The concept of selling can be driven by a variety of factors, whether it’s post-COVID fatigue, the desire to cash in on your success, or simply reaching an age where you’re ready to step away after years in the industry. Whatever the reason, planning your exit strategy is as crucial as building the restaurant itself. Knowing when and how to exit your business can help you maximize the value of your establishment, ensure a smooth transition, and secure your financial future. This article will explore key steps in creating an effective exit strategy, from understanding your restaurant’s value to navigating the sale process, so you can make the best decision for both you and your business.
Know the Numbers
One of the first steps in this process is appreciating your restaurant’s value. Follow tips to improve your cash flow ahead of time so that this process can be expedited and more efficient when the time comes. FSR Magazine reports that a business with a 60% margin is a strong candidate to negotiate the sale of their business. To get your business to that 60% margin, consider ways to increase your sales or decrease costs. These are two of the most important things that are attractive to buyers.
PRO TIP:
- Increase your sales through marketing campaigns or remind your staff of upselling tactics.
- Decrease costs by negotiating vendor contracts, checking inventory practices and evaluating how much you spend on labor each month.
Your company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) is a key number that reflects the health of your business. This metric indicates that your company has growth potential and reflects the overall profitability of your operation. Work with a hospitality finance expert like Paperchase to evaluate your EBITDA and determine a course of action when selling. Additional forms relevant to this are your P&L statements, balance sheet, and cash flow statements.
Calculating Your Course of Action
There is no one clear way to exit your business. Some of the options include liquidating assets, merging with another restaurant, or even franchising. Each of these factors depends on the individual needs of your business. Know when you plan for this exit to happen. Is this a long-term goal, or something you plan to complete in the next year? Once you create a timeline with your finance team, assemble your assets. This can include tangible things like your furniture, equipment, and inventory or non-tangible objects such as your lease or any licenses.
Assess the Market and Potential Buyers
Before proceeding with any formal steps, it’s important to assess the market to understand the demand for restaurants like yours. Consider reaching out to business brokers or real estate agents who specialize in the hospitality industry to gain insight into how the market is performing in your area. Factors like location, competition, and the overall appeal of your restaurant will impact the sale price and type of buyer you attract.
Potential buyers could range from individuals seeking to own their first restaurant to seasoned restaurateurs looking to expand their portfolio. It’s essential to understand what type of buyer is most likely to be interested in your establishment. Some buyers may be looking for a fully operational business, while others might prefer a space with the potential for redevelopment.
If you’re planning to sell to another operator, you may want to consider ensuring that your restaurant runs as seamlessly as possible during the transition. Buyers typically look for businesses with minimal operational issues, so any lingering problems (like management turnover or unresolved operational inefficiencies) should be addressed before listing your restaurant for sale.
Legal and Tax Considerations
Selling a hospitality business involves more than just handing over the keys. You’ll need to work with legal professionals who specialize in business transactions to ensure the sale is properly structured and all relevant legal documents are in place. This includes:
- Purchase Agreement: A formal contract outlining the terms of the sale, including price, payment terms, and other important conditions.
- Non-Compete Clause: You may be asked to agree not to open a similar business in the same geographic area for a certain period after the sale. This protects the buyer’s investment.
- Lease Assignments: If the restaurant is in a leased space, transferring the lease to the new owner will require negotiation with the landlord. Make sure this is addressed in advance.
On the tax front, there are various tax implications that come with the sale of a business. You may be subject to capital gains tax, and depending on how the transaction is structured (asset sale vs. stock/share sale), there could be additional tax considerations. Working with an accountant or tax professional is essential to ensure you’re minimizing your tax liability and planning appropriately for your financial future post-sale.
Preparing for Transition
Once the sale is finalized, transitioning the business to the new owner is a critical phase. It’s not just about handing over the keys; it’s about ensuring a smooth handover of operations. This includes introducing the buyer to key employees, explaining supplier relationships, and ensuring that the buyer understands the day-to-day operations of the business.
Some business owners choose to stay on for a brief period as a consultant to help the new owner navigate the restaurant’s operations. This can help provide continuity for both staff and customers and also ensure that the buyer feels supported as they take over the reins.
Emotional and Personal Considerations
Finally, it’s important to acknowledge the emotional and personal side of selling your restaurant. For many owners, their restaurant is more than just a business, it’s their passion, their livelihood, and in many cases, their identity. Selling a business can be a difficult decision, and it’s common to feel a sense of loss or anxiety about what comes next.
Take the time to reflect on your personal goals after the sale. Whether you plan to retire, pursue other ventures, or take some time off, understanding what you want to do next will help you approach the sale with a clear mindset. Surround yourself with trusted advisors and support systems to help you navigate this transition.
Conclusion
Planning your exit strategy when owning a hospitality business is crucial to ensuring that you leave on your terms, with financial success and peace of mind. By focusing on improving your restaurant’s financials, understanding your business’s value, and carefully considering the various exit options available to you, you can set yourself up for a smooth and profitable sale. Paperchase offers comprehensive advising services to help you make the best decisions for your hospitality business. For more information about how Paperchase can help you plan your restaurant exit strategy, visit paperchase.ac.
