The classifieds are littered with food businesses selling at a price that simply covers equipment costs. But plan properly for the sale of your cafe or restaurant and you should realise a tidy profit. An important part of running a business is knowing when it is time to sell and what needs to be in place once that time arrives. Here, the experts give us their top five tips to a successful restaurant sale. Chris Sheedy reports
1 Know your way out
If you have just decided to sell your restaurant six months from now then you are too late, says lawyer Peter Panagiotopoulos, whose business PNA Legal cafelawyers® specialises in the food service industry.
“The biggest mistake people make is with the timing,” Panagiotopoulos says. “You have to bake an exit strategy into your business before you even sign a lease. The thought that you can just turn your mind to selling a business and get it done quickly is wrong. Food service businesses live and die by their lease.”
At start-up, the owner makes an investment that must be followed by a period of growth during which an income is drawn. Owners need to remember a potential buyer will also require time to capitalise on their purchase. If the lease does not guarantee a buyer the time to achieve their financial goals, the purchase will not be attractive.
“It is a numbers game,” says Panagiotopoulos. “Finding the right balance between the occupation cost, the length of the lease and the multiple of the annual profit that the operator wants by way of capital return is vital.”
2 Give your business a point of difference
Howard Tinker, chief executive officer of marketing firm Restaurant Profits, says one restaurant has introduced ‘Battle of the Wineries’ dinners. On these evenings they bring in representatives from two wineries who match wines to specific meals. Diners are introduced to, and taught about, several types of wines. In a fun twist, they score each wine so at the end of the night there is a winner.
“If you do unique things with your business then when a buyer comes along they cannot compare apples with apples,” Tinker says. “If you can say that every month you run unique events then it is difficult for them to simply see the business as a commodity. The other five restaurants on the market might not have much that differentiates them. So, making your own business unique before a planned sale is a very good thing to do.”
3 Get your database in order
A database of customers is a very powerful profit driver. Businesses that utilise their database in the most advanced fashion always record the revenues from specific database-driven events in order to measure success.
“During a sale, one of the things you want is to prove future earnings,” Tinker says. “So, if you run a birthday club throughout the year and you can prove, looking back over two or three years, how much money is produced from that database for that promotion, you can fairly accurately predict into the future how much it is going to produce.”
If you haven’t put such a system in place, it is a very good idea to do so now, then direct your effort towards maximising the profits that come from your database promotions. This should all be part of the planning process for a sale.
“When you have recorded the profits that came from each of the database-driven events, it is a convincing enticement for buyers,” Tinker says.
And while some buyers, particularly those new to the restaurant game, will not immediately appreciate the value of a strong customer database, none will be unimpressed by the dollar figures it is capable of producing.
4 Groom your books
“Businesses are traded on an earnings multiple,” Panagiotopoulos says. “Restaurant sellers need to be able to substantiate profits. Ideally you would want to show a clean set of books so the broker and the buyer do not have to dig too hard to find the profit.”
This process, Panagiotopoulos says, is also valuable as it familiarises you—the owner—with your own business’s figures and key documents. Often a restaurant owner will be so bogged down in the running of the restaurant that the figures become hazy. But an owner that is clear about their figures, and who understands the business intimately, is also an owner more likely to achieve a successful sale.
“Businesses are sold twice—first to the broker and then to the buyer,” Panagiotopoulos says. “Brokers have your restaurant and a hundred others to sell. They are drawn to sellers that know the profit and can substantiate it, because it makes their job so much easier.”
On the flipside, a business owner who does not know their figures can make it more difficult for a broker to get a sale across the line.
5 Familiarise yourself with the market via a broker
Speaking of brokers, don’t try to sell your restaurant without one, Panagiotopoulos says. Just as you would with real estate agents before the sale of a house, meet with several brokers, find one you like and trust, and utilise their knowledge and that of other experts to familiarise yourself with market conditions.
“Talk to brokers and shop around,” he says. “Inform yourself about the sale process and the expected time frame. Broker commissions can hover around the seven per cent mark but there are exceptions. For example, if someone is trying to off-load an underperforming business for $50,000, no broker is going to do it for $3500.
“Inform yourself around what the current and local market is paying in terms of multiples. Then work out where your business sits and try to pull some levers and adjust things to go for the price you need.
“You need a good broker. They are worth every cent, especially if a business is not as profitable or as great as the owner might believe. You need somebody to find a buyer and get them across the line.”