Tuesday, March 30, 2010

What the average restaurant broker doesn’t want you to know about how to buy restaurants in major markets like Atlanta, Georgia

Buying a restaurant is a math problem with a right and wrong answer. If your broker can’t answer these questions about how much to pay for Atlanta restaurants for sale, find another one.

There are three methods of establishing valuation of Atlanta restaurants for sale used in the industry. An expert Atlanta restaurant broker should be familiar with all three though the Income Valuation Method is the most favorable and trusted method used to value Atlanta restaurants for sale. In the days of lending for Atlanta restaurants, it was the method used to secure financing on a business. If the restaurant had solid profits, and under normal economic conditions, it's likely a buyer could purchase the Atlanta restaurant for sale with 20% down and obtain an SBA secured or other type business loan. At some point those lending scenarios will return. Until then, it still provides the most acceptable method of valuation for banks, lenders and individuals in assessing how much to pay for a restaurant. In a situation where an Atlanta restaurant buyer is paying cash, this helps to reduce fear of the transaction as the business has a proven track record.

An Atlanta restaurant for sale with strong books and records, assessed under the Income Valuation Method has the highest number of potential buyers and hence commands the highest possible price. An expert Atlanta restaurant broker can go through the Profit and Loss statement along with tax returns to find the Seller’s Discretionary Earnings (SDE) or owner benefit that is customarily accepted by lenders to value the business. This includes net income PLUS reasonable and customary add-backs.

What is not allowable for “add-back” purposes are efficiencies a new owner could potentially achieve that the current operator hasn’t. It should factor in your decision to buy but should not be calculated in the pricing of any Atlanta restaurant for sale. The entire purpose of the add backs is to calculate owner benefit and ultimately pricing of the business. If you can identify strategies to be more successful in the future than the current owner, that benefit belongs to you as a buyer, not to the seller in the pricing of the business.

Once the Seller’s Discretionary Earnings is appropriately determined, then it becomes the basis for a “multiple” for pricing Atlanta restaurants for sale. Every buyer wants the answer to the question, “What’s the multiple for restaurant pricing?” and the response rarely satisfies anyone. In general, Atlanta restaurants for sale can be offered and sold somewhere between 1.70 and 2.75 times earnings, with market factors adjusting this up or down. For purposes of this article, we are limiting our discussion to single restaurant units. Multi-unit sales (anything above two, especially franchise) changes the multiple significantly and requires a whole different analysis and pricing model.

“How much to pay for an Atlanta restaurant for sale? ” can be affected by any of the following variables including: strength of books and records, saturation of concepts in the marketplace, seasonality, location, comparable Sales Information or “comps,” franchise or independent offering, geography and competition.

Strong brokers that know the Atlanta market and should be able to share exactly where a restaurant is priced based on the multiple and why. Ask some questions of your broker to be certain they fully understand restaurant pricing. If you’re not satisfied with the response, find an expert Atlanta restaurant broker to help you buy a restaurant.

Robin Gagnon is Atlanta Restaurant Broker and Vice President of We Sell Restaurants and wesellrestaurants.com . Robin holds an MBA in Finance. She frequently writes on the topics of restaurants sales, restaurant valuation and financial topics surrounding the buying and selling of restaurants, bars and clubs. She previously served as Vice President of Strategic Marketing for Macy’s South, a $4 billion dollar retail division. Robin has served for more than a decade as a member of the ASU Business Advisory Council. She is also a founding member of the ASU Entrepreneurship Board. Robin is a licensed real estate salesperson in both Georgia and Florida. Robin is a weekly contributor to the Atlanta radio show "Dishing with Donna" where she and Eric host a segment on the restaurant and business brokerage industry.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Things Every Bar Owner Should Know About How to Sell My Bar in Atlanta, GA

There’s more than one way to sell a bar in Atlanta. Some bar owners have learned the hard way it’s a job best left to expert restaurant brokers.

In trying to sell a bar in Atlanta there are a few categories of listing agents that should be avoided. The current economic downturn, coupled with the hit to the housing market has led to less specialized agents attempting to enter the restaurant brokerage field. This can be dangerous for the Atlanta bar owner looking to sell. Here are a few categories of representation the seller of an Atlanta bar may want to avoid.

