Here are a list of major considerations you should include in deciding to sell your restaurant, bar and/or club:
1. When do I want to retire or change careers? It is more advantageous to sell your restaurant in a time frame that is planned out rather than having to sell quickly as your health is failing or the business is not doing well financially. Once a restaurant is listed for sale, if it is priced correctly, it takes an average of four to six months to sell. Frequently an owners business is in trouble financially or the owners health is failing and they have to sell quickly and consequently they have to sell the business for far less than they would normally realize. If you want to retire or change careers all of the items listed below should be addressed. If the answers to most of the questions listed in numbers 2 to 6 below are positive then it is probably the right time to sell and realize the maximum price for your business.
2. Do I have a reasonable premises lease? The premises lease is one of the most important aspects in determining the value of your business. Most buyers want a ten year lease that has a base term of at least five years with one five year option. The rent should be reasonable for the area with modest yearly increases and the there should be a formula for determining the rent in the option period that is fair to both the operator and landlord. If the lease is for less than ten years and the terms and conditions of the lease are unreasonable, the value of the business will be reduced dramatically. In some cases if the lease is unreasonable it will not be possible to sell the business.
3. What is the physical condition of the restaurant? The restaurant should be in good condition physically before it is put on the market. If you want to buy a car whether it is used or new you expect it to be in good condition, i.e. the interior is clean, the exterior is waxed, etc. Similarly in your restaurant all of the equipment should be in good working order, the floors, walls and ceilings should be clean and overall the restaurants appearance inside and outside should have good curb appeal.
4. What is the state of the economy? Past history has proven that bad economic times are good times for buyers and bad times for sellers. During bad economic times a lot of restaurants are in trouble and prices of restaurants are dramatically reduced and it is easier to sell restaurants as they are priced on the low side. Needless to say this is not a time when you want should sell your restaurant.
5. What is the desirability of the location? As most of you know this is one of the most important questions in analyzing the value of your business. If an area is strong, (areas with new economic development with new hotels, shopping centers or business parks), buyer demand is typically very strong in these areas. Conversely in areas where:
1) the zoning is changing do to neighborhood pressures and operating hours for businesses are being curtailed,
2) there is too much competition in the area, and
3) there are future negative things planned for the area (a major tenant in the area is vacating and won’t be replaced or a major construction project will be going on in the area that will last for several years which will detour the vehicular traffic from that location, etc.) all of these items will reduce the value of your business.
6. How is the restaurant doing financially? If a buyer is considering buying you business based largely on the financial condition of your business, they are expecting the business to be profitable. When I say profitable they want to pay between 1 1/2 to 3 times yearly net cash flow for the business and they want to feel that the future prospects for maintaining and increasing this profitability is strong.