Deciding to sell your restaurant is never an easy decision. With luck, you’re choosing this option after a successful run and this will be the culmination of all of your hard work. If you haven’t been so fortunate, maybe you are ready to cut your losses and try to recoup some of your hard-earned cash. In either case, it is a difficult decision wrapped in a lot of emotion.
In my case, I was in the fortunate group where selling my business was a decision based upon my own life changing. My business had found success in our community, we were making a steady income, and frankly it wasn’t nearly as hard as it had been (which is not to say operating it ever got easy.) But my business partner and I both had plans to move and becoming absentee owners was far too daunting so we decided to list. Here are the steps we took.
Talk to your Lawyer:
Especially if you are a franchisee, you’ll need to know what restrictions you have to selling. Even if you’re an independent company you’ll want a lawyer to review your lease and any other contracts to ensure you know what you’ll need to be aware of.
Find a Broker:
Start with the International Business Brokers Association (IBBA) to come up with a list of business brokers in your area. Identifying some brokers that specialize in restaurants (or at the very least have experience working with restaurants) will give you a leg up. Now begin the process of interviewing these brokers to find a good fit. In these interviews try to get a sense of how well they know your area, restaurants, and the current market. Ask for a target sales price and how they determined that valuation. Once you have a short list, interview some references and negotiate a commission rate. Most brokers fall in the 8-12% commission range.
Decide if you’ll Offer Seller Financing:
When it comes to selling an independent business, offering to carry all or some of the sale in a note (aka loan) is a common practice. Small business financing can be very difficult to come by so providing this as an option can significantly increase your potential buyers. Be aware, that like any loan, this has risk. If the new owner doesn’t do well they could default on the loan and recouping your money might be very difficult. Talking to your accountant and figuring out your priorites is your first step. We originally listed our business with the option to carry a note but we did not end up feeling comfortable with any of the people that made an offer. We opted to lower our price for an all-cash offer to minimize our risk.
Ensure Confidentiality:
If you’re still operating your business as usual you’ll want to ensure that your broker uses discretion. The last thing you want is for your regulars and staff to know you’re planning to sell and jump ship. Anonymous listings are the norm and your broker should be having prospective buyer’s sign an NDA before they receive any information. While you want to provide information and pictures in your posting, make sure you are discreet as you don’t want to end up on the cover of your local newspaper or blog like Little Sparrow in Santa Ana, CA
Prepare Documentation:
Nobody is going to purchase your business for more than the value of your lease/equipment unless you can prove your sales. Get all of your POS, Bank Statements, Tax Returns, P&L Reports, Health Inspections, etc. together so you can quickly provide a serious buyer with pertinent information. You don’t want to lose a sale because you took too long trying to dig up the due diligence paperwork.
Wait:
Your restaurant wasn’t built in a day and you can be sure it won’t sell in one either. This is arguably the hardest step, but be patient and realistic. According to business brokers Morgan and Westfield, it takes an average of 7 months for a foodservice business to be sold. My sale took just over a year so I understand how agonizing this wait can be. As with any sale, you may want to price your business according to how long you’re willing to wait. If you need to be out quickly, lowering the price may be an easy solution.
Selling a business is a long difficult process, but on the other side you should have a compensatory pay out. I know from my sale that this is a process of many ups and downs. When our business finally did close even that was filled with mixed emotions. Now that the check is cashed and I have officially caught up on sleep the rewards of the process make the struggle worth it.
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