At all costs avoid residential real estate agents. If an agent focuses on houses rather than commercial transactions they will not have the skill to sell your bar. It’s not unusual to encounter a family member or acquaintance who wants your business. This is not a good decision for a seller, much less a buyer and here’s why. First, a valid Georgia real estate license does not prepare any agent for restaurant brokerage it only licenses them to transact real property. Residential real estate agents do not have the education, background or experience to properly value or sell a restaurant. They do not have the skill to perform a financial business valuation or pre-qualify anything other than a real property purchase. Lastly, they don’t have the ability to confidentially market since they are involved in public, not private listing. For those reasons, it’s best to avoid doing your nephew Bob a favor and allow him to sell your bar.

Another type of agent that you should steer clear of is a commercial agent. This type of agent will have financial skills and more commercial expertise than a residential agent but they are still a beginner when it comes to restaurant brokerage. CAP rates, land value, investment properties and ground leases are part of his or her standard skills. Buyer pre-qualification, liquor licenses, and confidential listings are now. They will also struggle with getting your bar for sale into the normal advertising stream for businesses for sale since they deal in a different arena. Lastly, they deal with public, not private listings so their expertise to write a compelling ad masking the identity of your Atlanta bar for sale while driving traffic will be limited.

The best choice is obviously a qualified Atlanta restaurant broker but you may also be approached by a general business broker. A general broker lists everything from manufacturing facilities to a day care. Often these are good brokers but they are all things to all people. They do not have a database of buyers focused on restaurants for sale. Though he has access to comps and financial information, he won’t specialize so he may be learning the financial parameters of an Atlanta pub for sale (like yours) on the job.
Lastly, he won’t know what bars and clubs are selling and be able to price instantly based on his knowledge.

Ultimately, it’s the expert Atlanta restaurant broker that can get you to the closing table. His specialized knowledge and skills are a perfect match to your desire to sell your Atlanta bar. He’s experienced the intricacies of liquor licensing, state sales tax authorities and all other elements particular to selling your bar many times before. You don’t want your broker stuck in “dial 1 for payoffs and dial 2 for notices” at the eleventh hour before closing when you can’t transfer a liquor license. His knowledge, skills and experience are exactly what every bar owner deserves access to when you are selling your Atlanta bar.

Ignore the requests to list your bar with anyone other an expert Atlanta restaurant broker and you’ll see the bar sell quickly, at the best pricing and with the fewest issues on the way to closing.

Robin Gagnon is Atlanta Restaurant Broker and Vice President of We Sell Restaurants and wesellrestaurants.com . Robin holds an MBA in Finance. She frequently writes on the topics of restaurants sales, restaurant valuation and financial topics surrounding the buying and selling of restaurants, bars and clubs. She previously served as Vice President of Strategic Marketing for Macy’s South, a $4 billion dollar retail division. Robin has served for more than a decade as a member of the ASU Business Advisory Council. She is also a founding member of the ASU Entrepreneurship Board. Robin is a licensed real estate salesperson in both Georgia and Florida. She is a member of the Business Brokers of Florida. Robin is a weekly contributor to the Atlanta radio show "Dishing with Donna" where she and Eric host a segment on the restaurant and business brokerage industry.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Things You Should Get Ready If You’re Leasing an Atlanta Restaurant

Remember the Boy Scout motto and be prepared if you want the best Atlanta restaurant space for lease.

For a new restaurant owner, few things are more intimidating than facing a landlord with a prime Atlanta restaurant for lease if you don’t have expert help from a restaurant broker. If you want to be first in line to receive the space there are definite ways to package your restaurant and yourself to cast the winning bid. First and foremost, don’t try to negotiate first and introduce yourself second. A landlord wants to know who you are before he opens up discussions on terms.

Developers want to see certain items each and every time before they consider a new tenant on an Atlanta restaurant for lease. If you arm yourself with these materials at the outset, your presentation and completeness will leave competitors for the space by the wayside. Instead of dragging pieces and parts together a little at a time, tie everything together in one presentation for the landlord and your application is the one he will focus on. That’s very important in large restaurant areas like Atlanta where competition for space is fierce. Don’t make the rookie mistake of requesting a meeting before you present your materials. Your package is your introduction and the only thing the landlord cares about. He’ll meet after the fact and not before.

