The restaurant industry is both gratifying and difficult to maneuver. If you have run a successful restaurant and are ready to retire, or simply have found that the restaurant industry is not for you, you might be wondering how to sell your restaurant. Whatever your reasons, selling a restaurant is a highly involved process. Use the steps below to learn how to sell your restaurant business in a way that pays you back and fairly values the business’ potential under new management.
To sell a restaurant, you need to understand the value of your restaurant, prepare the proper legal documents, and collaborate with real estate agents and attorneys. This is how most restaurant owners sell their restaurants:
Step 1: Decide What You’re Selling
It is important to understand what you are selling when going to market. For some, they are closing down the “brand” of the restaurant and just selling the physical space and equipment. This can be appealing to some buyers, as building a restaurant from scratch is expensive and time-consuming. If they have an idea or concept already, they can simply execute it using the space you already have built out.
On the other side of the selling coin is the possibility of selling your brand, IP, and the business you have built in its entirety. With this comes standard operating procedures, recipes, employee management systems, connections to sourcing, standing contracts, and everything else that allows your business to function. Be sure to know what you are selling and price it accordingly. A restaurant broker will discuss this with you and guide you on pricing based on what you are offering.
Step 2: Assess the Value of Your Restaurant
The next step to selling a restaurant is assessing how much your restaurant is actually worth. Your local Small Business Administration (SBA) may have someone on staff who can help you appraise a small or uncomplicated restaurant business. But it is best to retain both an experienced real estate agent and an accountant to help you here. In large markets, you’ll likely be able to find accountants and real estate agents who specialize in restaurant sales.
To get an accurate appraisal, you should provide your appraisers with:
- Current profit and loss (P&L) statement
- Statement of cash flow
- Balance sheet
These documents show appraisers the value of your business beyond just the real estate. It will operationally show how you manage your finances and what the new buyer can expect when entering into the business you are selling them. These important documents will also show your assets, cash on hand, and other financial standing information that will be relevant to prospective buyers.
If you regularly conduct restaurant financial audits, these documents will be easier to pull and summarize.
You will also want to look at how your business is performing as compared to the rest of the restaurant market in your area. Knowing the average earning multiples of restaurants in your area is a good way to be able to price out your business. The typical rule of thumb from a gross sales perspective is that you would sell your restaurant around 30% to 40% of your gross sales in a given year, so having your sales data is also relevant. The last bit of information you will gather to value your restaurant is the Seller’s Discretionary Earner’s Statement, which is how much the business makes after discretionary expenses.
Step 3: Finalize Any Maintenance Projects
Let us dive into the maintenance first. To sell your restaurant for the highest price, it should be clean, tidy, in good condition, and close to being able to run. This includes finishing up any outstanding maintenance on your restaurant or major equipment required for your restaurant to function. So, fixing the dishwasher that keeps leaking, replacing the busted temperature dials on stoves, and repairing the back door that may have a loose handle are items you want to get done before bringing your business to market.
The next step would be to make sure you clean your physical location. There is no doubt buyers will want to come and tour your restaurant—and first impressions matter. Also ensure that all personal belongings and equipment are removed. Disclose exactly what is being sold to the new buyer and what they will be walking into on day one of their ownership.
Step 4: Document Any Recipes & Other IP
If you are selling both the space and the brand of your restaurant, then you need to document your recipes and your intellectual property. Documenting your recipes can take place in recipe cards, recipe software, or any other way you track your directions to staff. You will also want to share any par sheets, prep sheets, and best practices so that the new owner can accomplish and deliver the same quality of food you had when operating.
Regarding other intellectual property, sharing your best practices for running the restaurant is vital. If you have a handbook, then this would be a great tool to hand over. Some points of note would be hiring philosophy, staff training and management, customer service best practices, and upper-level management goals. All of this information will allow the new operator to enter the business with some sense of how to maintain and expand upon what you have built.
Step 5: Consult & Work With Professionals
This next step can happen before this process begins, but before you start to sell, you should highly consider working with a professional in the matter of selling restaurants. This process involves a large value of money being transferred, as well as legal parameters and in-depth tax filing involvement that the average restaurant owner likely does not have. Consider working with the following:
A Restaurant Broker
While you will pay the restaurant broker or other professional you are working with a piece of what is sold, it will be worth it as you can often get the most out of your restaurant sale while also being in good legal and tax standing.
Having a broker in a restaurant sale is beneficial as they have an in-depth understanding of the current market and informed insight into where the market will be headed. This offers them the ability to value your restaurant with you at the right price while giving you realistic expectations on what you can expect in the final sale of the business. They can also share the backend legal information you will need to know and assist you in making the process as smooth as possible.
An Accountant
An experienced accountant is always recommended when running a restaurant, but if you don’t already have one on your payroll, their expertise will be valuable in the process of selling your restaurant. They keep your finances in line and keep you current on any debts or accounts you may owe.
An Attorney
An attorney can help you with legal filings and can make sure the sale is within the confines of the law. The worst spot to be in is not knowing how to navigate the legal side of selling your business, so having an attorney on hand if your broker is not also trained as one is highly encouraged.
