If you’ve decided to sell-up, how do you maximise the value of your business? Well, there are a few expert tips you can follow, writes John Burfitt.
The success of those lifestyle TV renovations shows in recent years has presented a skewed perspective on what it takes to add value to a property.
It would seem that sprucing up the appearance with a couple of coats of paint splashed liberally across the walls, followed by some hastily added floorboards and new chain-store light fixtures, is all it takes to add significant value to a property when it comes to the final sale.
If only things were as easy as they appear on TV when it comes to adding real value to a restaurant business, chorus a range of industry experts. While appearance and presentation are always important factors, the true value of a restaurant is determined more by the facts and figures stated on the ledger sheet at the close of every day’s business.
It’s not the dollars spent on designer lighting and funky fittings to suit the decor tastes of the lines of customers waiting for a table, or even five-star (or hat) reviews in the gourmet eating pages of the dining press, that drive the worth of a restaurant.
According to Jonn Close of Close Encounters, the most important factor in correctly determining the value of a restaurant is usually found in the back office in the files of completed paperwork.
“People are always asking what their business is worth and, in the past, my response was always very simple,” Close says. “If it did five days, then it was worth 25 times the close revenue. If it did seven days, it was 15 times that.
“But that does not work any more, as the business market has changed and the buyers have become extremely savvy. What is all comes down to now is verification.”
Close claims the plant and equipment of a restaurant fit out is of little value when it comes to valuation. Even if an establishment has had a $3m overhaul, the chances of making that money back through a sale is minimal.
“It really is all about the revenue,” he continues. “The revenue is the goodwill, so that when the buyer takes over the business and runs it the same way, the revenue will be maintained.
“How that revenue can be verified on paper when it comes to placing a value on your place is the most important thing. Buyers are looking at the dollars in the bank, as that is the traction to purchase a business.
“My advice for maintaining a healthy value on your business is to keep the dollars in the business rather than in your own pocket, as that keeps the business looking healthy. Then, when you go to sell the business, the revenue is sound.”
Determining the value of a business is not just about highlighting a healthy revenue stream, says Michael Fischer of Feszt & Feszt consultants. Fischer claims it is essential to ensure the paperwork is in order, so that the future of the restaurant appears as secure to a prospective buyer as its
Making sure the liquor license is current, along with footpath dining permits and a long-term lease on the property, is just as important as a paper trail of recorded BAS forms, tax returns and profit and loss statements.
And having a written business plan outlining the systems in place with staff, internal operations and suppliers is another must.
“If you really want to add value to your restaurant, pay attention to the details, starting today,” Fischer says. “Everything has to look good, and that is everything on the surface as well as below the surface. The business must be profitable, with labour costs, costs of goods and rental deals all locked in. The KPI (Key Performance Indicators) must be in place.”
It is these very factors, however, that both Close and Fischer agree too many businesses only pay attention to when it comes to selling. Rather, they should be part of the ongoing maintenance of the value of the operation.
“If you want to extract maximum value from your business, ideally you should not respond with a knee jerk reaction at times when there is a downturn in the market,” Fischer says. “You should look at it as being part of the constant working on the value of the place, and this becomes a comprehensive project. In that case, when you are beginning to think about selling, everything will be in order and ready to move on.”
Jonn Close adds, “Take a step back and look at your place in terms of a buyer. The business is not worth what it owes you. It is worth what someone in the market tells you they will pay. So make sure you are being realistic and the business is spot on in every area.”
Being spotlessly clean and well presented is, according to veteran industry consultant Jozsi Feszt, critical when it comes to valuation. The old rule that you never get a second chance to create a first impression is never more important than when it concerns a place where people come to eat.
“The one thing a restaurant need to be all the time is absolutely spotless—from the front door on,” Fezst says. “Sometimes you look at a menu, and it looks like someone has wiped their nose on it—and they probably have.
“The toilets should be checked three times a day, and the waiters should be clean and not look as if they have just come in from carrying boxes out the back. And if you stick to the carpet as you walk across it, then you know this is a place that has not had any tender care. You wonder what kind of a value those owners place on their business.
“These things are so important in creating a reputation and make the difference between a professional restaurant and a half-cocked place that sells food. If you want to add value, take care of your reputation and be consistent—and always be consistent.”
Consistency is one of the golden rules stressed by the Michelin Star committee when rewarding restaurants with their honours. It is also the rule followed by Michael Ryan, the chef-owner of Range in Myrtleford in northern Victoria. The three-year-old business won the 2008 Country Restaurant of the Year in The Age’s Good Food Guide.
Range has been up for sale for a few months. Ryan believes it is the consistency of the restaurant over three years which is now the best selling point his business has.
“Consistency is crucial,” Ryan says. “And that can be really difficult with staffing and service, but you have to be of a high standard, ensure you have the right front of house people and a good head chef.
“You need all those things in place, particularly for the local clientele, who come back more often than the people who travel from the cities to dine here. The most important value you have to offer when you are trying to sell a restaurant is your core client base.”
When he made the decision to sell, Ryan said no major work was needed in preparation. Regular maintenance has been carried out on the property ever since it opened its doors.
“We kept it looking as it did when we opened, and we paid a lot of attention to taking care of everything along the way,” he says. “It is crucial you keep your restaurant looking clean and tidy, because if you leave it and then it needs serious renovations, you might find the restaurant simply can’t afford to do that—and that really hurts the value of a place.”
Jared Ingersoll’s Danks Street Depot opened in 2002, and the eatery has enjoyed continued—and strong—popularity ever since.
Ingersoll says he has no plans to sell any time soon, but did realise a few years ago that more effort was needed to maintain the reputation of the restaurant. He then instigated strategies to involve regular diners more closely with the restaurant. A number of produce dinners and special package events are now held throughout the year. Diners are invited into the restaurant to learn more about the food suppliers Danks Street works with, as well as the food it serves. In the process, the Danks Street database has increased tenfold.
“We have added value to the business by offering something different to our regular customers, so Danks Street is seen as more than just a place to eat,” Ingersoll says. “People know that for those events, they are coming here not just to eat, but to be involved and a part of the food process.
“Taking care of business at all levels means your business is much more valuable than [that of] someone who just comes in and hopes for the best. The ones who are involved know what the value of their actions means to business.”