I've brokered restaurants and bars for 13 years in California, Washington, Arizona and Florida through my brand SellingRestaurants and I've accumulated a list of the most common misconceptions about selling your restaurant or bar. Here they are:
1. Selling a restaurant and bar is like selling a house. All too often we're compared to real estate agents. Here is where and how we're different. Real estate agents have access a significant amount of market information in neighborhoods through the multiple listing services (MLS). This helps them value a home with vast amounts of comparables in a neighborhood, and the value of residential real estate is heavily reliant on comparables. Restaurant brokerage has no central depository where sales history is stored in order to perform analysis, so the broker must be well versed on valuing a restaurant business.
2. Valuing a restaurant and bar is like valuing a house. In fact even if there were a depository of restaurant sales, restaurant values aren't determined by neighborhood or locations per se; rather they're determined by multiples of income the business generates and the location is adjusted via the multiple used to determine the value or price. In other words, the price of a restaurant in an expensive neighborhood isn't determined so much be the location as it is by the income it generates.
3. Restaurant and bar brokerage commissions should be the same as selling a house. There are a number of factors causing restaurant brokerage fees to be higher than real estate agent fees and here is a list fo the top ones:
First, there is no MLS to leverage selling a restaurant. The broker must create their own marketing platform in order to sell a restaurant. This is a costly undertaking if done properly.
Second, the MLS generates an enormous amount of volume for a real estate agents allowing him or her to leverage their listings and allowing another agent to sell the home allowing for a lower commission rate or percentage. This doesn't exist in restaurant brokerage.
Third, while selling a home does take time, the real estate agent isn't dealing with state regulators such a a liquor board, sales taxing authority, health department, building department, landlords, franchisors, etc. which consume an enormous amount of time on the part of the restaurant broker.
Fourth, the average sales price of a home is much greater than the average sales price of a restaurant or bar, so the commission per transaction for a home is much greater.
Fifth, the risk and the litigation involved in brokering a restaurant is significantly higher than the risk involved in broker a home. There is no title insurance on a business to help protect a buyer. There is no guarantee the seller is being honest on the sales of a business whereas a buyer can have a home inspected and appraised to help insure they know exactly what they're buying. This causes a restaurant broker to have to increase their fees to offset this extra risk. E&O insurance in business brokerage is not affordable nor does it cover most of the cause of actions a buyer may have against a seller.
4. The skills required in selling a home are the same as selling a restaurant. The professional restaurant broker must have an education in finance or accounting in order to properly represent a business owner and properly value a restaurant or bar. Financial analysis skills are crucial to understanding financials that determine the value of a business. Furthermore, knowledge of many areas of state laws such as liquor license, taxing, health, leases, landlords, franchises is essential as well. Clearly a successful restaurant broker needs these added skills where a real estate agent does not.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attended Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.