How to Sell Restaurants in South Florida

“Price is what you pay and value is what you get.” (Warren Buffett)

Selling A Restaurant in South Florida

Restaurants are bought and sold in South Florida all the time. Other than salons, they are by far the most popular type of business ‘listing’ that one sees in the marketplace of businesses for sale. Only hire an expert business broker for the sale of your restaurant. An experienced business broker will anticipate a buyer’s questions and concerns, and ultimately get you as the seller the best price possible.

Avoid Underpricing or Overpricing Your Restaurant for Sale

There are many overpriced restaurants on the market by misinformed sellers (and brokers). These restaurant listings are a waste of a serious seller’s time because no serious buyers will be interested.  In general, small restaurants sell for a multiple of 1.5 to 3 times the adjusted owner benefit (or true economic profits derived by the owner) and the goal should be to get the best possible price possible. Restaurant chains may sell for higher multiples because there is more earnings power and leverage. The key is to price the restaurant correctly when it initially appears on the market.

 Factors Determining Restaurants Valuations:

  • Longevity and past track record of success for the restaurant
  • The rent and lease terms of the restaurant.
  • Level of the owner’s involvement in the success of the restaurant.

Historical Financials of Restaurant Sales in South Florida

The first key factor to consider when evaluating the value of a restaurant is its track record of success. The historical financials such as profit and loss reports or tax returns will be of paramount importance. Has the restaurant been consistently turning out healthy free cash flow? Has sales and profits been on an upward path lately? With restaurants, troublesome times can snowball into larger and more sustained problems, so a careful consideration must be given to the financial history.

Capital Expenditures of Restaurant Sales in South Florida

Moreover, looking at the financials can show whether the restaurant had to incur large capital expenditures. This usually means that more capital expenditures (such as for remodeling the dining room or kitchen renovations) can be expected in the future. The depreciation (which expenses a portion of capital expenditures over time) of a restaurant is added back as a non-cash charge when computing the adjusted owner benefit of a restaurant. But if further capital expenditures will be necessary in the future, then most buyers will deduct a portion of these costs as depreciation when calculating their future owner benefit.

Rent and Lease of Restaurant Critical to Restaurant Sales

A general rule of thumb for most restaurants is that the total rent (including CAM and, if applicable, property taxes) should be less than 10 percent of total sales. If it is above this amount, then the restaurant will have a hard time turning a profit. This is because most restaurants also spend, on average, about 33% of sales on the cost of goods sold (such as food and beverage) and spend another 33% (on average) on payroll. So if rent is 10 percent of sales that means your left with 24% operating margins after rent, COGS, and payroll. This is not a lot of room for error, and there are many other expenses associated with running a restaurant!

A Long Term Lease Very Important to Most Purchases of Restaurants

The leasehold rights of a restaurant is the right to occupy commercially leased property for a specified period of time. Many buyers will want a long term lease to ensure they have plenty of time to reap the rewards from their investment. They also will want legal assurances in the form of a long term lease that they will not be thrown out by the current landlord (or a subsequent landlord).  Having about 4-5 years left on a restaurant lease is a minimum requirement for many buyers.

Level of Owner Involvement A Big Factor In Restaurant Sales

  • Lastly, the level of the owner’s involvement in the restaurant greatly affects the restaurant’s valuation.
  • The more ‘owner-absentee’ that a restaurant is (with little or no day to day involvement from the owner) than the higher the restaurant’s valuation when it comes time to sell.
  • For example, many owner-operators of pizzerias stand next to the ovens for up to 80 or more hours per week.
  • Many buyers will not want to put forth the same level of work, or simply can not do so.
  • They must then pay for extra salary for employees who will replace the owner’s productivity.
  • This situation generally results in a lower valuation on such restaurants.
  • Conversely, if the owner-operator has created a restaurant where he or she only has to generally oversee the operations, pay the bills, and has proven management in place, then the valuation will be much higher.

Owner is the Chef

Another not so uncommon situation in restaurant sales is where the owner works as the main chef. The recipes of the restaurant are always transferred to the buyer as part of the intangible assets, but some owner-chefs are so talented and unique that they are virtually irreplaceable. Here, the restaurant is usually sold to other chefs or restauranteurs who are confident enough that their menu will be received warmly by the customers. Thee valuation of the sale is lower because, in essence, what is the seller really selling? The seller can’t sell his or her own skills because those skills will not remain with the buyer! In general, buyers of restaurants will pay more of a premium where the owner-operator is more hands-off and non-critical to the success of the restaurant.

A high valuation for restaurant sales is predicated upon healthy profits, a track record of success, reasonable rent relative to sales, and a situation where new ownership can continue the success. This makes for a successful restaurant sale!

Give Martin at Five Star Business Brokers of Palm Beach County a call today for a free evaluation for your restaurant.