The lending environment is booming. Banks are lending and restaurants are selling as a result.
This translates into a great leveraging opportunities under the right circumstances.
With $30,000 down plus closing costs, a restaurant earning more than $100,000 a year can be bought.
Here is how:
1. Find a restaurant priced in the $250,000 to $350,000 range.
2. Typically such a restaurant should have annual cash flow in the $100,000 to $150,000 range with cash flow multiples in the 2.0 to 3 range.
3. The restaurant must have good tax returns. A broker should calculate the adjusted cash flow for you.
4. Find a restaurant where the owner carries at least 10% of the purchase price. Many owners will do this.
5. Settle on a price in the $300,000 range with an owner.
6. You must have good credit, at least 5 years of restaurant management experience and able to prove you have the money in a bank account for the past three months.
7. If you have all the above criteria, here's how the math works out:
A. $300,000 Purchase Price. Owner Cash Flow $125,000 with a multiple of 2.4 times.
B. $30,000 Seller Carry 5% for 2 years* (* the bank my require Seller not to be paid for a two+ year window. This is called a standby agreement.)
C. $30,000 Buyer Down Payment
D. $240,000 SBA Bank Loan
i. $31,260 SBA Annual Payments - Interest Rate 5.5% amortized over 10 years.
ii. $15,792 Annual Payment Seller Carry for 2 years.
iii. $77,948 Year 1-2 Owner Take Home.
iv. $93,740 Years 3-10 Take Home.
The buyer of this restaurant earns more than 3 times the investment after the seller is paid off. Yes, it is a great way to buy a restaurant!
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.