Step 6: Sell to Buyers
When it’s time to start selling your restaurant to buyers, one note I would keep in mind is the general stigma that restaurants are hard businesses to be successful in. The reason many buyers look to buy existing restaurants is to curb the chances of failure they may have when starting out on their own. It is imperative to ensure the buyer that they are making a sound investment—this comes from how you present your processes, the financials of the restaurant, and how you got to the valuation you are asking for.
Below are some of the key actions you can take to make your business stand out and get noticed:
- Show a consistent track record of success. This includes hitting your operating cost targets consistently, reaching or surpassing sales goals, and showing total profit as a business over time.
- Have standardized methods and operating procedures for your staff and the way you run your business. This includes employee handbooks, training manuals, recipe guides, and other organizational tools you may use to ensure consistently good products throughout your restaurant.
- Paint a clear picture of your restaurant overall—its concept, the niche it fills, the promise it delivers, and why customers would consider coming back for more, even under new management.
- Detail how your restaurant performs in your location. Explain why it is suited in an area that will maintain success and profitability for years to come. If this is not apparent, then share why there is an opportunity for this growth under the right leadership.
- Repaint and refurbish the interior of the restaurant, if possible. Beyond the needed maintenance, invest some money and time in ensuring the restaurant is appealing and generally ready to be sold in good condition.
- Seek out buyers to refer back to your broker. Go to local chef events, food industry nights, and food industry business conferences.
- Allow financing if you are comfortable with this option. It may allow you to get a higher selling price and will allow more available customers to buy your restaurant.
Finally, when working with a professional broker and looking for buyers, be sure to understand if you will be making the sale confidential or not. News of a sale could dampen the image of the brand, and the right to business confidentiality should be had by both parties if requested. Your broker will be able to funnel out and choose the best candidates who can buy your restaurant, and a part of this process will be discretion. You should be able to share the best parts of your restaurant with potential buyers while also knowing that, outside of the sale, discretion is most likely warranted.
Step 7: Negotiate Terms & Close on the Final Sale
The final piece in selling your restaurant is negotiating the terms of the sale and coming to an agreement on your deal. I would be remiss to not mention that this is most likely an emotional time for any passionate restaurateur—after all, the dedication necessary for a business within the food industry is second to none. So, having a professional who can see clearly and be honest with you during the sale is one of the most valuable assets you can have during this time. Having someone supporting you in your sale will return the best outcome for you.
When you do decide to sell, ensure that all relevant data to help your case is on the table. For example, key statistics like consumer spending on restaurants outpacing other retail sectors over the last eight months would be relevant in convincing your buyer that this is a good buy. Since the end of the pandemic, the demand for restaurant sales has risen, and so has the demand to buy them—2024 is considered to be the “year of innovation” by many in the industry. Or, you can acknowledge the average price restaurants of your kind have sold for. Noting such information will be useful in negotiating the sale.
Having your restaurant finalized and ready for sale will lead to the smoothest sale, but it still takes time to actually make the sale. The average restaurant sale can take over half a year, so be patient but also confident in the business you are selling—this is the best practice for getting a higher payout overall. This, plus ensuring the restaurant you are selling, the brand you are handing over, and the employees you have employed are performing well, all lead to a business that is going to be hard to pass up. With the right amount of prep, the correct professionals assisting you, and the right buyer, selling your restaurant can be a smooth and enjoyable process.
Selling Your Restaurant to Employees
One alternative to selling your restaurant to a traditional buyer is to sell your restaurant to a group of employees. A decade ago, a collectively owned restaurant would have been a far-off concept in the restaurant industry, but it is becoming more common. The bottom line is that workers are looking for ways to better the industry they work in. With this cooperative-style ownership, decisions on healthcare benefits, higher pay, and PTO come into play, as they are relevant to all stakeholders in the business. For example, Jude’s in Rainier Beach is a fully employee-owned restaurant.
When selling to an employee collective, you would get an appraisal and sell your restaurant for its estimated worth, but you would then work with your professional broker, accountant, and attorney to structure the deal for your new employee stakeholders. Selling to an employee collective can be a speedier process since this is an audience that already believes in the restaurant. However, the major drawback is that it can sometimes result in a lower sale price. You could decide to offer financing, which may give employees a head start on the new venture and allow for a smooth transition out of the business for you.
And you don’t have to sell the whole business; you can keep a stake. The stakeholders would be select employees, with a board, bylaws, and other governing doctrines, where business decisions are made by the collective representation of labor in a restaurant. You can break up your ownership into fractional shares and take some of the stress off of yourself as the direct owner of the business. While this does not cut you clean from the business, it gives you some cash while letting your employees take over most ownership duties.
Frequently Asked Questions (FAQs)
Here are some of the most common questions I encounter about selling a restaurant.
Bottom Line
It takes a lot of work to make a restaurant profitable, sustainable, and consistently enjoyable. So, when it comes time to sell your restaurant, it can be a bittersweet moment. Whatever the reason for your sale, you should get your business as clean as you can, organize your sellable assets, and work with legal, accounting, and real estate experts to get the highest sale price.
