After 24 years of running Hilltop Restaurant in L’Anse, Mich., the owners are preparing to sell their family enterprise. Penney Jaeger, with her husband, sister and brother-in-law, now have the task of finding a buyer. What she’s found: Getting out of the restaurant business can be as challenging as getting into it. To help, operators share the tactics they have found to successfully sell their concepts.
Know the answers
Mistakes proved a good teacher for Dan Simons, now a co-owner of Founding Farmers and Farmers Fishers Bakers restaurants in the Washington, D.C., area. Simons tried to sell his first restaurant in 2008. He strived for months to find a buyer but was unsuccessful, and ended in foreclosure.
“As I went through the process, I saw a lot of flaky buyers—people who did not have the financials, who couldn’t get funding, who didn’t know the questions to ask,” Simons recalls.
Now, he advises sellers to compose a list of the top questions a buyer will ask, and to be prepared with answers. For example, have a restaurant’s profit and loss statements printed in a handout or a PDF that can quickly be sent by email, he says. Have maintenance records handy, and know quarterly food and labor costs. A list of employees willing to stay also helps.
Another issue to address is what Simons calls “no ghosts.” A seller should be prepared to show potential buyers that the rent is current and that property, liquor and retail taxes are paid. Buyers want assurance that there are no liens against the business, licenses are not encumbered and there are no pending lawsuits. If there is a problem, address it upfront and be prepared to take the cost off the sale price, he says.
Staging for sale
Even if a restaurant is underperforming, owners can improve the chance of sale by managing the things they can control: cleanliness, equipment and a well-trained staff, says Ken Caldwell, VP of development for Your Pie, the Atlanta franchisor for 40 fast-casual pizza restaurants. Deep cleanings in the front and back of house, especially in trouble areas of the kitchen, are worth the time, Simons says. “If the hoods and hood vents aren’t clean, that’s a red flag,” he says. “A buyer will wonder if there are other underlying maintenance issues that have been deferred. Is there a big liability bucket of deferred maintenance costs? Spick and span really sends a message to potential buyers. It’s probably one of the biggest returns on investments.”
With a franchised concept, the parent company can often help a seller shore up the business before putting it on the market, says Michael Mabry, COO of Mooyah Burgers, Fries & Shakes. “I always suggest the owner get into that business and work it for three to six months before the sale to get it stabilized,” he says.
While a parent company may be able to help advertise a sale to its internal system, sometimes the best buyer may be someone who is not actively looking, Simons says. Come up with a list of the types of people who could buy it, he says, such as bigger concepts that may be willing to add to their portfolio.
Sellers may also get an appraisal to set a realistic expectation of what the business is worth, Simons says. “You may think it’s worth $5 million, but if a bank won’t approve it for that, no one is going to get a loan for it.”