, some seller financing or amortization with a balloon.That said, your sales contract and your compensation are directly affected by the seller’s alignment with your evaluation.There is a range of valuation that is a product of the various variances that come into play and the degree to which they may or may not be controlled. Providing specific examples of the valuations of similar businesses — and explaining the factors which lead to these figures — will solidify the fact that you’re the expert.

If after providing the owner with a best-case-scenario value, he asks again how this lines up with his worst-case-scenario figure. This is the time to draw on your industry and market expertise in order to provide the owner credibility for your numbers.

Explaining to a seller that the buyer only pays for the business that he’s developed, but actually buys because he sees a future that isn’t in his prevue. The successful broker will be able to use his experience to get the buyer to focus on the company’s future, and the unrealized and attainable profits.

2) EXPLAINING THE STEPS Take the business owner through the sale process.  You’ve been hired for your expertise and guidance; it’s your job to make sure that you’re both on the same page. Throughout your presentation and early discussions you’ve likely given the restaurateur a glimpse of what the sale process will look like.

The various marketing methods will generate significant interested buyers. The difficulty comes in filtering out non-qualified buyers...but finding those who not only want your business, but who have both the experience to carry on your success or expand it;and who also have the financial resources to buy, but also have enough reserve capital to carry the business’s obligations through a slow period.

3) THE RIGHT BUYER The ‘right’ buyer is typically one who is well seasoned in that particular business type...whether as an owner, manager or worker. You probably wouldn’t sell your full-service restaurant, and provide some level of financing, to a buyer whose only experience has been as a bartender two years ago.

The broker’s job,once he finds an apparently qualified buyer, is to help that person focus on the annual net income that he will generate and not be so concerned with the selling price. The right buyer will understand that the real cost of buying a restaurant is the cash-out-of-pocket for the down payment. The business over time pays the balance of the purchase price. If your buyer buys a restaurant for $1 million with a bank financing $700,000 over 15 years and the business nets $300,000 per year, and with a 15-year lease, a buyer can, God-willing, net $4.5 million over the span of his lease.If on the other hand, the buyer sells the business, not for a profit, but just what he paid for it after 7 years, he gets back his $1 million; and in the meantime has earned approximately $2 million.

The right buyer will embrace this scenario and buy with enthusiasm.

The right broker will find the right buyer.

Dennis Serpone is president of New England Restaurant Brokers,Wakefield, Mass.