Restaurant Business Sale is part of Mission Peak Brokers’ How To Sell Your California Restaurant Series.
To help California restaurant owners transact sell their restaurant businesses, Mission Peak Brokers will be providing a How to Sell Your California Restaurant series of blog posts. We hope to provide restaurant sellers with information and insight on all the key elements involved in selling restaurants. Whether you are ready now or plan on selling in the future, arming yourself with essential information on the process of restaurant business sales will empower you throughout the business sale.
Restaurant Business Sale
Preparing A Restaurant for Sale
For a successful restaurant business sale, good preparation is essential. Preparing a restaurant for sale is a multi-step process. Doing a good job of it goes a long way in getting deals done. It is vital for the restaurant owner to properly organize their books and records to facilitate the sale. Proper organization of books and records before marketing the restaurant for sale has several positive effects.
First, it streamlines the restaurant business sale process. There will be numerous occurrences where the information needs to be referenced, such as during the listing period in preparing the listing and marketing of the restaurant for sale. Buyers will also request the information during the early phase of the transaction as part of the buyer’s due diligence. Second, having the business information organized and readily available makes a favorable impression on the buyer regarding the seller’s transparency and operational efficiency. Third, after the business sells, providing an organized set of business records to the new owner is essential in aiding their on-boarding process and minimizes disruption.
The restaurant broker will request numerous business records such as business entity information, lease, business license, insurance records, personnel information, copies of permits, online information, etc., for the restaurant business sale. Additionally, the restaurant broker will request the seller to sign off on disclosures regarding the restaurant. Moreover, the broker will work with the seller to organize a list itemizing the furniture, fixture and equipment that transfers with the restaurant.
Once financial and business records are organized, it is important for the seller to look at the business from a buyer’s point of view. Are there neglected chores such as cleaning and repairs? Does the owner need to do a bit of social media to improve the business’ online presence? If so, now is a good time to address these issues to improve the chances of sale. “No surprises” is a good mantra to assure a sale that closes.
The restaurant broker will use all of this restaurant business sale information to confidentially market the business by creating a business profile. The business profile will include photographs of the restaurant, key information, price, terms and areas for growth/improvement. This marketing materials will be used to advertise on business opportunity listing sites. The business name is never identified in advertising.
When buyers inquire about the restaurant for sale, the broker will require that they sign a confidentiality agreement, provide proof of funds and qualifications pursuant to the lenders’ and seller’s criteria. Thereafter, the vetted buyer will have the opportunity to interview the seller before writing an offer. Buyers will tour the public portion of the restaurant and the seller can choose whether to kitchen tours before or after the parties are in contract.
There are two ways businesses are sold either by Asset Purchase or Stock Sale. The vast majority of restaurants are sold by asset purchase agreements which essentially means that the buyer is buying only the assets of the business such as the physical and online assets along with personnel, goodwill, customer lists, etc. The buyer is not buying the selling entity such as a corporation, partnership or LLC and is, therefore, not inheriting the seller’s liabilities. In contrast, a Stock Sale transaction involves buying the selling business entity, i.e. corporation, along with the assets. so that the buyer is now also liable for the seller’s liabilities.
The restaurant broker will negotiate offers and counter-offers until the parties are in contract. The contract establishes the parties, sales price, agency and terms and conditions such as: Financing, time tables, contingencies of sale, leasing arrangement or real property sale, representations and warranties, legal consequences and several other aspects of the transaction. The buyer will make an earnest money deposit along with the offer and then add additional deposits at various stages of the transaction.
Restaurant Business Sale: Due Diligence
With a purchase agreement in place, now the buyer will conduct their due diligence of the business as part of the restaurant business sale. This stage of the contract permits the buyer to request all pertinent information regarding the restaurant and share the information with their professional advisors such their accountant, attorneys, etc. to verify the information. Restaurant brokers do not verify the seller’s claims so the obligation is on the buyer to verify and is well advised to hire experienced professionals to assist in the process.
If a seller and broker did a good job in their preparation for sale, due diligence items should be readily available and organized for the buyer. Again, it’s important to stress that the more organized the seller’s records, the better the impression on the buyer that the seller is trustworthy and transacting transparently. In addition to books and records, the buyer will request a complete tour of the facility and additional interviews with the seller regarding the due diligence information. The buyer will likely also schedule various inspections such as equipment, health and building (if buying the real estate).
Concurrent with due diligence, the buyer is also organizing financing and obtaining approval for their loan. The contract usually indicates the number of lenders that the buyer will pursue and the deadline for approval. The buyer completes an application with supporting documentation for an initial approval. Thereafter, the lender’s underwriters will demand more substantial documentation. Practically, it makes sense for the buyer to first focus on due diligence since if the buyer is unsatisfied with the restaurant’s financial performance, there’s no point in fulfilling the loan underwriter’s demands.
If seller financing is involved, the seller will perform their due diligence during this time period. The seller will seek to establish a buyer as credit worthy by examining their credit score, past financial records, etc.
If you would like a complimentary restaurant valuation contact us today.
If you are interested in selling your restaurant, Mission Peak Brokers can help. We are highly experienced and knowledgeable about restaurant business sales, including bars, cafes, nightclubs, etc. We have closed numerous eatery business sales in the Bay Area. We have represented sellers and buyers. In addition to business sales, we also provide commercial real estate sales and business/commercial financing. Contact us today for additional information.