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If you're a restaurant owner who is considering selling your restaurant, you're undertaking a significant journey that requires careful planning and expert guidance. Since we never want you to feel adrift in your business endeavors, restaurant and commercial real estate broker Tyler Huntington is here to offer his expertise. In this guide to successfully selling a restaurant, we'll explore the essential steps and considerations to help you make informed decisions and achieve the best possible outcome.

Overview of the Restaurant Industry

Tyler Huntington

Understanding the current landscape of the restaurant industry is crucial because it will set the stage for your selling journey. This industry - both nationally and in the Triangle of North Carolina - is dynamic and influenced by various factors such as location, the type of food served, management, consumer preferences, and ever-changing market trends. To make informed decisions about selling your restaurant, it's essential to stay up to date with industry developments and local market conditions. According to Tyler, "The restaurant industry is always evolving. Success in selling comes from understanding both current trends and the timeless aspects of hospitality."

His wealth of knowledge, the National Restaurant Association, and Nation's Restaurant News are all good resources for this and will help you position your restaurant effectively in the market.

Priority Items When Selling a Restaurant

When you're considering whether to sell your restaurant business, there are several priority items that must be addressed first. Tyler advises that these are all moving parts that really need to be taken care of simultaneously.

Identify a restaurant broker to work with

One of the first things you'll want to do is find a restaurant broker who has restaurant experience. A restaurant broker specializes in selling restaurants and can provide valuable expertise and guidance throughout the sales process. When selecting a broker, it's important to do your research and find someone with experience and a good track record of successful sales. Look for a broker who is knowledgeable about the restaurant industry, has a strong network of potential buyers, and is responsive and communicative. By finding the right person to work with, you can maximize the value of your restaurant sale and ensure a smooth and successful transaction.

Readiness and reasoning for selling

Next, you must determine your readiness level and reasoning for selling. Tyler says that when a restaurant owner comes to him and says they're ready to sell. His first questions to them are, "Why?" and "Are you really ready?"

He notes that his role is to make sure that they’re crystal clear on that at the beginning of the process. He usually asks his clients, "Are you really ready to sell your business? Or have you just had a really crappy week or month, and you're frustrated? Are there other things in your life that are going on, and you feel like the business is taking up too much time?"

These questions are critical for the potential seller to be able to answer because if they're not truly ready, the selling process becomes a lot harder for everyone involved because "restaurateurs tend to be very mentally and emotionally invested in their business. They have to be in order to be successful."

Tyler also says that knowing why someone wants to sell their restaurant will impact the process. If they can't pay their lease and have other debts they can't pay, it presents a much different timeline and bargaining position than if they have a successful and thriving business and they're simply ready to cash out as part of their exit strategy so they can retire.

Financials

Of course, to know much of that and for other aspects of the selling process, the owner must have a good grasp on their financials. Tyler advises, "Get your financials in order. Clear, organized records are a must to demonstrate value to prospective buyers."

This is the time to get your accountant involved. That's because they and you will need to review your profit and loss statements, balance sheets, and tax returns. Above all else, buyers will want to see proof of a steady cash flow. Accurate and organized financial records not only instill confidence in them but also allow you to determine a competitive asking price.

Valuation

When it comes to determining the asking price, you'll want to collaborate with your broker to get their opinion of value or hire a licensed restaurant or business appraiser to conduct a thorough valuation. The value of your restaurant will take into account factors such as your restaurant's financial performance, assets, location, and market trends. Knowing the value of the restaurant will allow your professional business broker to set a well-researched and competitive sales price that will capture the attention of serious buyers.

Lease terms

If the property where your restaurant is located is leased, it doesn't matter how much your business is worth if the status of your lease isn't favorable for you to sell. You will need to know the remaining duration of the lease, any options to renew, any restrictions or obligations related to the lease, and whether it is assumable. Potential buyers will want to have a clear understanding of the lease terms and how they may impact the purchase of the restaurant.

Tyler says, "It's important to have all lease documents in order and be prepared to discuss the lease terms with potential buyers." If the lease is expiring soon, it may also be necessary to negotiate with the landlord to secure a new lease or lease extension before selling the restaurant.

Possible sales structure

Understanding the options for how to structure your sale will also be important. Tyler says there are two primary ways to do this - an asset sale or an ownership interest sale.

