Selling a small business is often one of the most significant transactions a business owner will partake in during their lifetime. If done correctly, the sale can give the business owner liquidity to explore other business opportunities. However, to sell a business successfully, a business owner has to navigate and avoid some common mistakes made during the selling process.
The selling process for restaurants, in particular, can be very time-consuming and challenging if you’re not prepared enough. This post will help provide you with some of the best tips you can use when selling your restaurant. The tips mentioned below will help you avoid some common pitfalls and ensure your selling process is profitable and seamless.
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Organize and compile all documents
Organizing and compiling all the documents in your business will help you gather paperwork and take inventory of all of the different assets you own. In other words, starting with organizing your documents will expedite all of the administrative and legal work needed to sell your restaurant.
The purpose of this is to remove any friction on the buyer’s end and be as professional as possible. Additionally, the buyer needs to see that you run an organized business and run smoothly without your presence. Some of the types of documents you need to compile before selling your restaurant include:
- Licenses: You must present all the federal and state licenses and permits your restaurant has. Make sure they are up to date and accurate for the buyer to look at.
- Copy of your lease: The location of your business is crucial to selling your restaurant. The buyer needs a copy of the lease, including when the lease expires and the requirements for renewal.
- Inspection records: Inspections are extremely important for restaurants. The new owner has to see that your restaurant has passed all health and safety inspection records. You should be able to present multiple years of inspection records.
Update financial records
Your financial records are a significant factor in determining the sale price of your restaurant or small business. Without up-to-date financial records, your buyers will not trust you. Therefore, you could end up selling your business for much less than it’s worth due to the lack of awareness of your financial transactions. You need to make sure your records are accurate and up-to-date, so both you and the buyer have the confidence to make the right exit decisions. Therefore, buyers will generally ask for several years of financial records, so it’s vital to have that available and ready to share. You can start updating your financial records now, by organizing your financial documents by year. After that, using accounting software will help you organize more categories. In addition, hiring an accountant to review your financials might be a wise step to take.
Get a valuation
A business valuation is the best way to get an accurate estimation of your business’ worth. This will help you negotiate with buyers and help you make a decision that results in you selling your restaurant at market price or even above market price.
With a business valuation, all of your assets will be considered. This includes the cost of equipment, location of your restaurant, customer loyalty, age of business, and more. Getting an accurate business valuation will prevent you from low offers. It will help you maximize your pool of buyers with your marketing strategy. Consequently, you can make informed exit decisions from your restaurant (or small business).
Consult with an exit coach
An exit coach is a professional experienced with selling restaurants. Therefore, they can help add significant profit to the sale of your business. Consulting with an exit coach will provide you the opportunity to discuss strategies and practices that can help you land the highest bidding buyer. In addition, your exit coach will give you 1 on 1 support through the entire process of selling your business.
This is an excellent alternative to a broker who can typically charge 8% to 12% of the sale of your restaurant, which can be tens of thousands of dollars if not hundreds of thousands of dollars. Instead, an exit coach will help you pocket your savings and avoid these large commissions and payments at each stage of selling your restaurant.
Create a marketing strategy
Above all, creating a marketing strategy for selling your restaurant is crucial to attracting the largest pool of buyers and creating demand for your restaurant. The marketing strategy you create should highlight your restaurant’s strengths and its unique features. Additionally, the strategy you use should focus primarily on the buyer’s benefits.
This can include competitive advantages, lifestyle benefits of ownership, and any other significant add-ons. Your marketing strategy should consist of both online and offline strategies to reach the desired buyer demographic of your restaurant.
Knowing the terms of your lease
Most of all, the buyers will want to see the terms of your lease and will have questions about the length of the lease and the renewal details. One of the key features that a buyer may be purchasing your business for is location. They need to know all the details of your lease and related contracts before they decide to buy your business. Therefore, you should consult with your landlord to see how new ownership may affect the lease.
List all important equipment
One of the highest value assets a restaurant has is its equipment. A new buyer must receive an inventory of exactly what equipment your restaurant has. The list should include stoves, ovens, furniture, and special equipment. For instance, you can create a list of essential equipment required to run the restaurant, when it was acquired, and its use. This list should include the item name, manufacturer, model, warranty, receipts, repair history, etc. This will provide the buyer with all the equipment information they need before purchasing your restaurant.
Some buyers will want access to your Point of Sale (POS) or credit card processing data to understand the details of your revenue. It’s meaningful to have this handy for the buyer to build trust. This data is very easily accessible with any POS system you are using. For example, you can manually enter a date period, then your POS system can print out all of your sales data.