IMPORTANT POINTS ABOUT SELLING A BUSINESS
Written By: By Mel Jones - President SellingRestaurants
Selling a business, particularly a restaurant, is a complex transaction that can't be appreciated until someone does it wrong and loses a deal because of it. So the first step is understanding all the important points. Here are the highlights of those points...
LIABILITY OF LEASE: Leases usually hold the Seller responsible for the rent payment should Buyer default. Look to the lease language to see whether this is the case. If so, determine the Buyer's credit worthiness by getting a personal financial statement, credit history and experience. There are protection mechanisms a good attorney can implement to protect the Seller.
SELLINGRESTAURANTS COMMISSION: SellingRestaurants does not negotiate our commission. Our rates are competitive and often lower than other brokers. We are experienced professional restaurant brokers who protect you and get top-dollar for your restaurant. No one is better qualified to sell your restaurant than SellingRestaurants. Talk to your agent about how SellingRestaurants financial expertise can often get a Seller 20 to 30% higher price than other brokers, more than covering our fees.
AGENCY RELATIONSHIP: SellingRestaurants' agents work for the Seller, not the Buyer. However, as an ethical brokerage firm, we have a duty to deal with Buyers in an honest and ethical manner. Our agents are hired with these high standards and are trained to uphold these high standards.
DEFERRED MAINTENANCE: First impressions are lasting impressions. Clean the restaurant. Clean the restrooms. Kill the bad odors. Fix broken equipment. Remove unused equipment and furniture. Perform maintenance on the HVAC, hood system and grease traps. All these points show the buyer the business is successful and well maintained. A Seller must hand-over a fully functioning restaurant. The Seller is responsible fixing all improperly operating equipment.
MEANING OF “AS IS:” Generally, “as is” is defined as a Buyer accepting business's defects which are fully disclosed to the Buyer. Full disclosure may not completely relieve Seller of liability. SellingRestaurants always recommends making repairs to business or property before selling to avoid litigation.
HEALTH DEPARTMENT: Each County has different change of ownership requirements. Check with the local agency to determine the requirements. But generally, the Seller is responsible for passing “a change of ownership health inspection” prior to closing escrow. Some inspection failures may require substantial investment and time on the part of the Seller. If the Seller can't afford to make the required changes, then the price should be adjusted accordingly. Keep in mind, this inspection is often more rigorous than a typical health Inspections. Talk to your agent about any significant violation(s) that could jeopardize a deal.
EQUIPMENT LEASES: The Seller must pay-off all equipment leases. In performing a business valuation, leased equipment costs (except for monthly rentals such as dishwashers and ice machines) is added-back to income to determine Seller Discretionary Income (SDI). This is done for two reasons: First, equipment leases are not usually transferable. Second, adding the cost of the lease equipment back to income increases the restaurant's sales price by 2 to 3 times annual lease expense.
LIQUOR LICENSE TRANSFER: Each state has different laws on the transfer of liquor licenses. In California all liquor licenses are transferrable. The transfer process can take 60+ days form the time of posting the liquor license "Notice of Transfer" and escrow CAN NOT close until the transfer is approved by the ABC. While in Arizona the transfer takes place after escorw closes and some licenses are transferrable and lienable while others are not. And in Washington, no license is transferrable and a temporary license can be issued to allow escrow to close. There is no hold for a liquor license.
CONFIDENTIAL VISIT BY THE BUYER: SellingRestaurants' business model is simple. We use technology to eliminate tire-kickers, allowing our agents to focus on the serious Buyers. The result is simple, SellingRestaurants sells more restaurants than anyone in the nation — there is not even a close second. Our website allows Buyers to sign an interactive on-line confidential agreement to gain immediate access to the name and location of the restaurant. As a result, the Buyer is not burden by today’s clumsy brokering process of faxes and phone calls, usually with no response from the Broker. The Buyer agrees to visit the restaurant as a customer. The Seller won’t know the Buyer visited the store. We don't guarantee confidentially, no broker can. Of course, SellingRestaurants offers an extreme confidential process if the Seller desires. Please let your agent know if you’d like this option.
QUALIFIED BUYERS: Before writing an offer, SellingRestaurants requires all Buyers be qualified and complete a “Buyer’s Profile” containing the Buyers work history, a personal financial statement, and credit check authorization, along with other critical information. Ask your agent for this information before accepting an offer.
CO-OPERATING WITH OTHER BROKERS: SellingRestaurants' policy is not to co-operate with other brokers outside the SellingRestaurants network. Our advertising strategy is so intense, if there is a Buyer in the market place, we find them! All too often, Buyers contact their broker "friend" to cut into our commission. We see this as a dishonest practice in an Industry where gross commission dollars amounts are small compared to the real estate Industry. SellingRestaurants' agents work hard selling and closing restaurant deals and deserve the full commission.
NEVER TALK ABOUT PRICE AND TERMS WITH A BUYER: SellingRestaurants whole business model is about trusting our clients. We believe people are honest, have integrity and will do the right thing. If the Seller meets a Buyer, do not talk about price or terms. More often than not, negotiating a deal without the Broker's involvement hurts the Seller’s negotiating position. If you find a Buyer wanting to talk price and terms, merely refer him to your agent. Don’t make the mistake of getting trapped and losing a potential deal and money!
SBA LOANS: Having an SBA approved restaurant can dramatically increase the chance of selling it for top dollar. To be SBA approved the restaurant must have solid tax returns showing profit for the past three years. In addition the Buyer must have restaurant experience, good credit history and collateral (but not necessarily), such as real estate, in order to secure the loan. Ask your agent if your restaurant qualifies for an SBA Loan.
CASH ON DELIVERY: All too often the vendors discover the restaurant is for sale either through the publication process or through the Alcohol license transfer. Eventually, the Seller should expect to be placed on cash-on-delivery terms with all vendors.
LENDING MONEY TO BUYERS: If a Seller decides to finance a buyer, the Seller must check the Buyer’s credit worthiness. SellingRestaurants' agents are not credit analysts who can interpret credit reports. SellingRestaurants will, however, supply a “Buyer Profile" to the Seller. Please ask your agent for a copy of the Buyer Profile before accepting an offer. SellingRestaurants takes no responsibility for the Seller’s decision to extend credit to a Buyer. It is risky, but in many cases it may be the best way to get top dollar for the restaurant. Consult an attorney and accountant before accepting an offer where the Seller is financing a portion of the purchase price. And consult an attorney to secure your position.
SellingRestaurants is a professional restaurant brokerage firm specializing in the sale and leasing of restaurant businesses for sale. We are the premier restaurant for sale company with locations in California, Arizona, Washington, Georgia. Contact me at 480.274.7000
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