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The Restaurant Sales Process

By in 2014 - Volume 16

The sales process is a delicate balance between the needs and requests of the buyer and seller. Added to that is the collaboration and cooperation related to financing and escrow; and the guidance, work, and expertise of the restaurant broker.

Please find below the steps in detail:

  1. The first step is the buyer makes an offer, and sends their initial deposit made payable to the escrow company. The uncashed check is held in broker’s office until escrow is opened. If escrow is not opened, the check is returned to the buyer.
  2. Once the offer is agreed upon between the buyer and seller, the buyer is sent the “landlord package” with information they must prepare to present to the landlord. This package includes a personal financial statement form and credit report application. It also asks the buyer to submit a resume of all the major principals for the transaction, a business plan, copy of his proposed menu, proposed physical changes to the premises and source and use of funds, etc.
  3. The buyer usually has ten days from signing to request any additional information from the seller, and to complete their physical inspections and review of the books of records.
  4. The restaurant broker contacts the landlord with the buyer’s information—financial statement, credit report, resume, etc.— requesting the landlord’s approval of them to either do an assignment of existing premises lease, a modification of the premises lease or negotiate a new lease. This process can take some time. It depends upon the availability of the landlord, and what additional things they request, etc.
  5. Once the landlord’s response looks promising (and if there is an ABC, Department of Alcoholic Beverage Control, license to be transferred), the necessary forms are sent to the seller for their signatures. The restaurant broker will also send the ABC forms to the buyer, and assist him in completing them.
  6. Once the landlord contingency and all other contingencies, such as financing, have been removed, escrow is opened. The restaurant broker will mail the escrow company the initial deposit check, and the buyer sends the escrow company his increased deposit. The total deposits usually are minimally the greater of ten percent of the sales price or ten thousand dollars.
  7. The escrow officer prepares the escrow documents, and mails/emails them to the buyer and seller, along with a demand for the escrow fees.
  8. If there is an ABC license to be transferred, we will have the buyer make his appointment with his ABC district office, which usually takes a few days. The restaurant broker will arrange with the seller to get his original forms to the buyer.
  9. Once the escrow documents and escrow fees are received by the escrow company, the bulk sale notification is published in the local newspaper.
  10. When the buyer goes to his ABC appointment, he is given an official notice that must be posted at the business for 30 days. The seller should prepare his employees for the change in ownership prior to posting the ABC notice. It is usually a good idea to have a meeting with the buyer and the employees at this time to introduce the buyer to the employees.
  11. Unless it is otherwise stipulated, the contract requires that “the seller shall continue to operate the business in the usual way, protect and preserve its assets and goodwill…maintain good relations with suppliers, customers and employees” through the close of escrow.
  12. During this time the buyer will order a “change of ownership” health department inspection, which is paid for by the buyer. The seller is responsible (unless otherwise stipulated) for whatever repairs are required to satisfy the health department.
  13. Twenty-one days after the ABC notice is posted, the escrow company will draw up escrow closing documents, and send them to the buyer and seller for their signatures.
  14. The buyer must now put the balance of his money, including any prorated expenses (rent, etc.) and security deposit, in escrow.
  15. The buyer will obtain their resale permit from the State Board of Equalization, file an Affidavit of Fictitious Business name with the county clerk and secure an Employer’s Tax Identification number from the State of California Employment Development Department.
  16. The buyer will set up his necessary insurance programs including liability insurance, workers compensation insurance and any other insurance policies required.
  17. The escrow company will send form 226 to ABC, informing them that all monies are in escrow.
  18. The ABC investigator will finish up his file, and turn it over to his supervisor who will review it, and if all is okay, send it to Sacramento headquarters. This usually takes about 10 days after the 30 day posting is up. There is no definite date and depends on the ABC’s work load.
  19. The buyer and seller need to arrange a meeting (usually the day/ night before the ABC license transfers) to do an inventory count—if it so stipulates in the contract. They also need to do a walk-through with the fixtures and equipment list to verify that all listed items are there, and in good working order.
  20. The buyer and seller must sign and date a copy of the salable inventory list (if applicable), and the fixtures and equipment list, which is then faxed or emailed to the restaurant broker’s office before the broker will authorize the escrow to close.
  21. Once the buyer takes possession it is suggested that he changes all the locks including safe combinations.
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About The Author
Steven Zimmerman, CBI, M&AMI, CBB, FIBBA

Steve is the Founder, Principal Broker and Chief Executive Officer of Restaurant Realty Company. Steve has personally sold/leased over 1,000 restaurant, bar and/or nightclub businesses and many related commercial buildings totaling 2+ million square feet of commercial space, collaborated with over 2,000 clients and completed over 3,000 valuations since 1996.His real estate experience also includes sales, acquisitions, management and ownership of numerous properties throughout California including restaurants, hotels, apartment buildings, single family houses, an office building and a multi-use retail building. Steve is also the author of Restaurant Dealmaker – An Insider’s Trade Secrets for Buying a Restaurant, Bar or Club available on Amazon. Prior to starting Restaurant Realty Company Steve had over 20 years of restaurant experience and was President and Chief Executive officer of Zim’s Restaurants, which was one of the largest privately owned restaurant chains in the San Francisco Bay Area. READ FULL BIO | HIRE EXPERT WITNESS - LEARN MORE