The most difficult process to go through is buying a business, and restaurants are one of the most complex business purchases due to the regulations such as liquor licenses, health inspections, taxing authorities, entertainment permits and complex loan processes. It is important that you get a broker who’s been through many restaurant deals in order to navigate through the landmines that will inevitably hit you.
Here are some of the typical questions and answers:
1. How much is the restaurant worth that I’m buying?
Generally speaking, value is in the eyes of the beholder. That being said, there are industry standards to follow to insure you’re paying the right price. The most critical item to calculate properly is what’s termed as “working owner cash flow” or “discretionary earnings. “ It is critical to get an expert to review the calculation before relying on the number. Tax returns should be the only resource used to calculate it. Once that is calculated, and then you generally multiply that number 2 to 3 times to determine the value. A good restaurant broker can help you with this.
2. How long does it take to close a deal?
Each state has different rules and regulation regarding the sale of a business. Generally plan on a 45 to 90 day closing process.
There are a number of factors effecting how fast a deal can close:
Lease Approval: The bigger the landlord, i.e. big national corporation, generally the longer it takes to get the landlord’s approval. This can be anywhere from 15 days to several months with the typical approval taking a month. If you’re getting a new lease, that could take two months.
Liquor License: some states require a posting be places on the business for a certain period of time before escrow can close. That could be 30 days or more. While other states there is no waiting period and at the close of escrow you march down and get a temporary license.
Bulk Sale States: there are still a few states hanging on to the old fashion concept of notifying the world that the business is for sale in the local news papers. This requires about 30 days from start to finish.
Loan: This is usually the longest lead-time item in doing a deal. An SBA loan could take 60 to 120 days, depending on how well prepared the buyer, seller and broker are. We’ve done complete restaurant deals in 45 days from open to close.
These are the major bottleneck items to closing your restaurant or bar deal.
3. What am I buying?
Generally you’re buying the furniture, fixture and equipment, leasehold improvements, leasehold, goodwill, consumable inventory, menu and recipes, customer lists, phone number, liquor license, if any, and if it is personal property in your state, and finally if it is a franchise, you’re buying the franchise rights without the menu and recipes.
4. Do I need a broker?
Although Selling Restaurants recommends you use a broker, our documents and processes have been made simple for buyers to follow since we’ve sold thousands of restaurants. We strongly suggest you use an attorney to review your rights and obligations as well as a CPA to review your tax consequences.
Remember, Selling Restaurants owes you a duty of fair and honest dealings.
5. Where do I start?
First sign the NDA on our website. You’ll find a red button titled “sign NDA.” Once that’s complete, the name and address of the listing will usually appear, but highly confidential listings you’ll need to call the agent.
Go to the business to observe it. Don’t talk to a soul about it being for sales. Respect the owner’s privacy please. If you like what you see, then call the broker and arrange a discussion with the owner. Be prepared with questions.
Then if you’re still satisfied, then call the broker and he or she can write the offer for you on our restaurant purchase agreements.
6. What does it cost to buy a restaurant?
Besides the purchase price, you have escrow fees ($500-$2,500), health inspection fees ($200-$2,000), entertainment permit fees, if any, lease assignment fees ($500-$2,000), city permits and licenses ($200-$500), liquor license transfer fees ($500-thousands), possible point of sales transfer fees (could be thousands), utility deposits (could be thousands) and petty cash at the day of closing.
Call us at 800.576.3615
We at Selling Restaurants feel obligated to educate the public, our customers & our clients with information that can help them make more intelligent buying & selling decisions.