Restaurant for sale – How to prepare for the sale of your restaurant or bar business?
With the Covid-19 pandemic, the restaurant sector has been particularly hard hit since March 2020, leading to a surge in sales of restaurant, bar and café businesses. Selling a business always has major consequences for the seller, who must take the time to think carefully before committing to the sale, anticipating the operations to be carried out (investments, staff, purchases, profitability to be improved…) and knowing which elements of the business are to be valued. We’ll show you how to sell your restaurant, bar or café at the best price, more quickly and under the best conditions.
Elements that enhance the restaurant’s marketability
The first element to highlight when valuing a business is its profitability. Restaurant sales do not always reflect the real value of the business. For equivalent sales figures, a restaurant with higher gross operating profit (EBITDA) or net income will sell better, and its owner will be able to expect a higher sale price than the owner of a less profitable or unprofitable business. Profitability determines the borrowing capacity, and therefore the purchase price, of the buyer and the banks that support him. And for equivalent profitability, the buyer will often prefer a business where the equipment, furniture and fixtures have been maintained and renewed.
Characteristics of a commercial lease
An unjustly underestimated document, the commercial lease is an important contract in estimating the value of a restaurant.
The seller should check the lease transfer clauses, and if necessary renegotiate them before the sale, in particular to determine whether the lessor’s agreement is required. It may also be useful to negotiate the extension of related activities with the lessor, preferably well in advance of the sale (catering, takeaway sales, etc.).
You’ll also need to check the future rent evolution provided for in the lease, the indexation clause, and the possible risk of the lessor de-capping the rent if an old lease has not been renewed, or worse, the risk of non-renewal of the lease.
The seller can also highlight the prospect of the future buyer becoming the owner of the premises, if this is envisaged by the lessor.
Choosing the right time to sell
Never sell under pressure, but wait for the right moment to sell, which always arrives in the end. To ensure a sale at the best price, the restaurant, bar or café should ideally be put up for sale at certain times:
– During the growth phase, generally between the 3rd and 5th year after opening, sales are still developing, and the buyer may see an opportunity.
– During the operating phase, sales hardly increase at all, but the business has found a reassuring stability with a loyal clientele. The nearby environment can generate new growth (parking, easy access, auditorium, etc.).
– Before a period of decline, results are still good, sales are no longer growing significantly, but the business may be of interest to buyers with prospects for renewal or development that need to be highlighted.
Elements that add value to the restaurant
Condition of premises and equipment
A business is made up of intangible elements, such as the clientele and the leasehold rights, and tangible elements, such as the furniture, fixtures and fittings and equipment used to run the restaurant.
It is important for the seller to ensure that these items are maintained, and that used or obsolete equipment and furnishings are replaced, so as to be able to offer buyers a well-maintained business in good condition, and thus hope for a better sale price. Often, restaurateurs who are thinking of selling let their work tools wither away, or assume that the buyer will redecorate to their liking. This is often a miscalculation. For the same economic results, the buyer will prefer to acquire a business in good condition. The absence of investment or costly work makes it easier for the buyer to obtain financing from the bank, whereas a restaurant requiring medium-term investment will always result in downward price negotiations (with the attendant banking risks).
Another factor that the seller can emphasize is the strict compliance of the premises with ERP (establishments open to the public), hygiene and accessibility regulations. This will ensure that the seller does not have to carry out any work to bring the business up to standard.
Location of the business
Another important criterion for determining the selling price of a business is its location. Some locations are more attractive to tourists, or to potential buyers (or they may be more attractive because of their quiet, natural surroundings). The presence of competition is generally a positive factor, contrary to what you might think.
The existence of a license IV
The vendor can also highlight the fact that the business has a license IV, which authorizes the sale of all alcoholic beverages independently of meal service, which can be invaluable in a restricted activity where catering itself is forbidden.
The presence of kitchen extraction
The seller can also point to the fact that their business has the required kitchen extractions, which evacuate fumes and odors. In such cases, it is advisable to check compliance with regulations, as well as the authorization provided for in the lease, or by the co-ownership, so as not to sell a business in which the potential buyer would have to carry out major work to bring it up to standards, or run the risk of a future lawsuit. In a protected historic district, for example, getting authorization in advance can save precious time when selling or carrying out future work.
A permanent terrace right is almost always an asset for a business that is being sold, since it means a larger sales area and the possibility of continuing the business, even if restricted.
Terrace rights are granted by town councils, personally to the business manager. It is therefore not transferable with the business, but in general, town halls grant terrace rights to the new owner of a business that previously benefited from them. Going to the town hall together, before the sale, reassures the buyer and saves time, by guaranteeing future sales.
Seating capacity and floor space
The value of a larger restaurant can be enhanced by accommodating more customers, provided that the associated costs are kept under control. However, acquiring a smaller restaurant is an asset for the buyer, depending on the project (family business, limited kitchen space, etc.).
Elements that enhance the value of the people attached to the business
Wage bill and staff qualifications
The assumption of a large payroll should enable the vendor to emphasize the efficient and prompt service of the staff, as well as the skills and qualifications of each employee working together in a methodical and structured organization.
A fund with fewer employees should highlight the adaptability of the staff. What’s more, a small team is easier to manage.
To ensure that the sale of the business runs smoothly, the seller should check that the employment contracts comply with current regulations, and that all salary payments have been made.
The seller can also highlight a loyal and diversified clientele, which the buyer is sure to retain after the sale.
The “key man” of the business
In some catering businesses, particularly gourmet restaurants, there is a “key man”, usually a chef, who it may be essential to retain. Buyers who fear that the key man will leave during the sale, and that the clientele will no longer be there, need to be reassured. This is a matter to be anticipated, for example by training another cook or ensuring ownership of recipes.
Covid-19 pandemic benefits
With the Covid-19 pandemic, there was an increase in restaurant sales. However, despite restrictions on opening hours and closures, some restaurants have been able to adapt to the crisis, notably by offering take-away sales, or by diversifying their activities (catering, cooking classes, in-home chefs, etc.) to cover all or part of their fixed costs.
You now have all the keys you need to prepare the sale of your restaurant or bar business, and make the most of it with potential buyers. However, you need to bear in mind that the sale of a business can take several months before the ideal buyer is found.
Would you like more information or advice on selling your business? Use our online procedure. A lawyer in your area belonging to the AGN network will deal with your question, and provide you with all the answers you need. Don’t hesitate to contact us by phone or e-mail, or schedule an appointment online at www.agn-avocats.com.
AGN AVOCATS – Sale of Businesses Department
09 72 34 24 72