Successful Atlanta restaurant brokers have already cemented deals in the past with most developers and will use these relationships to improve your likelihood of winning the restaurant lease. That’s important since the Atlanta restaurant broker is representing you to the landlord. He’ll communicat with him about your restaurant and experience. When a landlord considers multiple offers, experience and relationships matter. The largest landlords in metro areas have in-house teams that check credit and perform background reviews but they still pick up the phone can call the expert Atlanta restaurant brokers for input.

A presentation that is missing key elements or the demand for an early meeting may railroad you with the landlord early in the game. It can indicate inexperience on the part of the broker or proposed tenant and find your application pushed back. This is especially true for REITS or large organizations while the smaller landlord is much more accommodating. Your expert Atlanta restaurant broker should have a good idea of where they landlord you’re inquiring about falls in the mix.

Your package must lead with a statement of net work or personal financial statement. This should be up to date with the latest information. Pull your own credit so you have an idea of what a landlord will see because they will do this too. Tax returns round out the initial list of financial requirements. This financial snapshot will tell a landlord if you pay your bills, if you have money to run the business and if you have assets on hand to secure his risk. Landlords will want credit checks so be prepared to give them approval to pull your credit. The least important elements to the landlord for Atlanta restaurants for lease is the menu and business plan, generally the most important to you.

Once the landlord has met you on financial terms and learned a bit about your business, deliberations on the lease begin. The more powerful your initial package, the more influence you’ll have over the outcome of the negotiations. This is where the advice of your Atlanta restaurant broker pays off since your package will win you the strongest position in discussions. Don’t panic if you credit or cash position is less than stellar. Overcoming credit risk should be no problem with the recommendations of an expert Atlanta restaurant broker familiar with lease negotiations.

Eric Gagnon is a designated industry expert in Restaurant Leasing, Restaurant Sales and Restaurant Business Brokerage. He is a frequent writer and speaker on the topic of restaurant sales and restaurant valuation. He is the president of We Sell Restaurants and wesellrestaurants.com an online resource for buying and selling restaurants in Atlanta, Georgia and across the southeast.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Things to Consider When Hiring an Atlanta Restaurant Broker Who Knows How to Sell a Bar

The five questions establish the difference between an expert and a novice when it comes to placing your Atlanta bar or restaurant for sale.

If you want to know the most important person in the transaction when you are trying to sell your Atlanta bar, the answer is simple. The Atlanta restaurant broker serves as the quarterback for pricing, valuation, documentation, packaging, managing and closing the transaction. From start to finish, his skills as a business intermediary sets the tone to bring your Atlanta bar onto the market and ultimately to the closing table. His efforts keep you focused on what you do best – running a bar or club while he works on getting the right price for your Atlanta bar. Any restaurant broker you are considering should be able to instantly respond to these five questions to insure you are weeding out the experienced from the trainee.

Job one of any restaurant broker is pricing so probe to find out “how much is my bar worth?” Getting the highest price is your priority and a broker must be able to substantiate the pricing to potential buyers for your club or restaurant. Make sure your broker is educated and open about pricing models and value strategies. If he can’t tell you the multiple for pricing based on the Atlanta market, he may not have the experience to sell your business. Restaurant brokers have a combination of experience and education that should culminate in valuation analysis. Ask him or her to explain what the Income Valuation model for pricing is and how it will be used for pricing your bar for sale. If he can’t explain pricing to you, how will he establish value with a buyer? If he asks you to give him the price you want for the business, you’re probably done with this beginner. Allowing the seller to price the business is the approach of a neophyte and probably signals he doesn’t have the true experience to tell you how much your Atlanta bar is worth.

Ask your prospective Atlanta restaurant broker exactly how many restaurants he has personally sold in the past six months. If he begins spouting off statistics of restaurants listed, once again, you may have a beginner on your hands. At the end of the day, restaurants sold in Atlanta are the key number to focus on since anyone can list a restaurant for sale at any price. It takes experience and knowledge to get ot the closing table and that’s what you want when you sell your bar.

As any Atlanta restaurant broker you interview whether he shares commission with other brokers and co-brokers. The Atlanta market has a pool of buyers all working with other brokers. Some are restaurant brokers. Some are residential agents while others are general business brokers. If a broker isn’t willing to work with all of them, your chance of selling is dramatically reduced. You go from an army of thousands selling your business (still limited by confidentiality agreement) to the one guy standing in front of you. It’s impossible to have all the buyers and you don’t want to eliminate this important pool.

