Are you a restaurant owner preparing for retirement? Or maybe you have decided it was time for a change. Either way, you are most likely in the beginning stages of preparing your restaurant for sale. As a business broker in New Jersey, NJ Broker Plus is here to guide you through the process of how to prepare for selling your restaurant. Read more to discover a few tips from the experts at NJ Broker Plus to ensure the selling of your restaurant is as easy and seamless as it can be, while also increasing your chances of receiving the sale price you want.
Here are some ways you can start preparing your restaurant for sale:
Start preparing for the selling of your restaurant about 6 -12 months out. On average, a restaurant takes about 4- 6 months to sell, so restaurant owners need to be aware that the process does take some time and you want to make sure you have good books and records that will support financials during buyer due diligence.
Most buyers fall into three categories:
- Cash: those with the cash to spend
- Bank Financing: 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 business tax return and financials presented by the business
- Seller Financing: those that will require some seller financing.
Restaurants operating 7 days a week serving breakfast, lunch and dinner each day with heavy owner workload are at the bottom of the pile. This often equates to extremely long hours required, turning off prospective buyers. .
What appeals most to buyers? A restaurant with staff in place and run under management who will stay on with new ownership.
There are buyers who will purchase a restaurant with the owner putting in long hours; however, this will have an impact on the purchase price.
Restaurants with non-owner management in place will sell for a higher price than a restaurant that’s heavily owner / operated.
So how do we determine how much your restaurant is worth?
The asking price is what the seller wants. The purchase price is what the seller receives. Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept. When it comes to selling your restaurant there is no precise formula for valuing it. Each business needs to be considered on an individual basis. There are, however, certain benchmarks and valuation approaches and methods that determine the most probable price for which the business could be sold on the open market.
In the valuation of a restaurant business, a multiple of from 1 to 3 times adjusted cash flow is considered as being most reflective of a buyer’s investment criteria and takes into consideration some of the risk factors that are inherent in the industry: changing consumer tastes, the economy, unemployment, competition, etc.
The valuation of a restaurant can be broken down into 4 main areas:
- Financials –Keep good financial records and books- this is key! Restaurant sellers must be able to support all the sales and expenses involved in the running of their restaurant Buyers will always check to verify revenue figures during a due diligence time period, which is typically two weeks after a sale price is agreed upon. The purchase price is contingent on the seller proving that the financial information given to the buyer is a true representation of the actual state of the business. If the seller can’t prove the financials stated, the deal will fall through. Sometimes the buyer will adjust the offer downward but by that time, trust is lost and the buyer usually walks away.
- Management – A restaurant that has management in place and tenured for several years will be worth significantly more because there is a steady revenue stream and the buyer can spend time on growing sales. If there’s no management in place and the buyer must conduct day to day operations, there’s less time for planning business growth. People will pay more for a revenue stream and pay less to buy themselves a job. Restaurants open 7 days a week for breakfast, lunch and dinner without management are the least desirable.
- Presentation – The presentation of the dining area, kitchen and outside is a major determinant of the appraisal. If it appears to be run down and ongoing maintenance hasn’t been done, it suggests there is an underlying issue with profitability. This extends to the online presence of the restaurant, especially the website. A professional website generating significant sales is one less thing a new owner will need to worry about.
- The Location / Lease – Is there a lot of foot traffic? Is there a good lease in place? Is the lease amount cost-effective, and how much time is left on the lease? Are there renewal options? 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.
As an owner selling your business in New Jersey, it is essential you take steps to prepare your restaurant for sale and NJ Broker Plus is here to guide you through that process
Contact the experts at NJ Broker Plus for further assistance in selling your restaurant to ensure you get the purchase price you deserve! Contact us today for a free business valuation.