Fourth Quarter 2008 Volume 10, Issue 4

CONVERTING PROBLEMS INTO OPPORTUNITIES - TAKING A TROUBLED BUSINESS AND TURNING IT INTO A SUCCESSFUL BUSINESS

In these challenging economic times we see a number of successful operators capitalizing on other operators problems and turning these problems into opportunities. There are a number of operators that are in trouble as they are losing money, have had their credit maxed out and are not capable of paying their bills.

There are a number of buyers that are interested in buying businesses that are in trouble and can be turned around and made profitable. Normally the buyers that focus on this type of business opportunity are experienced operators with a successful track record of operating profitable restaurant, bar and/or night club businesses. The major benefits these buyers seek in this type of turnaround situation are as follows:

1) Negotiating More Favorable Lease Terms With the Landlord
We see many situations where operators can no longer afford to pay their rent and/or have had a history of late rent payments and are susceptible to being evicted. Needless to say an operator has nothing to sell if he no longer has physical possession of the premises. These challenging economic times frequently provide the buyer of a troubled business the opportunity to renegotiate more favorable lease terms and conditions than the former operator as the landlord is more sensitive to the needs of the buyer to succeed and wants to assure himself that he’ll be paid timely without any hassles. Specifically the new operator can sometimes negotiate lower rents, some free rent and in some cases have the landlord make a financial contribution to the new buyer for remodeling. Also the landlord is motivated to work with the new buyer of a troubled business as he doesn’t want to incur attorney’s fees, loss of rent as well as to have to pay a leasing commission if the space goes dark.

2) Negotiating a Good Deal with the Seller
The buyer will in many cases be able to purchase the business more reasonably for well below the replacement cost. A seller in a troubled business is motivated to sell the business quickly and will frequently reduce the sales price far below the asking price which enables the buyer to get a very good deal. There have been situations where buyers pay very little cash and has the seller carry back the balance of the purchase price in the form of a seller carry back note paid over several years with no interest or at a very low interest rate. There are also situations where the seller would rather get an all cash price and not carry a seller carry back note in which case the seller will discount the price even further to get all cash. In some cases the seller will include at no extra cost to the buyer the alcohol inventory or other saleable inventory such as food, paper products or cleaning supplies to help sweeten the deal for the buyer. There have been some situations where there is little or no cash paid to the seller and the buyer merely assumes the sellers debt which may include the buyer assuming the sellers accounts payables and/or assuming the buyers equipment lease, etc. Also is some cases the business is sold in an AS IS condition which means the seller does not give any governmental clearances such as health department, building department or fire department clearances to the buyer in exchange for a discounted price.

If you are an experienced operator and are looking for an opportunity to turn a seller’s problem business into an opportunity for yourself please contact us as we have currently have many of these opportunities available.

 

Ken Vix of
An Affair To Remember

Ken has been a special person in my life as I worked with Ken for many years at Zim’s Restaurants, my family’s restaurant company. Ken, while attending UC Berkeley, was working part time as a bartender in a restaurant and bar we owned called Bayfair House of Pancakes in San Leandro. From here he went through an accelerated management training program and worked in unit management at six different Zim’s. He then became an Area Supervisor responsible for overseeing ten different Zim’s from 1966 through 1973 and in 1973 he was promoted to Vice President of Operations. I worked side by side with Ken in designing and opening up several new units, doing research and development of new menu items, negotiating union contracts and developing and implementing various operating systems. Ken was one of my mentors when it came to handling people as he is a super people person and has strong compassion in training and motivating people.

After nearly twenty years at Zim’s Ken felt he had enough of the corporate world and turned entrepreneur and bought Arthur’s Cocktail Lounge in Greenbrae and in 1979 opened a catering business called An Affair to Remember which has turned into one of the most successful catering businesses in Marin. Ken says that his mentor in business was my father, Art Zimmerman, the founder of Zim’s, who taught him to never stop growing the business, never stop learning and always be creative. Ken has a very strong work ethic and was always committed to maintaining high standards in quality, treating employees fairly and providing a strong price value to the customer. I want to thank Ken for sharing his extensive knowledge with me and giving Restaurant Realty the opportunity of selling his business. We wish Ken the best in retirement.