Selling a Restaurant
Updated: 22nd September 2016
There are many reasons an owner may choose to sell their business, from retirement to loss of passion to a need to cash in on the fruits of their labour. All are valid reasons and all contain one common thread: that it’s important to get the best possible value from the sale and walk away with the proceeds in the most tax efficient manner.
Steps to selling a business
Whatever reasons are behind your decision to sell your cafe, restaurant or takeaway, it’s important to define specific objectives. Price will be the major factor, but also consider your involvement in the organisation post-sale, as well as whether you wish to be paid a lump sum or would be happy with installments. Not only will specifying your goals help ensure that the deal suits you, but it will also help your advisor determine a tax-friendly framework that will keep your liability to a minimum.
Next it’s time to get your business looking its best. This includes the physical aspect of your business, so your premises should be looking as clean and well-cared for as ever, all your equipment should be in full working order, and even your online presence should be up-to-date and fully functional.
You will also need to spring clean the inner workings of your business. Food-based establishments tend to rely on many cash transactions, which can often lead to poor record-keeping. However, any prospective buyer will need to inspect your books to assess the profitability, so if you don’t have them already, it’s time to put together meticulous financial records.
Now is also a good time to check the small print on any leases you may have. If you own your kitchen equipment, you’re in luck, you can bundle it all in with the sale - an attractive proposition for a potential buyer. However, if you lease equipment then you may find that your terms are non-transferrable and that all equipment must be returned should you sell your business. If this is the case, it is worth trying to renegotiate, otherwise you will be selling an empty kitchen, and that’s far less appealing.
Once you’ve put together an attractive proposition, it’s time to find qualified buyers. You may have already had interest, or even an offer, but it’s always advantageous to explore your options on the open market. You may find another buyer will offer more money or terms better suited to your needs.
Serious bidders will then want to undertake a thorough due diligence process. They will want to explore every aspect of your business, which is a lengthy process, but one you prepared for by updating your finances, equipment, leases and certification. This may feel like you’re giving away trade secrets, but it’s an essential part of the sale process - the buyer is only trying to minimise their level of risk.
Following successful completion of the due diligence process, it’s time to negotiate a deal. As well as final price, this will include payment terms, and whether you will be asked to remain with the restaurant to help the new owner’s transition.
It’s crucial at this stage to ensure the deal matches your objectives stated at the beginning, and to work with your advisor to ensure you’re able to walk away with the best possible value. The final price tag isn’t everything, various tax implications can mean that there some ways of structuring a deal that can be advantageous to both buyer and seller.
Maximising the sale price
Of course, the most important part of commanding a high price for your cafe, restaurant or takeaway is to sell a valuable proposition.
There are a great deal of factors behind the value of an establishment to a buyer, including its location, whether kitchen equipment is owned or leased, its reputation and current marketing activities, as well as level of custom, turnover and profit levels.
It pays to sell a business at the right time. Companies are worth more in their ascendancy, when sales and profits show growth in recent history, but before they plateau. A new owner wants to feel assured that they will be able to see a return on their investment, something stagnant figures, or even sales on the decline won’t demonstrate. It is often better to sell when the business is at its most valuable, than when the owner feels like it’s time to walk away. For example, if you’re heading into retirement, don’t wait until your passion and drive has completely dissipated, your level of trade will suffer and that will be reflected in your selling price.
Your role within the business will also dictate its selling price. It’s not uncommon for restaurant owners to be very hands-on in the day-to-day running of their establishment. Sixty hour weeks are common. That lifestyle may suit you, but you’re asking a potential buyer to pay you money to walk into a high-stress, labour-intensive job.
Where this is the case, you can consider hiring and training an assistant or a manager to take on some of the work. This will be a more appealing prospect to a majority of buyers, although beware that their salary doesn’t affect your profits too much, as that too will lower the selling price.
Seeking expert assistance
Whether or not you’re one of the 60-hour-a-week owners, you’ll find that selling a business is a long and complicated process. One that, unless you have an extensive background, can be perplexing, stressful and laden with potential mistakes. This is where advisors come in handy.
A professional broker has the network of contacts and the marketing skills to find the biggest possible pool of potential buyers, a professional valuer will be able to give an independent, free of emotional attachment valuation of your business to ensure your expectations are realistic, and a trusted advisor can guide you through every stage of the process, as well as carry out much of the complex work on your behalf. Utilise an array of expertise for a smooth, profitable and tax-efficient sale.
No matter how far along the sale process you are, whether a sale is imminent or you’re merely assessing the viability, contact BTG Corporate Finance for specialist advice and a free consultation.
Martin has nearly 20 years’ corporate finance experience specialising in advising owner managed businesses. Martin has considerable experience advising on business sales as well as management buy-outs and acquisitions across a wide range of sectors and deal sizes.