How To Sell Your Restaurant

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Selling Your Restaurant? Flexibility is Key

By Tom O’Brien

Thinking of selling your restaurant? In a market abundant with available restaurants, the ability to set your business apart from the multitude of other opportunities is essential. You’ll have the largest pool of qualified buyers, spend less time on the market and be rewarded with the best sale price. To achieve this, you would more than likely clean your facility from end to end. Tend to any deferred maintenance issues. Get your past and current financial information organized and readily available.

All of these efforts are diligent and will entice buyers, but is there anything else you can do to make your business more attractive?

Yes. Be open to financing a portion of the selling price.

In the past, many restaurant acquisitions were financed with the buyer utilizing the SBA 7(a) program. Although this program is currently available today, meeting lender’s loan criteria has become much more difficult. There is no real, tangible collateral in a typical business transaction, so the lender will heavily weigh the past performance and profitability of the business, as well as the experience of the buyer to repay the loan. With the lack of lending sources and tighter lending requirements in play, many restaurants will not qualify for financing.

When financing a portion of the purchase price you will be acting as the bank. Just like a bank, you will want to investigate the creditworthiness of the buyer. Ask the buyer for a credit report, personal financial statement and resume describing their past business or restaurant experience. Understand what the buyer intends to do with the business. If they intend on changing the business concept rather than running it status quo, there is additional risk to you if you have to take it back. Make sure that the buyer has enough operating capital after your required down payment to cover licensing, permits, inventory and day to day operations. Selling your business to someone with no cash reserves is a recipe for failure. The promissory note is typically secured by UCC-1 financing statement, UCC-2 fixture filing and security agreement covering the furniture, fixtures and equipment used in the business. If the buyer forms a corporation or LLC to purchase the business, require a personal guaranty—a collateral agreement to answer for debt in case the buyer defaults.

Another suggestion is to incorporate a cross-default clause. The cross-default clause ties the business premises lease to the promissory note. If the buyer defaults on the lease, it triggers a default in the promissory note and vice versa. Chances are the landlord is going to require you to stay on the lease as an additional guarantor anyway. If you are fortunate to receive all cash, try and limit your guarantee to the least possible time period. When carrying a note, you may want to insist on obtaining the right to re-enter the business premises in the event the buyer defaults on the lease or the promissory note. Consult legal counsel to make certain that you are secured and protected when financing a portion of the sale. In our current economic climate, seller financing can expand your selling potential to many more qualified buyers. It will give buyer confidence that the business will pay for itself. Usually, it will provide for a higher sales price in a shorter amount of time.

Tom O’Brien is an associate broker with Steele Development Corporation and a Washington Hospitality Association Consulting Network contributor. Food establishment permits are not transferable from the previous owner.

 


This article is an excerpt from the Handbook for Excellent Restaurant Operations (HERO), published by the Washington Hospitality Association.  Want a hard copy of the whole manual?  It’s one of the many benefits of becoming a member!  Find out more about joining the Washington Hospitality Association here.

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