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How to Sell Your Restaurant: Creating an Exit Strategy

How to Sell Your Restaurant: Creating an Exit Strategy

restaurant closed sign In the words of Kenny Rogers, “You gotta know when to hold em, know when to fold em” and those lyrics certainly ring true when a restaurant’s revenue falls short of keeping up with the bills. There are myriad reasons for a business to close its doors, from poor local economic conditions to increased rental terms or even death. For whichever reason, the best way to get out with the least amount of pain and strain is to stay organized and plan ahead. 

In fact, even if you’re not planning on closing shop anytime soon, it is still good practice to consider your business a marketable commodity and run it as such.

Keep your business firmly planted on sound financial basics.
Prove your business’s worth and develop a clean and organized bookkeeping system. Track your income, expenses and cash flow, and keep it all on a statement either you or a professional accounting firm prepares each month. A potential buyer will want to see proof that the business can make a profit, or conversely, they will want to see what ate up the profits. In both cases, proving a profit or a loss of revenue, is extremely helpful and part of a sound consideration when attracting a buyer for your restaurant. This will increase your chance of selling the business and can attract more interested parties.

Know your location’s value and terms.
If you have a mortgage on your restaurant’s location, make sure you know exactly how much you need to pay off of the existing loan. Next, research the current interest rates on business loans and then work with a realtor to assess a fair price that will either set you back to square one or make a profit. 

If you are on a lease, be sure to know the value of your lease terms to a potential buyer. If the remaining length of your lease is less than the state requirements for a business, consider how this will affect the overall value of your location. Speak with your property management company about setting new lease terms for the buyer and try to negotiate early termination on your leasing contract if you are able to fill the space quickly. Many landlords may be happy to not have a vacant space as they will only lose money if it is not filled by the end of your rental agreement.

Track the value and depreciation of your assets.
It’s hard to accept, but the state-of-the art walk-in cooler and convection oven you purchased a year ago is not likely to sell for the same price as you purchased it for. Just like cars, food service equipment depreciates with time and use. Although everything may be working in perfect order, it’s important to know its true value when reporting your business’s worth to a potential buyer. Keep all of your warranty and regular maintenance information organized and available for a prospective party to look over. This will increase the value of your used equipment. 

Keep up your curb appeal.
Realizing that you need to sell something you worked so hard to create is hard. It’s even harder to put more money into it, just to get rid of it. But, like all realtors and home design television shows will tell you, you have to get someone to stop the car and take notice that your business and real estate is for sale. The exterior design of your restaurant must look appealing or easy to fix up. Keep your exterior area clean and free of trash or debris. Make sure the paint is fresh and windows are clean. Stage the interior so interested parties can envision their own business in the space. Keep floors swept, equipment sparkling and scrub the bathrooms. 

Cooperate with corporate initiatives.
Know or learn about the legal structure of your restaurant. If your business is part of a restaurant franchise or corporation, consider selling your stake. Be sure to hire an attorney to walk you through this process. This option can be highly desirable to other entrepreneurs looking to get their feet wet, but it is important to know all the legal and financial details prior to making an agreement. If you are not considering selling your business now and own a food service business that is part of a corporation, hiring a legal consultant for exit strategy options is still a good idea to do now. Knowing what your options are if plans go south keeps you one step ahead of the panic button when times get tough. 

Selling it all: lock, stock and barrel. 
Do you have a high-quality menu, beautiful restaurant furniture and well-trained staff? Consider selling your business as an entire commodity, including personnel. For a prospective buyer, not having to develop a new menu, hire and train staff and purchase all new restaurant equipment and supplies can appeal as a very fine offer. In short, you are selling a career to someone. If this is a route you are willing or able to take, set up an operation that can be seen and proven as a well-oiled machine.

Creating an exit strategy maximizes your potential to walk away with your shirt. The biggest folly a restaurant owner can fall into when selling their business is to allow the pressure and panic to get to them. Remember this was a good idea and a sound investment to you when you started. Now it’s time to showcase the potential you saw in your business to someone else. It may also be beneficial to hire a restaurant consultant to assist in getting your business in shape for sale.