Any Atlanta restaurant broker should also answer the question, what do you need from me to value my business for sale? A bar or club for sale can only be valued on an income valuation method if you allow access to your books and records (P&L, Tax Returns, Lease and more). He will also ask for a list of physical assets that will transfer (kitchen equipment and so on). If you aren’t asked to prepare these materials for immediate review by a competent broker or if he has to take them back to the office for someone else to set pricing, once again you might be dealing with an apprentice. There’s no harm in that but may not be who you want to sell your Atlanta bar.

Every bar owner deserves to know the cost to sell their business. The services of an expert restaurant broker are not cheap but they are based on results. Expect to fairly compensate a broker who shows he can get the job done with commission at closing and not before. Ask what you receive in terms of service before the sale is consummated. Does he have a system to issue reports on listing activity? Will he contact you weekly with updates on your listing? Getting the listing is easier than servicing the listing so depending on your information requirements, a restaurant broker who lists and runs may not be the broker for you. You should also ask about minimum fees. A broker that doesn’t charge a minimum may feel pressured to keep a listing overpriced since his commission is set by the value. Over priced listings don’t sell and you get one chance to make that entry into the Atlanta market as a new bar for sale. occur when the market is shifting by season or activity.

Hold any restaurant broker you are considering in Atlanta responsible for answering these questions and you’ll quickly separate the beginner from the real talent. The broker is the most important element in selling your Atlanta bar so conduct your interview and choose carefully. Then your Atlanta bar will sell for the most money in the shortest time.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Tips on Leasing a Restaurant in Atlanta Georgia –What Landlords Expect From a Tenant

You can get great deals on Atlanta restaurants for lease as long as you take the time to assemble a package with the help of an expert restaurant broker.

Leasing property in a major market like Atlanta, Georgia can be a daunting task for the inexperienced restaurant owner. Here’s everything you need to know to present your offer in a way to get serious consideration from landlords who see multiple submissions for the best space. Start and end your negotiations with the landlord on the best foot by treating this as a serious business deal.

Lending covenants or other restrictions on landlords often dictate the mandatory materials he needs to consider any new tenant. This can be for a new lease or even a transfer of an existing one. By understanding the requirements early in the game and presenting a well organized and complete package, your application moves to the top of the list, important in competitive bidding major markets like Atlanta. Once the landlord has a package, he will meet with the proposed tenant and generally not before. The best spaces move quickly and often Atlanta restaurant brokers have relationships with landlords that give them the first look at new restaurants for lease in the market.

Using a restaurant broker that has established a rapport with the landlord increases your chance of success. Since the landlord isn’t meeting directly with you as the tenant, he’s relying on the expertise of the Atlanta restaurant broker to communicate information about your concept and you personally. That’s important when the developer is weighing multiple offers or considering tenants that do not have as strong a credit position. Locations that are in demand like most Atlanta restaurants for lease are typically managed by firms who are very experienced in conducting background reviews and credit quality reviews on would-be tenants.

You can indicate a lack of sophistication or inexperience on the part of your broker if your package is incomplete or missing elements. For big landlords, this can be a deal breaker when there are competing packages though less established or single unit operators are more forgiving. Anyone leasing an Atlanta restaurant should get a full list of requirements from the broker.

Be prepared to produce any or all of the following items. The most important item is your financial statement. This should be accurate and dated within the last 30 days. Landlords will want credit checks so be prepared to give them approval to pull your credit. Often they will want two years of federal income tax returns. Most of this is a required need to have not a nice to have. The landlord is looking for three things: cash on hand to operate, assets sufficient to secure the lease and history of paying bills on time. In addition, they want to understand how you will operate in their restaurant for lease so provide a copy of your menu and outline of your business.

The actual discussions on lease terms begin after the full package is submitted. If you have a powerful package and strong financial results you’ll have more negotiating room in the lease terms. If there are lots of people vying for the same space and your Atlanta restaurant brokers submits the best package on your behalf, you’ll win out. Weak credit or insufficient cash positions can be overcome in multiple ways. A strong Atlanta restaurant broker can offer you suggestions to overcome or secure the landlord’s risk on these elements.


