Getting your Restaurant Ready 1

Managing the Sale Process:
Getting Your Restaurant Company Ready for Sale — Failing to Prepare is Preparing to Fail.

Preparation is Key

In the immortal words of legendary UCLA basketball coach John Wooden, “Failing to Prepare is Preparing to Fail”. In the context of selling your restaurant company, failure is typically defined as not fully optimizing the sale price. Like most things in life, the best way to maximize the probability that you will achieve the desired outcome is to take the following three steps:

  1. Clearly identify the objective
  2. Put together a detailed plan for achieving that objective
  3. Execute on the plan with passion and diligence

If after careful deliberation and thoughtful consultation with your trusted advisors, you determine that it is indeed the right time for you to sell your business, there is an extensive series of actions that you need to take to ensure that you maximize your sale price. The action items can be divided into five broad categories: Facilities; Financial Results; Leases, Franchise Agreements and Contracts; Books and Records and Intangibles.

How to Best Prepare to Sell your Restaurant

Facilities:

  • Fix the broken stuff and not just the stuff in the dining room.
  • Fill in the potholes, seal and stripe.
  • The roofs are always the biggest problem. Get them fixed right and make sure you get a transferable warranty from a reputable roofer.
  • Replace stained ceiling tiles. Just touching them up won’t cut it.
  • Paint everything that isn’t moving.
  • No ice build-up in the walk in. Don’t just knock the ice off, fix the broken seal.
  • No graffiti, not even a squiggle.
  • Make sure the POS system is the current standard.
  • Have at least one new piece of equipment in every kitchen. It doesn’t really matter which piece of equipment. It’s just important the prospective Buyer sees you haven’t deferred buying new stuff because you’re selling.

Financial Results:

  • Keep positive cash flow trends going, but not at the expense of quality of earning i.e. don’t do things that will be perceivedGetting your Restaurant Ready 2
    as short-term fixes or one-time boosts.
  • If your cash flow is heading in the wrong direction take aggressive steps to reverse the trend. If possible, you should delay the sale until the turnaround has firmly taken hold.
  • Raise prices, but not too much.
  • Close bad stores.
  • Clear out the garbage in your store P&Ls, i.e. superfluous service contracts, discretionary expenses and unnecessary costs.
  • Don’t cut bonuses.
  • Don’t skimp on overhead at the expense of operations. The buyer is going to impute his own overhead factor anyway.
  • If you aren’t already doing so, start taking advantage of vendor discounts for prompt payment.
  • Shop your insurance.

Leases, Franchise Agreements and Contracts:

  • Extend the base terms on attractive leases whenever possible.
  • Negotiate additional FMV extension options on leases whenever possible.
  • Exercise purchase options on good restaurants.
  • Extend franchise agreements on high volume restaurants whenever possible.
  • Don’t sign long term contracts for anything.
  • Review your contracts to see if there are any pending auto extension previsions. If there are have them removed.
  • Try to negotiate more favorable contract terms whenever possible.
  • Make sure your debt doesn’t have big prepayment penalties
  • Try to buyout of any equipment leases.
  • Complete any mandated remodels or new store development.

Books and Records:

  • Get lease files in shape, including all amendments and landlord correspondence
  • Get employee files in shape.
  • Organize contract files.
  • Make sure maintenance logs for each store are complete and up to date.
  • Find all your old property surveys and environmental reports, review them and make sure you have a handle on any issues that were raised.
  • Make sure that all financial records are complete, well organized and readily available.
  • Understand the tax basis of your assets.

Intangibles:

  • Make sure your good people stick around.
  • Lock down attractive development opportunities.
  • Keep your customer service scores up.
  • Don’t get sued and if you already are, try to negotiate a reasonable settlement.
  • Fix any problems you may have with your franchisor. If he hates you, this will be the time he gets even.
  • The same thing goes for your landlords.

Final Thoughts

The best way to improve the probability that you will realize the full value of your restaurant business at the time of sale is to do the hard work needed to be successful. Start the planning and preparation at least six months, and preferably a year before you plan to take your company to market. While you can’t be blind to general market conditions, putting up the for sale sign before you have vacuumed the carpets and mowed the lawn, will needlessly impair value and limit the buyer pool. Do what is needed to be successful.

WHILE THERE CAN BE NO GUARANTEE OF SUCCESS, LUCK FAVORS THE PREPARED.

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