OPERATORS ASK ABOUT...

Whether or not to sell a business, hire experienced-only wait staff or outsource, managing partner of PROTOCOL hospitality management consultancy answers real life questions from independent operators and/or owners

I own a busy bistro but I’m getting tired and want to sell. What should I do?

An exit strategy is something we know we should have, but not something all of us have developed. If this has been a successful operation, you’ve probably created value in your brand. There are typically two types of restaurant sales. First is the “asset” sale, in which the seller is marketing the improvements made to the structure, property owned, furniture, fixtures, equipment and intellectual property (typically the trademark and trade dress of the business). This type of sale normally takes place in a situation in which the business has been closed. The value of these assets is far greater if the restaurant is an ongoing profit-creating enterprise; but once closed these items are used, and lose tremendous market value. In most parts of the country we see restaurant furnishings and equipment receiving 20 percent to 25 percent of their original value when being sold in situations like this. The second type of sale is the “business” or “entity” sale, in which the seller is selling the company, including shares and assets. In this case value is placed on the type of business, its profitability, and expandability, as well as name and any trademarks.

It’s very important to know that selling a restaurant at its proper value requires preparation. The sellers should first review the restaurant’s current financial records with their accountant. In many cases, the restaurant’s monthly profitand-loss statements include personal expenses that will need to be ploughed back into the business, in order to portray a more accurate profit picture of it. Two to five years of financial records should be produced for review by the potential purchaser. Business tax returns will more than likely be needed for review later in the due diligence period. Obtaining a current business valuation is critical to properly determine the fair market value.