Being in the restaurant business is a rewarding experience. As an owner, you reap the rewards of a bustling spot with a great menu and atmosphere that holds many memories for friends and families. You understand the intricacies of the kitchen and the difference between good service and great service. But over time, you find yourself thinking, “It’s time to sell my restaurant.” As you weigh the pros and cons of this option, it’s easy to get caught up in the emotional details. However, you’ll want to consider the actionable steps involved as well.
Going about the sale of your restaurant means dealing with many moving pieces. You’ll have to consider specifics you may not have thought of and put together documents that span more information than you might have ever thought of as an owner. Before jumping in, it’s worth a read to review the below steps regarding how to sell your restaurant.
Table of Contents
- 6 Steps to Selling Your Restaurant
- What Affects the Value of a Restaurant?
- Should I Use a Broker?
6 Steps to Selling Your Restaurant
Like when you opened, selling your restaurant is best completed in small but significant steps. You might finish the below steps in varied order, depending on your priorities. However you accomplish them, you’ll need to tick each one off before selling your restaurant.
Step 1: Get a Business Valuation
Any time someone is looking to sell a business, whatever it might be, they will need a sound business valuation. This provides insight into what your restaurant is worth at fair market value. Although it puts a number to the sale, a valuation doesn’t only consider revenue or assets like equipment. Instead, a business valuation for a restaurant will review financials, industry trends, market conditions, and potential risks and opportunities for the business. For example, a local diner with many loyal customers may seem like a sound investment, but if a strip mall is going in up the street with lots of fast food options, there are heightened risks which can lower the overall value of the restaurant.
Completing a business valuation means looking at comparisons to what other restaurants of similar size have sold for, considering future cash flow, or the asset approach, which weighs assets and liabilities. Once these details have been ironed out, you’ll have an accurate business valuation to move forward with selling your restaurant.
Step 2: Plan Your Exit Strategy
An exit strategy is a plan for how you will eventually sell your restaurant business or transfer ownership to someone else. You’ll have to consider your goals, such as what you want from the sale of your restaurant. Is it the maximum financial return? Will you be retiring? Are you passing ownership to a family member or friend? These details will make up the foundation of your exit strategy.
Timing plays an important role here. Business sales don’t happen within a few days; they can often be drawn out over months. What that looks like regarding your financials and who you are selling to can differ. You might focus on upgrades to improve the likelihood of selling or marketing to the right people. An experienced business broker is invaluable in helping you plan and ensure your exit strategy is doable and flexible. This will help ensure a smooth and successful transition for both you and the future owners of the business.
Step 3: Prepare Your Financials
Your financial records will be an important piece of the sale of your restaurant. Being transparent and getting these documents together early can be the difference between closing a deal and having a buyer back out late in the game. So, before putting your restaurant on the market, it’s important to gather and organize all of your financial records, including income statements, balance sheets, tax returns, and any other relevant financial documents. Working with a business broker, you can understand how to separate potential write-offs and other expenses from the core financial records of your restaurant. This will help provide potential buyers with a clear picture of the business’s financial performance.
Step 4: Find A Qualified Buyer
It’s possible to start looking for a buyer before putting your restaurant on the market, especially if you have close friends in the industry or family interested in taking over. But many sellers prefer to put their restaurants up for sale to attract various buyers who are qualified to own a business like this. Screening those who are interested might involve reviewing their experience with restaurants or the funds they have to finalize the purchase. It’s also possible that a buyer could have specific concessions for the existing owner, such as a transition plan. You’ll need to find a buyer that suits your needs and is willing to go through the negotiation process with an idea of the bigger picture rather than irrelevant details.
Step 5: Keep Your Equipment in Good Condition
Within your restaurant, there are plenty of assets in terms of kitchen equipment. Whether you own a cafe, dessert bar, or breakfast spot, certain appliances are needed to keep the business in top shape. Taking the time to review what you have and whether it needs an upgrade or a tuning makes a difference when trying to sell your restaurant.
During this step, you might also consider deep cleaning, updating decor, and painting to improve the overall appearance and, thus, the appeal of the space. While these might seem like small jobs, accomplishing them and presenting the restaurant in a good light can easily help attract more buyers.
