Selling A Restaurant During A Pandemic
How do you sell a restaurant during a pandemic? The short answer is that it isn’t easy but there are restaurant sales happening across the U.S. Sales are performing best for those eateries that provide opportunities for entrepreneurs willing to adapt and thrive despite the pandemic.
Costar warns that 33% of California restaurants may not return after the pandemic is under control. Nonetheless, hospitality entrepreneurs have persisted by figuring out a variety of ways to adapt by adding take-out, offering delivery, focusing on retailing specialty products like sauces or mixes, etc.
Sales of commercial kitchens are doing well during the pandemic. Commercial kitchens provide culinary entrepreneurs the opportunity to focus on specialty products and/or prep-cooking for food trucks.
Additionally, restaurant assets are desirable as well. For those business that completely closed, they made their assets available. These assets provide eateries with the opportunity to improve, expand and build new dining rooms at a fraction of the cost of new furniture, fixtures and equipment.
For restaurateurs interested in selling during the pandemic, business brokers advise additional recommendations to increase the seller’s chances of a sale over and above the standard recommendations for a business sale. Moreover, it’s also important to stay abreast of the state regulations pertaining to hospitality sales during this pandemic. An excellent resource for on-going consultation is The California Restaurant Association.
As we posted previously, now is the time for sellers to be flexible regarding pricing when selling restaurants. The sooner the seller has to sell, the more flexible the seller must be. Develop a realistic target price and financing format for the buyer. This format should meet the requirements of the buyer to assure maximum safety for both the buyer and the seller throughout the financing term.
When selling restaurants, sellers must be as transparent as possible. They will need to provide a complete disclosure of their financial and business record. They should also provide the buyer with all pertinent information on how the pandemic has affected their business if at all.
Once the business listing is prepared for sale, the restaurant broker will identify, then screen potential buyers to verify financial strength and applicable business experience. This helps match fully qualified buyers with the restaurant for sale prior to disclosure of any confidential information.
Buyers will then make an offer on the restaurant and negotiate sales agreement terms and conditions. The restaurant broker will then prepare proper documentation for the transaction.
Escrow & Change of Possession
Each step of the selling restaurants transaction involves a variety of activity either handled by the buyer, seller, broker(s), lender, escrow agent or government entity. The process typically takes 6-9 months. The bulk sale procedure is completed to everyone’s satisfaction in order to properly close escrow and facilitate the change of possession from seller to buyer.
10 Tips To Sell A Restaurant During Coronavirus
- Price realistically. Don’t overprice your business. If you price it too high you will scare off buyers. While this is never a good idea during regular times, it’s especially undermining during a buyer’s market as we are in now. If it’s overpriced, buyers will not make you an offer. Moreover, the longer the business is on the market the greater the odds your employees, suppliers or customers will discover your intention to sell which could negatively impact your business.
- Prepare a through & complete restaurant listing package. Include the information that buyers need to see; i.e., leases and profit and loss statements. Buyers will lose enthusiasm if they have to wait for items to be produced.
- Address deferred maintenance before going on the market. When buyers see items that need fixing then they often wonder about the condition of things they can’t see. Given that we are in a buyer’s market, buyer’s are likely to be particularly choosy so presenting your business in the best light possible will work to your advantage.
- Prepare for due diligence. During a buyer’s market, you want to avoid ANY unreasonable delays. Organize all the documentation pertaining to your business so that when the request is made, you can provide a through, organized digest of all relevant documentation preferably digitally. Don’t diminish the buyer’s enthusiasm by delaying due diligence or playing hide-the-ball with their legitimate requests.
- Immediately qualify buyers. You need to know about their financial strength and business skills before you give out confidential information on your business or spend a lot of time with them. Avoid getting enthusiastic (or desperate) about a tire-kicker who is neither knowledgeable, skilled or financially capable of taking over your business.
- Assure all leases are transferable. Potential sales have blown up because lessors refuse to assign a lease. If your remaining lease term is short, negotiate a new lease prior to offering that business for sale.
- Secure a signed contract BEFORE providing access to your financial records. It is extremely important that the buyer have ample opportunity to examine all aspects of your business and all disclosures are made. These steps are to protect both buyers and sellers and avoid all lawsuits.
- MAKE SURE EVERY AGREEMENT IS IN WRITING. Assure that the contract is thoroughly completed, dated, initialed and signed by everyone.
- Require a reasonable deposit when you reach agreement with a buyer. Typically, 10-20% of the purchase price is a reasonable deposit amount. The amount is refundable to the buyer during due diligence but then becomes non-refundable after the buyer releases all contingencies. The deposit should be held by a neutral escrow holder.
- If you are financing the sale, assure correct procedures are followed to protect your note. These include filing of a UCC-1 statement with the State of California, suitable promissory notes, security agreements, etc.
Of course, Mission Peak Brokers is here to assist our restaurant buyers and sellers as well. We have been brokering restaurant businesses, real estate and loans for 14 years and are more than happy to help you in your restaurant sale.