According to Investopedia, an asset sale is where "a firm sells some or all of its actual assets, either tangible or intangible." This can include such things as the name of the restaurant, equipment, and even the liquor license. Tyler notes that in an asset sale, the new owner does not assume any debts or liabilities of the previous owner of the restaurant.

He also explains that in an ownership interest sale, however, the new owner takes over ownership of the corporation operating the restaurant as well as any liabilities. Bradford Tax Institute says that most sellers prefer this type of structure because "any business-related liabilities generally go away with the ownership interest and become the problem of the new owner."

Tax savings strategies

As part of determining the sale structure, the tax savings strategies for each option will need to be carefully evaluated. Tyler says this is important because "it will impact how much money the seller has when they walk away from the deal." The Bradford Tax Institute notes that this is another reason why sellers normally prefer an ownership interest sale structure. "Any taxable gain on sale will generally qualify as a lower-taxed long-term capital gain if you have held the ownership interest for more than one year."

That's why you should talk with your accountant about the type of sale structure you are considering when preparing your business for sale. According to Tyler, seeing the final amount of money that you'll walk away with may very well determine whether you can afford to sell or not.

Based on all of this, it's easy to see why these priority items must be addressed first when deciding whether to sell a restaurant business.

Additional Factors to Consider When Selling a Restaurant

Once you've decided to sell your restaurant, there are steps you can take to begin making more tangible preparations for putting it on the market. Tyler walks through some of the additional factors to consider in the process of selling your restaurant.

Ensuring the restaurant's physical structure is market ready

To maximize the value of your restaurant, you need to ensure that its physical structure is market ready. This means making sure that any needed repairs are made and that equipment is functioning as it should. Tyler recommends, "If you have a piece of equipment that's not functional, get it out of there. You don't want to have to tell a potential buyer, 'Yes, we have that, but it's not working.' Any time you have to do that, you're taking money away from the bottom line." In addition, it casts a shadow over the way the rest of the business is run and may cause potential buyers to turn away.

Marketing the restaurant for sale

Effective marketing is key to attracting potential buyers. Tyler says that a restaurant broker can help create a compelling listing that highlights your restaurant's unique features, such as its location, cuisine, customer base, and profitability. They will also utilize online marketplaces, social media, and their network to reach a broad audience of prospective buyers to help you sell your restaurant for the most money. According to Tyler, "I would use a mix of online platforms and industry connections to market your restaurant. It's about reaching the right buyer, not just any buyer."

Negotiating with potential buyers

Once potential buyers express interest, the negotiation process begins. Effectively navigating this phase is essential to achieving a successful sale. Tyler offers these tips to help with that process.

1. Due Diligence

Encourage potential restaurant buyers to conduct thorough due diligence. This involves reviewing financial documents, inspecting the property, and assessing your restaurant's operational processes. Be transparent and provide all necessary information to build trust and confidence.

2. Qualified Buyers

Screen potential buyers to ensure they are qualified and financially capable of completing the purchase. This step is important for preventing deals from falling through due to inadequate financing.

3. Timing

Consider the right time to sell. Evaluate factors such as your restaurant's performance, market conditions, and economic trends. Collaborate closely with your restaurant and commercial real estate broker to determine the optimal moment to list your restaurant for sale.

4. Negotiate the Sale Price

Negotiate the sale price with potential buyers. Be prepared to handle counteroffers and engage in productive discussions to reach a mutually beneficial agreement. Your broker's expertise in negotiation can be a valuable asset in securing a favorable deal.

Legal considerations

The legal considerations that have to be kept in mind when preparing to sell a restaurant depend on the structure of your current business. Tyler says that if you're the sole owner, the process should be fairly straightforward and you can probably wait to bring in legal counsel until the end. If there are multiple business owners, however, and everyone has to sign off on the sale, you'll want to get your attorney involved at the beginning of the process.

Once you begin negotiating with potential buyers, an attorney will need to help draft the terms and contracts for the sale. They will also need to help make sure that any local or state regulatory requirements are met, such as those involved with transferring ownership of a liquor license.

Bottom Line on Selling a Restaurant

Selling a restaurant is a significant decision that requires careful planning and execution. By following these steps and tips, you can make the process smoother and increase your chances of selling your restaurant for the most money while ensuring a seamless transition to the new owner.

If you're an owner wondering how to sell your restaurant, be sure to contact Tyler Huntington. He has helped many restaurant owners position their businesses for a successful sale and can help you do the same. He can be reached at 919-247-9691 or at Tyler@pickettsprouse.com.

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