DEAL OR NO DEAL: The Internet can help you make one.
Selling your restaurant can be a lifechanging event. Your decision to sell can be brought on by a variety of factors, including a change in location, finances or lifestyle. Whatever the reason, sellers should be aware of online resources that can make the transaction more efficient and effective.
According to a recent Yahoo poll, two-thirds of Americans dream of owning their own business. Potential buyers are always looking, and many of them look online.
Not surprisingly, restaurants are the type of business that is most frequently bought and sold online. Data from BizBuySell, an online business marketplace, shows that nearly 15 percent of business listings were restaurants, making it the largest category of businesses for sale.
Beyond simply giving you access to buyers who you might not otherwise meet, selling a business online makes economic sense. Putting your restaurant for sale on an online business marketplace is cheaper than placing a newspaper classified ad and will ensure much more widespread exposure.
Indeed, business brokers and business owners selling independently have found much success in selling businesses on the web.
However, before listing your restaurant in an online business marketplace, you will want to remember four key points: preparation, using web tools to your advantage, providing the right information and screening buyers.
Preparing to Sell a Restaurant. Selling a business is not something to rush. Ideally, many months should come between making the decision to sell and putting a restaurant on the market. This allows you to assess the financial situation of your business properly and create reports detailing potential growth and revenue. It will also give you enough time to modernize any outdated systems that might deter buyers once the restaurant hits the market.
Have all the information potential buyers might want—past performance, business costs, strengths and weaknesses, for example—prepared in advance. Business must go on as usual while the restaurant is for sale, and once buyer inquiries begin coming in, you might find yourself too busy to put all the necessary information together and keep the business running.
Using Web Tools to Your Advantage. Online business marketplaces offer a variety of tools that can help make preparation for selling easier.
For starters, it is crucial to price your business accurately. According to numbers compiled by BizBuySell, restaurants sold for an average of $195,000 last year.
That data also indicates that restaurants typically sell for an average of 85 percent of sellers' original asking price. If you want to sell your business for $200,000, you'd do well to ask for $235,000.
Of course, the price your restaurant will sell for depends in large part on both its revenues and the restaurant's record of profitability. An analysis of online sales data shows the price-to-revenues multiple for restaurants averaging 0.46 and the price-to-cash-flow multiple average to be 2.23.
In other words, a restaurant with annual revenues of $500,000 would likely sell for $230,000. An alternative valuation might be arrived at using the company's cash flow information. For example, if the business had an annual cash flow of $100,000, the valuation would be $223,000. You will find that most restaurant buyers are more interested in cash flow numbers than in revenue numbers.
Online marketplaces can often provide information that helps you to define your selling price.
A comparables report can provide specifics based on comparable establishments, chosen geographic area, gross income and cash flow ranges. This kind of report, available on sites like BizComps.com and other business-for-sale sites, can break down pricing information for restaurants —a broad category—into more specific guidelines.
For example, a full-service restaurant might be priced at around 33 percent of annual sales, as opposed to 40-50 percent for a fast food restaurant. More specifically, a fast food restaurant specializing in hamburgers might sell for 35 percent of annual sales, while a pizza restaurant would generally sell for around 30 percent.
An online marketplace can also provide a listing of brokers who can provide additional help in buying or selling your restaurant.
The option to upgrade a listing to premium status can also help users sell their restaurant more quickly and easily through the ability to include more descriptive text in an ad search result, as well as earning a highlighted, eye-catching placement.
Standard listings often give sellers the chance to capture potential buyers' attention with one headline. If this is the option you choose, make sure the title is concise and clear, yet attentiongetting. The title should convey why potential buyers should be interested in finding out more.
If there is anything about your business that makes it particularly desirable, such as location, make sure to include it in the headline as a selling point.
Providing the Right Information. Confidentiality is a significant factor for business sellers. To keep the restaurant running smoothly during the selling process, you will probably want to be extremely careful not to let customers, employees and competitors know you are selling. This means that certain details should be kept at a minimum when posting an online ad.
At the same time, it is not a good idea to post so little information that nobody will be interested in the listing.
The key is providing the most information possible without giving away the identity of the business. It is important to give viewers an idea of the general location of the business, but do not post the business street address, phone number or e-mail address in the listing. Instead, create a separate e-mail address and phone number for inquiries from potential buyers. If you have to provide further detail, have the recipient sign a nondisclosure agreement.
Do tell potential buyers why you are selling the business. If you are honest, people will tend to be less skeptical, and you will probably sell your business faster.
Once you list your business for sale, you might find that certain questions come up repeatedly in inquiries. This can serve as a good guiding point for what you should change or add to your listing if ongoing editing is possible.
Screening Buyers. Another potential issue to prepare for is inquiries from people who are not serious about buying. Sellers often encounter people who have the dream, but no realistic intention of going through with a deal.
It is difficult for online marketplaces to screen potential buyers, so sellers have to determine whether prospective buyers are serious or are just kicking the tires. The best way to do this is by asking potential buyers direct questions about how long they have planned on buying, how they plan on financing the restaurant and how much money they have for a down payment. This kind of informal interview will allow you to determine early on whether the prospect is worth pursuing.
Mike Handelsman is general manager for BizBuySell.com, the Internet's largest business for sale marketplace.