Eric Gagnon is a designated industry expert in Restaurant Leasing, Restaurant Sales and Restaurant Business Brokerage. He is a frequent writer and speaker on the topic of restaurant sales and restaurant valuation. He is the president of We Sell Restaurants and wesellrestaurants.com an online resource for buying and selling restaurants in Atlanta, Georgia and across the southeast.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Caveat Emptor or Buyer Beware. What Every Buyer Should Know About How to Buy a Bar in Atlanta, Georgia.

You get what you pay for when you buy a bar in Atlanta. Read this article to make sure you’re paying the right price.

There’s a method to value a pub or bar based on earnings called the Income Valuation Method. Expert Atlanta restaurant brokers use this method to set pricings on listings and give sellers an idea of where their bar or restaurant will sell. It’s based on earnings plus usual and customary additions called “add backs.” Books and records are used to validate both sales and the profits. Issues come into play however when an owner takes money “under the table” and wants to value their bar or pub on that basis.

When Atlanta buyers for sports bars see something online described or promoted with earnings “to be proven” by the seller, it often means the income can’t be substantiated. Sellers of Atlanta bars are saying they do not disclose their full earnings to the taxing authorities. Very different from add backs which are confirmed through due diligence, “under the table” earnings are taken on faith. An expert Atlanta restaurant broker will have a difficult time performing a valuation on this type listing and some won’t accept or sell this type listing for several reasons.

Pricing cannot be established on the listing since the seller is not basing it on confirmed sales and earnings. Based on the books, the price will always be too high since earnings are understated. Also, as a buyer, you would have to continue functioning the same way or you’re looking at a distorted view of any earnings. Lastly, the seller has already received a benefit in the operation and is now attempting to get it in the pricing. Because the books and records are showing reduced federal and state income tax, he’s easily reduced his tax liability per year by thirty-five percent or so. The seller of the Atlanta bar or club is now attempting to be paid on these same earnings though they can’t be established with certainty.

One solution if you choose to buy such a business is to change the operations so the money’s on the books. However that would require recasting the profit and loss statement to account for taxes. The impact of this may reduce the earnings into a loss at that point.

For most risk adverse buyers for Atlanta bars there’s another problem. You’re dealing with a seller for an Atlanta pub that’s already admitted he’s been less than honest with the IRS, the Georgia Department of Revenue, and his accountant. Miraculously, he would like you to believe him now that he’s selling you his Atlanta bar. Unless you take a job in the bar for a period of several months, there’s no way to establish the real sales and profit.

Those who want certainty in the numbers and do not want to questions their decisions should avoid “under the table” or “to be proven” opportunities. They may seem like a good value but in the end, buyers for Atlanta pubs, clubs or bars who think it sounds too good to be true may learn the hard way that’s the case. Confirm all their earnings and add backs with records and the help of an Atlanta broker specializing in clubs and bars. An accurate portrayal of earnings can be laid out in short order for verifiable listings.

Robin Gagnon is Vice President and Director of Marketing for We Sell Restaurants and wesellrestaurants.com. She holds an MBA in finance and frequently writes on the topics of restaurant sales, restaurant valuation, and financial topics surround the buying and selling or restaurants, clubs or bars.


To learn more about buying or leasing Atlanta restaurants CLICK HERE

Tips on How to Buy a Restaurant in Atlanta, Georgia

If you build it, they will come works better in the movies than in restaurants.  Here’s why buying versus building makes sense if you want to be a restaurant owner in Atlanta, GA.


Buying a restaurant in Atlanta, Georgia has reached a new height of popularity.  Would be small business owners are meshing a love of food with a desire for business ownership to create unprecedented demand for restaurants for sale.  With high failure rates on start up restaurants (nearly 60% fail by year three), well-known restaurants with a track record are hot commodities. 

Earning rewards in the Atlanta restaurant market comes quickly to those that buy instead of launching a new restaurant.  Restaurant buyers find the advantages are immediate and the risk is minimized.  It’s no wonder this path to achieving the dream of owning a restaurant is coming through the purchase of an Atlanta restaurant for sale rather than the start up of a new concept.   

