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Ten tips for selling your pizzeria

Selling your pizzeria


April 7, 2009
By Lloyd R. Manning

Topics

In the life of many restaurateurs, there comes a time to pass the oven
and pans to someone else and move on. There are dozens of reasons you
may decide to sell your pizzeria, many of which have nothing to do with
failing health or declining economics.

In the life of many restaurateurs, there comes a time to pass the oven and pans to someone else and move on. There are dozens of reasons you may decide to sell your pizzeria, many of which have nothing to do with failing health or declining economics. You are in a very competitive low profit, stressful business that can take its toll. In my many years as a commercial real estate and business appraiser and broker, I frequently witnessed restaurateurs who did everything wrong with selling their businesses and were frustrated when a year or so later they were still making pizzas.

It is never as simple as placing an advertisement in a local newspaper, or listing with the nerdy cousin realtor and beating off the multitude of buyers who tramp through the door. Because of the number on the market, selling a restaurant must be a well planned and well executed undertaking. Bear in mind the following 10 tips on how to accomplish a successful sale.

1. Ensure that your pizzeria is salable
Make sure you are offering something tangible to the buyer. Don’t wait until you have taken everything good out of it. Sell on the uptick. Leave something on the table for the next guy. To be salable, a pizzeria must be capable of creating additional value for the purchaser. There can be no sentimental value taken into account, just the facts that are there. Your restaurant is not the jewel to another that it is to you.

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2. Set the stage
Ensure your pizzeria is neat and clean, and that it will pass the strictest of sanitary and health inspectors at any time. The guy that stopped in for lunch without saying anything to anybody might be a buyer. Ensure all equipment is in good working order and there are no torn or dirty menus, dirty aprons, leaky taps, lifting floor tiles, or plugged up range canopy filter.  

3. Set a realistic price
Buyers purchase on potential yet base the price they will pay on the business history. Far too many restaurants do not get sold because the price is too high. Price and value must be the same. Better yet, value should exceed price. It may pay to get the pizzeria professionally appraised. However, this could be a waste of money if you have stripped the place and it’s going down with no hope of recovery. If you have it appraised, ensure the person hired is competent to assess restaurants. Few real estate appraisers are. There’s a big difference between appraising a small commercial building and an ongoing concern.

4. Have a minimum of three years, preferably five, Income and expense statements ready
Don’t provide balance sheets. Don’t cook the books to make the place look better than it is. If you get caught you could be charged with fraud. Besides, smart buyers will take your statements to their accountant, who in turn will know if you are being dishonest. Plus, there are other ways to tell. Whatever you tell Canada Revenue Agency is what you must tell a buyer.

5. If you lease the real estate, be able to explain the finer points of the agreement
If the lease has a short expiry date, it may be wise to negotiate a new lease before trying to sell. Any prospective will think a big increase in rent is coming; so a lease that expires within a year or two will scare away most buyers. If you own the real estate consider your options. Sell as part of the package, lease it to the pizzeria buyer and retain it as an investment, or sell it later to an investor.

6. Hire a business broker or commercial realtor with considerable experience inselling businesses
I know this is argumentative. You may think that a broker is overpaid for very little work. Not so. The competent ones earn their fee. The incompetent you should not hire. There’s a big difference between managing your pizzeria and selling it. However, if you are sufficiently talented in this area, and are prepared to spend the money for advertising, fend off lookers, dreamers and tire kickers and suffer through the explanations and showings at the most inopportune times, go for it. As it will detract from what you do best (making pizzas), you probably won’t save any money in the end, just have the satisfaction of knowing you did it yourself. If you hire a broker or realtor, ensure this person is experienced in selling businesses.

7. Consider seller financing 
Not all restaurants are for sale but, there are many. You have lots of competition. Most potential buyers do not have a wad of cash and banks are normally reluctant to lend to restaurant buyers. The mortality rate is far too high. What this means is, the chance of you getting all cash is slim.  Accordingly, to effect a disposition you will probably have to carry back a substantial part of the purchase price by way of seller financing. If you do, beware of a caution or three! Ensure that you have sold at a fair price, and that the purchaser has an actual and not artificially concocted down payment for a minimum of 50 per cent of the purchase price. Ensure that the pizzeria is under capable management that can make the payments, not only on the lien or mortgage you will carry, but on any amount he or she may have borrowed to get into the business. Ensure that your landlord accepts an assignment of the lease discharging you from all responsibility as you could be stuck for unpaid rent (you want to do this even in an all cash sale). If the purchaser defaults, all you will get back is the FF&E. Make sure your unpaid interest is never more than the FF&E’s salable value. Never take back a subordinate lien or mortgage, unless it is for a larger amount by which it will be in your interest to assume the defaulted first charge in the event of bankruptcy. If you carry a smaller amount you will lose it, guaranteed. Try to get a personal guarantee. You may not get one, but try.

8. Inform your employees
You may not agree with me on this one but as a result of many years selling and appraising businesses, I can tell you plenty of horror stories that occurred when the staff was not informed. Almost always they soon figure out who these strangers and a broker coming in more than once are. Usually a prospective buyer will want to see the restaurant when it is open and operating, not after it is closed. When the owner tries to keep selling a secret, it most often causes more disagreement and distrusts that if he or she were upfront. Although sworn to confidentiality, some buyers will ask employees the most awkward of questions. When buying and selling hotels, if I wanted to know the room occupancy I would ask the maids, not the manager. The maids gave me the correct answer.

9. Be positive about your motives
Be positive about your motives for selling the pizzeria and more particularly what you want to do after the sale. Clarify your objectives and identify your constraints. You do not want to regret your decision in a few months time.

10. Develop a corporate profile 
This is a one or two page highlight sheet that briefly outlines the salient features of your pizzeria. Detail the strong points. Provide the type of restaurant, services provided, classification such as seating capacity, delivery services, carryout facilities, location data, accessibility, building type and occupancy, floor space occupied, total sales and income, hours of operation, lease highlights, total annual rent including common area costs, lease expiry, renewal options, and number of staff. And, of course, include price and terms. Be sure to identify growth opportunities and how a buyer can improve the restaurant. Add anything to assist in making your case. Make the profile neat and organized so that a prospective buyer will regard this as a very professional presentation. If you employ a competent broker, he or she will do this for you.

Successful divestment depends on having a positive marketing plan, finding and qualifying a capable purchaser and providing this person with sufficient data to encourage him or her to say “yes.” Most times a restaurant that is well established, well located, has modern FF&E in good repair, a good premises lease, a well trained and reliable staff, is growing, profitable, and properly priced, is salable. Still, you will get maybe-someday buyers and curious lookers. You must kiss a lot of frogs to find a prince (or princess).

Before any buyer will say “yes”, that person must have a complete understanding of what he or she is buying, and that it meets his or her requirements, overcomes the constraints and is a genuine opportunity. He or she must be convinced that buying your pizzeria is preferable to buying a competitor, starting a new one, or continuing to do whatever he or she is now doing. You must tender a winning analysis of your market position and how your restaurant fits in and can be made even more profitable. It’s a tall order, but one that is doable if you do it right.

Lloyd R. Manning is a semi-retired commercial real estate and business appraiser, broker and financial analyst. He has had four business books published. He now writes articles for trade magazines on business topics. Lloyd resides in Lloydminster, Alta., and can be reached at lloydmann@shaw.ca.