Selling your restaurant can be wrought with emotion, but solid preparation and simple practicalities can ease the burden, writes Julie Miller.
After 18 years building a reputation and establishing The Cellar Restaurant as an icon in the Hunter Valley, Janet and Andy Wright—like many owner-operators—found the decision of putting their business on the market extremely emotional.
“We were offered another opportunity to open a restaurant and café at the new Brokenwood Wines complex, so we felt the time was right to move on,” Janet explains.
“It was an emotional decision but we knew our next role would be our final as we are both in our 50s. That made it easier, but it was still a very stressful time.”
According to Janet, establishing a team who could run The Cellar independently was a major factor in driving both its sale and a smooth transition between owners—particularly when the businesses overlapped.
“We hadn’t sold The Cellar by the time the new restaurant opened, so we ended up taking on a full new team to run The Wood (at Brokenwood). Knowing The Cellar could run whether we were there or not certainly helped, particularly since both potential buyers wanted to be able to walk in with an established team in place.”
Assisting the Wrights in the sale of their business was broker Michael Fischer, of Michael Fischer & Associates.
A former restaurant owner and R&CA President, Fischer believes
that the hardest decision a restaurant or cafe owner will make is —“am
“If the answer is yes, then you have to go along with a really clear mind and objective,” Fischer says. And that, he emphasises, means being realistic about the asking price.
“All restaurateurs want a lot more than what their business is actually worth—or what someone would be prepared to offer,” he says. “I like to look at a business when I’m appraising it as though there was an owner/operator within the business controlling what goes on. It’s easier for me to appraise what that business could return to another owner-operator.”
There are several factors, Fischer says, that drive the value of a restaurant, including reputation, location, condition and age of assets, the state of the economy and a track record of earnings. It’s the latter, he says, that is most often skirted around, with an industry-wide tendency to avoid full disclosure.
“All restaurateurs want a lot more than what their business is actually worth—or what someone is prepared to offer.”
Michael Fischer, Michael Fischer & Associates
“I have an appreciation that everybody, to succeed, lies a little bit, and it’s up to me to interpret that,” he says. “The KPIs (key performance indicators) that are relatively easy to measure up by industry standards are cost of goods, cost of labour and cost of occupancy.
“If cash has been taken out to pay staff, the total sales that I’ve been given won’t be a real figure. I can work it all out, how much is being paid on the books—it’s not a difficult assignment with experience behind me.”
The challenges of reputation
The assumption that a restaurant’s reputation will boost market value is also misunderstood, Fischer says—particularly if its success is tied to a figurehead, as potential buyers can be intimidated by that reputation, thereby impacting the business model.
Established businesses may also make the mistake of resting on their laurels, and not stay contemporary.
“I had my own restaurant for more than 30 years,” Fischer says. “There were a number of operators like me who had successful businesses, and were of the firm belief that our businesses would pay for our superannuation.
“But we didn’t invest in making sure our businesses were contemporary, we didn’t invest in new equipment and maintenance. So when it came to selling, that depreciated the bottom line of price of the business.”
Regardless of how successful a café or restaurant is, one major factor that may impact on the sale price is the rental agreement.
“In some instances, the rents from the landlords and the leases that people enter into are so onerous that even a good operator would be frightened to take on that responsibility,” Fischer says.
“To sell a restaurant is a two-pronged negotiation—between the vendor of the business and a prospective purchaser; and between the purchaser and the landlord. I have lost a number of restaurants where vendors and purchasers have agreed on a selling price but the landlord has rejected the purchaser and won’t issue a lease.”
Maximising your chances
For those considering putting their restaurant on the market, Fischer’s main advice, as a broker, is to “get your house in order”.
“Don’t make the decision to go to market and then have to try to rectify it. It’s worthwhile to employ someone with a different set of eyes to be honest and truthful, to tell you things you may not necessarily want to hear about your business.”
The seller’s checklist
Here is Michael Fischer’s checklist when preparing for sale:
- Have one to two years of real trading accounts, with no cash coming out of the business into your own pocket.
- Pay staff properly,
- Speak to your accountant on how to structure your return.
- Make sure the restaurant is clean and tidy, and that everything is working.
- Make sure your social media is up to scratch—if you have negative comment after negative comment, it will drive away prospective buyers