Selling your restaurant can be an emotionally and financially draining undertaking—but it doesn’t have to be this way. It’s all about forward planning, and making sure your house is in order. By Sue Nelson
There can be a range of reasons why you might make the decision to sell your restaurant, and it might be hard to assess, objectively, whether you’re likely to get what you feel the business is worth. Timing is everything—do your research, know your weaknesses, make sure your books are in order, and plan how to tell your staff. When it comes to selling up, snap decisions are usually financially unwise.
The most immediate priority when selling your restaurant is ensuring it is well presented. “The restaurant or cafe needs to look clean and with everything in good working order,” says Michael Fischer, former restaurateur, past president of R&CA and currently a consultant who brokers sales of restaurant businesses. “This includes making sure that garden beds, pathways, toilets, point-of-sale screens, storage cupboards, fridges, rubbish and recycling areas and office shelving are all tidy and well maintained.”
‘Curb appeal’ and a popular location with lots of foot traffic will definitely help sell your restaurant to potential diners, but are not necessarily key to enticing a new owner. A restaurant isn’t just what is physically visible—the bricks and mortar, the setting and interiors. It’s not even about the staff or the cuisine itself.
More often than not, the intangible aspects of the business will determine its marketability—things like good lease conditions and healthy financials. The selling process needs to start long before you actually go to market, so that you can ensure all these are in order.
“Your business needs to be clearly transparent financially, because the quality fixtures, fittings, plant and equipment is only window dressing,” says Fischer. “The important component, if you want to sell a product, is the profitability or return to an owner.”
For Ben Carroll, who sold his business with Fischer’s help, the timing was right—demand was high and stocks were low. “Over the six years that we were in Bondi, we saw the restaurant game continually changing and evolving for the better. Our cafe, Bondi Hardware, was showing strong revenue and very healthy books, and we saw the opportunity for a promising exit strategy so we could focus on other areas of our hospitality business.”
It is important to consider where you are in the restaurant’s life cycle. “Many mature businesses don’t change with the times and are therefore not contemporary,” says Fischer. “Most are owned by operators who have known for a long time that they will sell at some point in the future. They therefore don’t invest in new equipment and they become ‘old’ businesses without any curb appeal.”
Mature restaurant businesses can also be hindered by their past success, particularly if they have been owned by one person who is the fulcrum of the business. Take that person out of the equation and the business model may not be as attractive.
“What can happen, however, is that the business has operated from a good location—and it is the location that will attract potential purchasers,” says Fischer. “If that is the case, the goodwill factor will enhance the selling price.”
By contrast, if you’re selling a relatively new business, you have probably invested more than you’re currently making, and probably the business has not yet proved its viability. Fischer advises clients in this position to consider their options carefully. “Why would you sell a new business? Probably because it is not returning a financial reward for your effort.
“There comes a point in every discussion with a seller who wants a return on a large investment, when I need to provide a reality check,” he says. “But the choice may be to take a big hit now, or to continue to run the business and lose money.”
If it’s a business you’ve started from scratch, it can be difficult to take the emotion out of the equation. “There is always an emotional attachment you have with a business, particularly the relationships you have formed with your staff,” says Ben Carroll. “But you work these concerns up in your head to be far bigger issues than they are. At the end of the day, people understand it’s a business decision.”
Compile a checklist
Keeping your staff updated is a mark of your integrity as a business—and it’s better for them to hear it from you than from a prospective purchaser, or someone else. “Tell your staff exactly what is happening,” says Fischer. “They have become your most important resource and have your trust. If staff are important to you now, they become increasingly important to a purchaser of your business.”
Lease issues can make or break your restaurant sale. “Often there is no guarantee of tenure, especially in leases given by government bodies,” says Fischer. “Councils and state government don’t typically offer longer-term leases. If the business attempts to sell during that term, there is no certainty that the business owner will be granted a new lease.”
Consider whether overheads are embedded in or excluded from the lease. These might include council and water rates, land tax and strata fees. “In some instances, these are included in the overall lease and the purchaser therefore has a clear idea what the total occupancy cost is,” says Fischer. “But often these are segregated and are costs in addition to the rent.”
The asking price will depend on a range of variables, including the strength of the market. Buyers are often in a strong position because of the number of hospitality businesses on the market at any given time.
It’s important to have a clear-eyed view of your business’s strengths and weaknesses, and an idea of the recent sale prices of similar restaurants, well in advance of putting your business up for sale. If this seems like tricky terrain to navigate, it may be worth seeking advice from a broker who can help take the emotion out of the process.