Why Are You Asking the Question?
You have been grinding away for years, never taking a vacation, plowing almost every penny you have ever made back into the restaurants and then one day you look up from your computer screen and ask yourself the proverbial question: “Should I consider selling my restaurant business?”
If this question keeps popping into your head, you need to ask yourself why:
• Bank account is full
• Major concerns over macro-economic trends i.e. rising labor costs, commodity cost volatile, etc.
• The brand has peaked
• The capital markets are crazy good
• The tax environment is positive
• Looking for a new challenge
• Rather spend your time chasing around a little white ball or the grandkids
• Better returns are available elsewhere
• Spouse says it’s time
• Doctor says it’s time
Once you figure out the WHY, you can start thinking about HOW to sell your restaurant business and WHEN.
Most restaurant industry entrepreneurs don’t work like dogs for years on end and take unconscionable financial risk just for the fun of it. Making a lot of money is almost always of paramount importance, and therefore, financial considerations will be the critical factor driving the timing of the exit.
From a financial perspective, the ideal time to sell is when all of the following conditions are present:
• Macro-economic trends are positive
• The overall restaurant sector is in favor
• Your segment of the restaurant industry is in favor
• Your brand has strong momentum
• Your business is firing on all cylinders
• The lending markets are robust
• Private equity is plentiful
While it is unlikely that all of these critical economic factors will be bright green at the same time, if they are, it’s probably time to get out of town, and pronto. Conversely, if they are all red or mostly red and yellow, you can probably go ahead and renew your subscription to Franchise Times. It’s important to understand that it only takes one of these factors working against you to have a significant impact on value. By way of example, consider the current plight of Domino’s franchisees. The world is pretty darn good for them these days, but with the likes of Uber Eats and Door Dash having recently crashed the delivery party, there are suddenly serious questions about the viability of the pizza sector’s business model.
For some restaurant business owners this actually can be an important a factor in the decision process as the financial considerations. Managing a vibrant entrepreneur enterprise can be a pretty exhilarating experience and for most successful franchisees, managing your stock portfolio, not so much!
You may not always think so, but you have developed close personal relationships with employees, fellow franchisees, vendors, maybe even your bankers and lawyers
(well, probably not the lawyers). Most of those relationships will go by the wayside when you sell. You need to be ready for that. It’s also important to remember that you have a lot more control over your restaurant company than you do the New York Stock Exchange. Another thing you need to think deeply about: What is your next act? Five rounds of golf a week or another deal?
You Can Have Your Cake and Eat it, Too.
If you are uncertain if you are ready to completely walk away, there are realistic alternatives to getting all the way out:
• Sell a minority stake
• Sell a majority stake
• Keep some of the stores
• Keep the real estate
• Stay on as a part time consultant
The Wrong Reasons to Sell
• Don’t like the brand’s current CEO. There will be a new one soon.
• Don’t like the brand’s current CMO. There will be a new one soon.
• Don’t like the new store prototype. There will be a new one soon.
• Don’t like the new ad agency. There will be a new one soon.
• My rival brand is kicking my butt — they have the Midas touch. Right now that may be true, but it’s only a matter of time before their golden boy CMO launches a couple of bone-headed promotions or a series of really awful ad campaigns.
• My longtime director of operations just told me he is moving to Tibet to become a Buddhist monk —tomorrow! That’s a real bummer, but that’s what high-priced headhunters are for.
• My best restaurant burned to the ground last night. Also a bummer, but nobody got hurt, you’re fully insured, and it needed a remodel anyway.
What About the Kids?
Are any of the kids ready, willing and able? You need to be extremely honest with yourself on this because the answer must be a definitive “yes” to all three or it won’t have a happy ending for them or for you.
Make sure you think through the decision very carefully as it is extremely difficult to un-ring the bell. If you change your mind after the sale process has been initiated, your franchisor, management team, employees and lender will all know you have at least one foot out the door which is likely to adversely impact their commitment
THERE IS NO EASY ANSWER. TIMING, FINANCIAL AND EMOTIONAL FACTORS ALL NEED TO BE THOUGHTFULLY CONSIDERED BEFORE YOU SELL YOUR RESTAURANT BUSINESS.