Factors to Consider in Selling a Restaurant
Selling a restaurant is a serious undertaking. As a hardworking owner/operator, the decision to sell your business is your opportunity to cash in on all of the time, money, effort and improvements you’ve put into the restaurant over the years. Selling a restaurant is your final payday for that location, so make it count!
Long-term planning is key to any successful business sale. The more you prepare, the more successful the outcome is likely to be. While every transfer of business is unique, owner/operators should consider these items in planning for a sale:
- Review your P&L Opportunity Report. There is no better way to increase the selling price of your restaurant than to run an optimal P&L. If you can better manage the restaurant costs, you will add to the restaurant’s cash flow. A prospective buyer is going to purchase your restaurant based on the future cash flows of the restaurant. The higher the cash flow, the higher the selling price. You should also get the cost controls in place and have P&L reports that support this position for at least one to two years. Taking these steps will give you a better opportunity to realize a higher selling price.
- How many years do you have remaining on your franchise term? If it is less than 10 years, a corporation may give the prospective buyer a new 20-year franchise term. If it is more than 10 years, the prospective buyer usually takes over your remaining franchise term. A term of 20 years would typically offer more security to the prospective buyer than a term of closer to 10 years and could result in a higher selling price. So time your sale accordingly.
- Money is cheap right now and the brand is strong. You should have no shortage of prospective buyers. There is also a long list of banks that make loans to franchisees at near record-low interest rates. So when you combine the low cost of borrowing money, the availability of banks willing to make loans, and the number of strong operators looking for growth opportunities, you have the recipe for maximizing your selling price.
In our next newsletter, learn about considerations for making a “quick sale,” when your planning horizon is limited.
If you have questions about any of these suggestions or would like additional information, contact Bruce Berry, Director. Bruce works closely with franchise restaurant owner/operators.