Managing the cost is the number one reason to buy over building.  Restaurants don’t succeed when the cost of capital exceeds the income over a sustained period of time.  It’s the single biggest reason that Atlanta restaurants close after only a few months.   Just because an Atlanta sous chef is brilliant in the kitchen doesn’t mean he’s equally skilled at managing a building project just because it’s a restaurant he’s putting together.  Atlanta restaurants built from the ground up are closer to the cable TV “flipping” shows where the costs far exceed the budget and the timeline stretches beyond the original goal. 

You can shorten your time to market when you buy an Atlanta restaurant for sale.  Evaluate whether you want to be in business next week serving your latest special or waiting an average of six months for licensing, permitting, building and then opening your restaurant.   Competition in the Atlanta market is fierce to be the first to market with the latest ideas.  There’s no waiting when you buy a restaurant versus building from scratch. 

Every brand new restaurant suffers as the sales volume builds.  That’s not the case with buying an Atlanta restaurant since sales are already established.  Even a restaurant undergoing a change of concept  has an established traffic pattern from the current location.  Buying these sales in a restaurant purchase can be far less costly than developing them over time a customer at a time or a marketing campaign at a time.   Growing sales from $1000 a week to $2000 a week means a 100% increase each and every week before you realize baseline volume to satisfy your costs.   That’s at difficult job in a competitive restaurant market like Atlanta Georgia. 

A significant reason for most to buy Atlanta restaurants for sale is the cash flow from existing operations.  Manufacturing and retail businesses often sell for many times cash flow while restaurants with good books and records can often be acquired for three times earnings or less.  A restaurant owner can buy an Atlanta restaurant for sale and pay off the purchase in less than three years leaving himself with a debt free earning machine.  That’s attractive to most. 

Brokers that specialize in Atlanta restaurants for sale have access to listings and information on multiple opportunities in the marketplace.  Buying that established Atlanta restaurant for sale gives you clear costs, verifiable earnings and instant revenue.  That’s a fast path to restaurant ownership for most.

Eric Gagnon is a designated industry expert in Restaurant Sales and Restaurant Business Brokerage.  He is a frequent writer and speaker on the topic of restaurant sales and restaurant valuation.  He is the president of We Sell Restaurants an online resource for buying and selling restaurants in Atlanta, Georgia and across the southeast.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Buying a Restaurant Franchise in Atlanta Georgia Means Waiting for the Right Deal to Enter the Market at the Right Price

The hottest restaurant franchise delivers more hype than income to most Atlanta restaurant buyers. Read this article to get the exact timing on buying an Atlanta Franchise Restaurant.

Buyers for a restaurant franchise are often trying to avoid the risk posed by start-up restaurants. According to one study, that’s not likely to happen since 57% of all franchise restaurant start-ups fail by the end of year three. That was the finding of Dr. Parsa, an Ohio State University hospitality-management professor who authored a study on restaurant failure rates. Franchise start-ups only minimally outperformed independent start-ups. That doesn’t mean you shouldn’t operate an Atlanta restaurant franchise if you want the systems and continuity of a franchise, it means you should read this article to understand how to get a money making Atlanta restaurant franchise.

If you want to buy a franchise, you’re better served to focus your efforts on mature establishments with a track record. That means profit and loss statements that show earnings for consecutive years. Three year-old restaurants with established history are a safer option than starting a franchise restaurant from scratch. If you know all that and still want a franchise, then use our established Franchise Rule of Three to get the best deal and buy an Atlanta franchise restaurant at the right time. Franchise restaurants are re-sold every day and can represent a bargain to the savvy restaurant buyer. If you concentrate on these three elements you can get the most franchise for the least money.

A look into the life cycle of the typical franchise begins with the original owner. He or she builds the store from the ground up in a super Atlanta restaurant location spending up to $400,000 in initial costs. Buoyed by stories of restaurant franchise millionaires, he’s convinced he has a winner on his hands. Never mind that he’s paying $8000 a month rent, 10% franchise fees and his average ticket for sandwich is $7.95, it’s the sizzle not the substance that has him hooked. A year into operations he calls an Atlanta restaurant broker to sell and wants to know who will give him $400,000 for his business. Unfortunately, no one will. He goes on the market at $149,000 if he has a good location and up-trending franchise concept.