Step 6: Understand Your Lease
A lease can have a significant impact on the sale of a restaurant. The lease terms, including the rent amount, length of the lease, and renewal options, can affect the financial performance and value of the restaurant and, therefore, its sale price.
Rent is typically a large, fixed cost for a restaurant. If this amount is high, it might reduce the sale price so the new owner can account for it. Long-term leases tend to be more appealing to buyers since they are stable and secure, but a short-term lease might be a stressful detail for a new buyer. Both of these factors also play into renewal options, which might mean higher rent or the inability to renew a lease altogether, forcing a move after the sale has closed.
Overall, the terms of the lease can have a major impact on the sale of a restaurant, and it’s important for potential buyers to carefully review and understand the lease before making a purchase. It’s also important for the seller to be transparent about the lease and to provide all relevant information to potential buyers.
What Affects the Value of a Restaurant?
The value of a restaurant can be influenced by a variety of factors. Even if your business is in a great location and market conditions are favourable, you could have issues with revenue and reputation. Additionally, your concept and menu might be tailored to someone with a culinary background or focus on certain specialties that are not as widely known. Let’s look into the above factors and a few more below:
The location of the restaurant is one of the most important factors that affect its value. Restaurants located in high-traffic areas, such as busy streets, shopping centers, and tourist destinations, are generally more valuable than those located in less accessible areas. The ease with which customers can get to the business, such as ample parking or close to public transportation, also play a role.
A restaurant with a good reputation for quality food, customer service, and atmosphere can command a higher value than a restaurant with a poor reputation. The restaurant’s online reviews, ratings, and social media presence can also impact its value. If you’ve been in business a long time and haven’t considered being present online, it might be worth exploring a marketing strategy to change that. After all, the more appealing a restaurant can be to buyers who have different mindsets, can make a difference.
The financial performance of the restaurant, including its revenue, profit margins, and debt levels, will significantly impact its value. Profitable restaurants with a strong track record of sales growth and low debt are generally more valuable. If there are specific details that have influenced higher debt or lower revenue, such as rebranding, renovations, or other financial concerns, it is important to note these to your business broker so they can make the appropriate adjustments to your business valuation.
Restaurants with well-established brand recognition and a loyal customer base are more valuable than those without a strong brand. This can often be easier to manage for those looking to sell a franchised restaurant since recognition can be more widespread. However, establishments with a long-standing reputation in the community are also likely to have strong brand recognition.
The type of food served, the restaurant’s menu offerings and the overall concept of the restaurant can also affect its value. Restaurants with unique menus, specialized cuisine, and popular concepts may be more valuable to the right buyer. Those that offer generic or widely available menu items can also be seen as a good sign to buyers who have experience in the industry but are not as well-versed in the technical aspects of menu planning and cooking.
The level of competition in the area can also impact the value of a restaurant. Restaurants in areas with high levels of competition may face challenges in attracting customers and may have lower valuations as a result. This factor also takes into consideration the future of developments. That means zoning laws in the area that might allow for a new restaurant in the future, or early plans for a mall that could include various fast-food service options.
The overall economic and market conditions are important for the sale of any business. During a recession, for example, the value of restaurants may be lower due to decreased consumer spending and increased competition. Conversely, during periods of economic growth, the value of restaurants may be higher. Buyers might consider food and labour costs as an important factor regarding market conditions, looking at reducing variable costs while remaining profitable. A contingency plan for poor market conditions might go a long way to ensuring buyer peace of mind.
Should I Use a Broker?
The sale of your restaurant is a considerable process and a big decision. You’ll still be in charge of daily operations as you juggle dealing with potential buyers and putting together financial records. That is unless you use a business broker.
Once you’ve decided, “I want to sell my restaurant,” you’re next move should be connecting with an experienced broker who can handle all relevant concerns. What’s more, they have a higher-level knowledge of these kinds of deals and are solely dedicated to ensuring the sale of your restaurant is successful.
In addition to market knowledge, access to a wide network of buyers, and marketing expertise, a business broker is objective. At Sunbelt Canada, we have a bigger-picture perspective on all sales, helping sellers and buyers make the best decisions that are the most financially sound for them. Ready to make a move and want to know more about how to sell your restaurant? Connect with us.