Contact Restaurant Realty with
questions about buying or selling a restaurant.
Phone - Northern CA: 415-945-9701
Phone - Southern CA: 213-493-8855
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WE USE & ENDORSE
Initial Phone Call
You make an initial phone call to Restaurant
Realty Company inquiring about purchasing a restaurant, bar or
club and describing your criteria for purchase.
You will provide Restaurant Realty Company with
your personal background information including your financial
history. Restaurant Realty Company will in turn provide you with
information on various restaurants, bars and/or clubs that most
closely meet your criteria.
Restaurant Realty Company will set up an appointment for you to
tour the business and talk to the owner. At this time you may ask
the seller specific questions about the business. This
appointment is generally scheduled during non-business hours so
as not to interrupt or alert the employees or customers.
There are two basic methods for valuing a restaurant, bar or
club which are as follows:
- Assets In Place Method
This method means that only the lease, leasehold
improvements and fixtures and equipment are being sold. The name,
menu, concept and goodwill are not included as part of the sale.
With this method little or no emphasis is put on the financials
of the business and the major factors in determining the value
are the value of the lease, leasehold improvements and the
fixtures and equipment. There is no standard formula in
determining value using this method and valuation is somewhat
subjective based on the brokers knowledge of the marketplace and
comparable sales sold using this method.
- Going Concern Method
This method means that the lease, leasehold improvements, fixtures and equipment, name, menu, concept and
goodwill are all included as part of the sale. The primary
valuation method used for a going concern valuation is the yearly
adjusted cash flow method. This means that the net profit on the
tax return or on the year-to-date income and expense statement is
adjusted by adding back the following items to the net income:
one working owners salary and payroll taxes, any personal
expenses the owner is charging the business (food for consumption
at home, life, health and disability insurance premiums, auto
expense, entertainment and vacation expense, etc.), depreciation,
interest and amortization expense on any loans the buyer will not
be assuming, net operating loss carry forward charges and any
other expenses which are personal and will not be applicable to
the buyer. Once the yearly adjusted cash flow is determined a
multiple ranging from 1 1/2 to 3 is used to determine the value
of the business. The multiple to be used is determined by several
factors which include lease value (whether the lease is at
market, below market or above market), the potential upside of
the business (i.e. the current operation serves dinner only and
has only a beer and wine license and there is potential for a
strong lunch business and liquor sales), the quality and quantity
of the leasehold improvements and fixtures and equipment, whether
the operation is a franchise and whether the operation is a full
service or self-service operation. For example, if the yearly
adjusted cash flow of the business is $75,000 and the multiple to
be used is 2 1/2, the value of the business would be as follows:
$75,000 multiplied by 2 1/2 which equals $187,500 sales price.
Writing the Offer
With our assistance using Restaurant Realty
Company's Purchase Agreement, you will submit an offer with a
deposit to acquire the business. Your offer will be contingent
upon your physical inspection of the business, your inspection of
the financial records, the assignment of the premises lease or
negotiation of a new lease and any other necessary contingencies
(i.e. alcohol license transfer or other special licenses,
Restaurant Realty Company will present your offer to the seller.
We give the seller background information on you, your previous
experience, your perspective on how you arrived at your price,
terms and conditions, etc. We also present your financial
statement, credit report, resume and business plan.
The seller will either accept, reject or counter your offer.
Restaurant Realty Company will notify you of the seller's
response. At this point you may either accept, reject or counter
the seller's response.
When both parties agree to all of the terms and
conditions of the sale and sign all amendments and counteroffers,
the offer then becomes a purchase agreement signed both ways. At
this time there may be contingencies or conditions that still
need to be satisfied prior to closing.
Restaurant Realty Company encourages you to include your CPA
and/or your attorney in reviewing the transaction should you feel
the need to do so.
deposit check (made payable to the escrow company) is deposited
and this opens the escrow holding account. Restaurant Realty
Company will provide the escrow officer with copies of all
documents relating to the sale.
You will be given copies of the financial records of the business
for your review.
As your requirements are met existing
contingencies in the purchase agreement are removed. Once all
contingencies are removed the purchase agreement becomes a
binding agreement and the deposit is increased and the escrow is
The closing date or the close of escrow is the date when title to
the business and normally physical possession of the business is
transferred to the buyer. The closing papers are signed in the
title company's office or through the mail prior to the closing
Arrangements are made for you and the seller and/or inventory
service to take a physical inventory as it applies to the value
of the salable items (food, beverages, etc.) and non-salable
items (fixtures, equipment, etc.) usually one or two days prior
to the close of escrow.
All parties meet at the escrow office to sign the closing papers
or the closing papers are sent to the parties to be executed
prior to the close of escrow.
will generally be responsible for your own accountants and
attorney's fees, half of the escrow fees, security deposit for
the premises lease and sales tax on the value of the fixtures and
equipment that you allocate as part of the purchase price.