The cycle continues when an Atlanta restaurant buyer acquires the space. He has paid less so his cost of debt repayment is much lower. The sales line has begun to pick up so if he works diligently, he may get this operating profitably in a year or two. All the while the franchise has received a percentage of sales of every dime generated by the business while the unlikely owners have been losing money. After a year or two in the business, owner number two has had enough. He’s operating in the black but when he calculates his time, he’s making minimum wage for the time invested. He calls us to list and that’s when the pricing is right. By now sales have matured and costs have come into line. It goes on the market for less than three times earnings and the savvy Atlanta restaurant buyer picks up a deal.

Since it’s now priced based on an income valuation method, the pricing is no more than three times earnings on the books. Sales are now covering fixed cost and more so it’s operating in the black. The third buyer now has a real franchise deal on his hand. He gets every benefit from the sale and there are quite a few. First, he gets a good brand. Secondly, top line sales now satisfy fixed cost. Lastly he has a fair cost of entry. Buyer number one and number two took a bath but buyer number three is dancing all the way to the bank. That’s why everyone seeking an Atlanta franchise restaurant for sale should follow our Rule of Three.

Rule Number One: You should be the third (and hopefully final) owner of the Atlanta franchise restaurant.

Rule Number Two: The best deal is found near the beginning of year three. There’s still room to grow the sales but it’s priced based on current (still developing) earnings.

Rule Number Three: No matter how “hot” you think this Atlanta restaurant franchise is or how much you think you’ll make, the proof is in the numbers. Don’t pay over 3X earnings. Ever. The income valuation method should still be used.

Eric Gagnon is a designated industry expert in Restaurant Sales, Restaurant Valuation and Restaurant Business Brokerage. He is a frequent writer and speaker on the topic of restaurant brokerage and restaurant valuation. He is the president of We Sell Restaurants and wesellrestaurants.com an online resource for buying and selling restaurants in Atlanta, Georgia and across the southeast.

To learn more about buying or leasing Atlanta restaurants CLICK HERE

Monday, March 29, 2010

Tips for Restaurant Sellers in Atlanta, Georgia asking the question, “How do I sell a restaurant?”

Selling a restaurant means finding expert help but the good news is that expert Atlanta restaurant brokers work for free.

With the current economic downturn, Atlanta restaurant owners may be wondering whether they should sell or wait to sell their Atlanta restaurant. The answer depends on whether you have the skill and services of a professional restaurant broker working on your behalf. What does a professional Atlanta restaurant broker do? He markets and promotes your listing to a database of prospects and seeks new buyers. He makes sure that anyone looking at your listing meets the criteria to purchase by having available funds or equity. He ensures that your restaurant name is not disclosed until a confidentiality agreement is in place.

While “for sale by owner” is a tactic sometimes used in residential listings, it is not advised for selling your Atlanta restaurant. Before you make the choice to sell single-handedly you should know this is a perilous process. The case for using an experienced Atlanta restaurant broker couldn’t be clearer and here’s why.

The favorite word in the English language is free and that’s what an Atlanta restaurant seller experiences with the services of a broker. They do the work up front to package and market the listing with no pay off until the closing takes place. Very few business models provide full value up front with no investment by the customer Another reason to use a professional on the job is to make sure you’re getting the most money for your business. The standard method to value you a business relies on knowledge and skills to take apart your profit and loss statement and re-state earnings to make sure you are compensated for every dollar of revenue. An expert Atlanta restaurant broker does this for a living.

Buyers for Atlanta restaurants for sale have to be bound by confidentiality and the broker ensures this as well as pre-qualifying them to buy. Legal documents are standard parts of their packages that are tried and true to protect sellers from buyers that want to look without buying or out of curiosity. Inexperienced brokers and owners trying to sell on their own are often tempted by those with a good story to provide the address before they are fully qualified. For the experienced broker, “no” is a way of life and that protects your business from countless damage.

Describing a restaurant in glowing terms and at the same time disguising its real name and address is the experienced Atlanta restaurant broker’s forte. For the inexperienced it’s a skill that takes time to develop and for the owner trying to sell an Atlanta restaurant, it doesn’t make sense to try. The marketing team at restaurant brokerage firms can write headlines to drive responses and phrase the ad to generate leads. They are a whiz at generating activity on restaurants. All of this is free of charge to the Atlanta restaurant owner looking to sell.

