Ten Steps to Successfully Selling Your Restaurant

Sell my restaurant? Are you joking? I thought this magazine was about starting and growing a restaurant business, not cashing out. Anyway, I'm too young to think about retiring.

No one is asking you to get out of the business as soon as you get into it; however, unless you started your restaurant simply to create a job for yourself and perhaps your family, your ultimate goal is to build an asset that you can turn around for a neat profit some time down the road.

Even if selling your business is something you won't even consider for years, it is never too early to prepare your business for the eventuality, at which time you get top dollar for your investment of money, sweat and time. If you are considering selling your restaurant in the short term -- perhaps you want to take advantage of the market, move onto another enterprise, or maybe it's just time to smell the roses -- we hope the following information hits on the key issues that will help ease you through the process without disappointment or a stomach ulcer.

Buying and selling a business is among the most complex transactions in which most of us will ever engage. You only become really savvy and confident through repetition. The first-timer (and very likely one-timer) has to be especially careful. Consider these 10 steps a checklist to help keep you focused. As noted, you will not be alone in this process, and you should be able to bank on your team of advisers and counselors to protect your financial and legal interests.

Step 1: Know Why You are Selling and Be Honest With the Buyer

Restaurant owners can save themselves a great deal of time, money and frustration by thinking about the sale of their business before deciding whether to sell. Why do you want to sell now? Know why you are selling the restaurant. What is your reason for exiting the business? Is this a planned sale of a good business and time to move on or cash out, or is this a necessary sale of a failing business and you want to stop the bleeding and salvage what you can? When considering a planned sale, your motivation may be to retire or move to another city. Maybe you are tired of the day-to-day business demands, you own the building and the real estate market has reached its peak and you want to take advantage of this, or some other personal reason. If you are selling to escape a failing business the reasons are pretty obvious. You no longer want to finance the losses and you want to preserve any value the business may hold.

. . . Investing in the right things in the sale to put your 'best foot forward' will ultimately produce the best result. Also, understand and expect that any 'skeletons in the closet' will come out.

Knowing clearly why you want to sell will help you with a number of decisions. It also prepares your answer for potential buyers when they ask the inevitable question, "Why are you selling the business?" They will be curious as to why you are selling and they may believe that uncovering that answer will influence the final selling price. While your reasons for selling are ultimately your own business, do not be dishonest about your intentions, such as telling a prospective buyer that you're selling so you can retire when, in reality, you need to get out because the business is hemorrhaging cash on a weekly basis. A savvy buyer and its team will look at the numbers and know the truth, and you will have lost both leverage and credibility with nothing to show for it. The less prepared you appear, the lower the final price will be. Conversely, the more confident and well prepared you are, the higher the final price may be.

It takes time to prepare for a successful sale and now is the time to get started down that path. Doing your own due diligence before you put the restaurant on the market for sale is what any potential buyer will certainly do as they investigate the purchase of the business. You will want to have everything in order so that you can answer any question or issue on his list. This list can include things like past or ongoing lawsuits, and specifics on financial and sales performance.

Step 2: Know What Results You Want

What are your goals for exiting the business? How much do you want, or how much do you need to get out of the business to make a sale worthwhile? What is the best way to meet those objectives? Be realistic with your expectations. Are you selling one restaurant, a local chain, or a number of restaurants? What level of income has the business provided for you and what will it take to replace that income? These are some of the questions you need to answer to complete the picture for yourself, any partners, and your family.

. . . A business plan provides the buyer with a point of beginning and a roadmap to the future. Be clear and concise. Do not embellish. Rather, be realistic and honest, with a bit of optimism.

Another point to consider is how much money you will actually put in your pocket at the close of the sale. You should realize that the "net proceeds" of the sale are typically much different from the "selling price." For example, if you are able to sell your restaurant for $1 million you may leave the table with only $750,000, with $250,000 (25 percent) going to cover the expenses incurred during the due diligence process, broker's fees, and other costs associated with the sale, such as final payroll expenses, payroll taxes due, sales taxes due, alcoholic beverage sales taxes due, final accounts payable and other vendor obligations.

It is imperative to know whether you can achieve your goal. To make this determination you will perform an analysis that calculates your expected sales price minus all anticipated associated costs, and then compare the result with your goal. It is always wise to be on the conservative side and factor in a slightly lower selling price and slightly higher associated costs to be safe at the end of the analysis.

Dallas restaurateur Jim Baron says that when considering what you want from the sale it is best to detach emotionally. Emotions can lead to nowhere but trouble for you and the sale of the restaurant. There could be a significant difference between what you think the business is worth and the fair market value. Do not confuse the two or you will set yourself up for disappointment. Look at the business from the point of view of the purchaser. How novel is the concept? Is it simple and replicable? Is there potential for growth? The true value of anything is what the market or a purchaser will pay for it. Attempt to understand the buyer's objectives and work toward meeting both his needs and yours.

Step 3: Get Your Business in the Best Shape Possible