how to sell my restaurant

How To Sell My Restaurant In 21 Stages

“How to sell my restaurant?” We’ve been asked this questions hundreds of times, and particularly now given the impact that COVID-19 has had on California’s restaurant industry.

Despite the pandemic, restaurant sales have continued and quick-service restaurants, such as pizza and deli, have fared quite well. As the economy begins to rebound, so too will restaurant business sales. In fact, the National Restaurant Association anticipates a 10.2% jump in 2021 sales at U.S. eating and drinking places for a total of $548.3 billion as diners satisfy pent-up demand for restaurant experiences denied during the pandemic.

With greater dining activity, we anticipate a new golden age of restaurant sales as transactions pick up and more opportunities become available for restaurant entrepreneurs. With plentiful funding and pent-up demand from restaurant entrepreneurs, we anticipate eatery sales to become brisk. Consequently, this is a good time to understand the typical stages involved in a restaurant sale whether you are a restaurant buyer or seller to prepare for your sale or acquisition.

The restaurant sales process is a balance between the needs and wants of  both the buyer and seller along with the collaboration of all involved professionals such business brokers, accountants, escrow, lawyers, various government agencies, etc.. Whether you are buying or selling, apprize yourself of the following stages to increase your odds of a successful transaction.

how to sell my restaurant

Checklist For How To Sell My Restaurant

For your successful restaurant sale, the following steps provide insight into the typical restaurant selling process and how to sell my restaurant successfully. 

  1. The buyer makes an offer to the restaurant seller. The Purchase Offer generally includes the Furniture, Fixture & Equipment list (FF&E), seller’s disclosures, buyer’s disclosures and earnest money deposit made payable to the escrow company. The uncashed check is either held with escrow or at the broker’s office until escrow is opened. The check is returned to the buyer if escrow is not opened.
  2. Once the buyer and seller enter into contract, the first stage of the contract is known as “due diligence” which primarily involves the buyer requesting financial, operational and business information from the seller as well as conducting a physical inspection. If seller financing involved, the seller will request financial information from the buyer to deem creditworthiness and possibly additional background information. Once the parties complete due diligence, they will remove their contingencies for sale based on financial/business performance.
  3. Concurrent with due diligence, the buyer applies for financing. Upon approval, the buyer then removes the financing contingency under the contract.
  4. With due diligence completed and loan approval, the parties formally enter into a business escrow. The buyer will make an additional deposit. The escrow officer will have the parties each sign escrow instructions which dictate exactly what the escrow officer will do to properly complete the restaurant sale and transfer to the buyer.
  5. The final contingency is securing the landlord’s approval of the buyer as the new tenant where there’s a lease assignment. If there is a new lease, the buyer’s restaurant broker contacts the landlord with the buyer’s information—financial statement, credit report, resume, etc. to request a new lease. Less often, the sales transaction may also include the sale of  the real estate.
  6. The escrow officer prepares the escrow documents, and mails/emails them to the buyer and seller, along with a demand for the escrow fees.
  7. Once the escrow documents and escrow fees are received by the escrow company, the bulk sale notification is published in the local newspaper for 6 weeks.
  8. If there is an alcohol license to be transferred, the restaurant broker will obtain the necessary forms from the seller to provide to the buyer. The buyer will then apply to the state agency to commence the license transfer process.
  9. With a liquor license transfer, there is a required notice period of 30 days that must be visibly posted outside the restaurant.  Due to the public visibility of the liquor license transfer posting, the seller must notify the employees about the restaurant sale. It is a good practice for the seller to include the buyer in the announcement to introduce the buyer to the staff.
  10. While awaiting the notice periods to conclude, the buyer will request a health inspection of the restaurant.  While the buyer pays for the inspection, the seller is responsible for paying for repairs unless the purchase contract says otherwise.
  11. The buyer will create their business entity to receive the business assets.
  12. The buyer will also complete a number of additional business formalities such as obtaining their reseller permit, a fictitious business name with the county clerk, employer’s tax identification number and register their employer status with the state employment department.
  13. Near the end of the bulk sale and alcohol license transfer notice periods, the escrow officer will draft closing documents, and send them to the buyer and seller for their signatures.
  14. The buyer must now put the balance of his money, including any prorated expenses (rent, etc.) and security deposit, in escrow. The seller’s security deposit on the lease is reimbursed to the seller from escrow.
  15. The buyer will set up his necessary insurance programs including liability insurance, workers compensation insurance and any other insurance policies required.
  16. Right before close of escrow, the buyer and seller will meet to do an inventory count. They parties will also do a final walk-through of the establishment to assure that everything is in working order and verify all items on the FF&E. 
  17. Once the parties verify the FF&E and that all equipment is in working order, the parties will sign the FF&E list, and the broker will then authorize the escrow to close.
  18. Once all tax and lien clearances are completed and licenses are transferred, the parties will proceed to close escrow by scheduling their respective document signing of escrow documents to transfer the business. 
  19. Additionally, the buyer will sign their financing documents per lender instructions.
  20. After the close of escrow, the parties proceed with the Change of Possession process.  The parties will determine all utilities, services, online assets, etc. that must transfer and proceed with making the transfers occur together.
  21. After the Change of Possession, the final stage of the business transfer process is for the seller to train the buyer.  Typically this period will last 2 weeks unless otherwise contracted. 

Hopefully the restaurant selling process distilled into 21 stages was helpful to your understanding of how to transact California eateries. Learn more about how to sell a restaurant during a pandemic. Interested in finding out more about how to value your restaurant?

If you would like to speak with one of our Restaurant Brokers regarding how to sell my restaurant, contact our office. We would love to help you in your business transaction.

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