Unsuspecting sellers often rely on the world wide web to post their Atlanta restaurant for sale. This great resource is often used by brokers but inexperienced owners may have a more difficult time sifting through the inquiries to determine which are “real” versus the work of those who may have less than honest intentions. They may receive multiple inquiries from those who insist they have a buyer or others saying requesting financial statements. Before they know it they find their restaurant is the victim of financial identity theft. Few sellers realize how dangerous it is to put their financial information in the hands of others who may then borrow against your tax ID number or use an Atlanta restaurant’s identity get a loan against future credit card payments.

These are only a few of the reasons that selling your Atlanta restaurant should always involve the help of an expert restaurant broker. A broker represents your interest and guards your business as if it’s his own until the new owner is in place.

Eric Gagnon is a designated industry expert in restaurant sales and restaurant valuation. He specializes in leasing, restaurant sales and restaurant business brokerage. He is a frequent writer and speaker on the topic of restaurant sales and restaurant valuation. He is the president of We Sell Restaurants and www.wesellrestaurants.com an online resource for buying and selling restaurants in Atlanta, Georgia and across the southeast.


To learn more about buying or leasing Atlanta restaurants CLICK HERE

Every Owner Reaches a Point Where All They Want to Know is How do I Sell My Atlanta Restaurant?

The answer is easier than you would think if you call upon an expert Atlanta restaurant broker who can find all the earnings hidden in your financial statements.

Putting your Atlanta restaurant for sale in the market at the right price is the most critical element in getting it sold. Professionals, termed restaurant brokers, know how to put the correct value on your restaurant so it sells quickly and for the most money. Many restaurant owners, seeing other, overpriced listings on the market, want to list higher than the actual value. Customary models for pricing like the Income Valuation method eliminate this and ensure you’re priced in line with earnings. Inexperienced brokers or those without a financial background may attempt to price your restaurant based on assets or simply inquire what you want to sell the restaurant for. When that happens, quickly walk this broker to the door as his method for pricing is inexact at works and unqualified at best.

Certain key paperwork is required to perform an analysis and determine pricing. Be prepared to copy and hand over documents to substantiate your rent, Federal return and P&L (or profit and loss statement). Atlanta restaurant brokers that fail to request this information probably don’t have the industry understanding and skill to price the business. The fiscal image of your Atlanta restaurant for sale is far more important than the concept or menu when it comes to getting is sold.

Expect detailed questions on your own 1099 or W-2 income as well as any payments to family or your spouse. Insurance payments on your P&L should be quested to determine if the business is actually benefiting you as the owner by making these payments. Any automobile costs that show up on your P&L should be challenged by the restaurant broker to understand if this can be included in add backs. The same is true for telephone expense (cell phones) or other personal items.

Some expenses are deemed as non-recurring since they are the result of a one-time incident. This could include things like legal expenses for a lawsuit or renovations. Remember, any item that can be proven and would not result in a similar expense for the subsequent owner can be considered in add-backs. If your son’s bar mitzvah was hosted at your restaurant and incurred an extra $15,000 in food costs that can be verified, it may count. Your broker should ask thorough and thoughtful questions to understand your financial statements.

Be prepared to produce and review your depreciation and amortization schedules since these are customer add backs as well as review the travel account since owners often book vacations that the company pays for. If the donations on your tax returns are to your temple and that will change for the new owner, it’s also added back. Sponsorship of the local little league which results in sales will not add back.

Lastly, expect to be questioned about anything that’s not directly reflected through the POS system or on the tax returns. This might include pool table income, lottery income or other categories. If there are receipts to document this, it’s an allowable add back.

A knowledgeable restaurant broker in a major market like Atlanta will be able to explain with confidence the value of the restaurant and his basis for arriving at this value. Your answers to key questions like these help to establish maximum that can be proven to a buyer for your Atlanta restaurant for sale. A broker that fails to ask questions or lists at your pricing will ultimately damage the listing. Overexposing the listing without the correct pricing is a recipe to sit on the market with no offers until you’re ultimately forced into a lower price than you should accept. List your restaurant with an expert Atlanta restaurant broker to avoid this mistake.

Robin Gagnon is Vice President of We Sell Restaurants and wesellrestaurants.com, Atlanta’s premiere restaurant brokerage firm. Robin holds an MBA in finance and is a frequent writer on business sales, business valuation and restaurant finance.

To learn more about buying or leasing Atlanta restaurants CLICK HERE