A longtime owner told me she wants to retire but is not comfortable handing off her lovingly built family business, with her mum’s name on it, to someone outside the family. Yet she also is not keen to push family members into keeping the business going – trying to spare them a life of hard work, I’ve been told.
What goes into such a decision? What are the options available to you, the current owner? No matter how you may attempt to weigh things with only your rational mind, this isn’t just a business decision, it’s also an emotional one. People will tell you to take the emotions out of the decision, but most of us got into this business because we have big hearts, so that advice isn’t particularly helpful.
Firstly, it’s important to know that you’re not alone. I’ve personally known of many individuals who’ve struggled and are struggling with this decision. There have been some owners who’ve sold their business, only to have had to buy it back it a few months or a year or two later after seeing it being run so poorly. There are some owners who’ve handed their business down to family members, only to see it tear them apart. Not everyone is suited to run this type of operation, and not all family members are capable of working well together.
Years ago, when families were larger, there was always a plenitude of cousins, nieces and nephews to help out. In fact, that’s how many pizzerias initially grew into local chains. These days there are fewer kids and a heavy focus on academia, so not as many young people are available to work or want to get into the business. That’s not to say that you won’t find an ideal candidate, but that it’s important to properly assess these areas of potential strengths and shortcomings to help guide your best decision.
If you opt to sell the business outside of the family, what restrictions, if any, will you have on the sale and ongoing running of the business? Are you selling the recipes, equipment, name and its goodwill? One owner-operator that I know decided he was going to sell his restaurant, and slowly began changing his recipes: he brought in new staff, trained them with the new recipes, then sold it to an existing employee. It’s my understanding that he sold it “whole,” meaning with the (new) recipes, existing name, phone number, clientele and all the equipment. I’m not entirely sure of his motives in changing his recipes before he sold. I mean, if you’ve decided that you’re getting out of the business, and you want the business to continue, then wouldn’t you want it to change hands with the greatest chance of success?
Another consideration is the value of your pizzeria business. How does one determine the value? Business brokers who specialize in this have a formula for a business with existing sales. You can do 20 x weekly sales or 3-7 x gross earnings. That said, you still need written procedures, recipes and company policies to be able to sell it. It can’t all be run by one person, without any type of training manuals or documentation. A potential buyer will want to see your operations manual, in addition to an agreed upon period of training of the new owner(s) or manager. Another consideration is whether some of your key staff will stay on after the sale.
A friend of mine recently sold his pizzeria. I asked him if he would mind answering some questions for this column, in order to round it out with a personal experience. He was happy to oblige.
Q: What contributed to your decision to sell your pizzeria?
A: It’s been a rough past few years, profits have been down because labour’s gone up, costs have gone up, inflation has been out of control. When the profit was getting lower and lower, I was already thinking of selling my business. And I am assuming that for the next couple of years, the economy will still not be very good for business.
Q: How did you establish the value (selling price) for your pizzeria?
A: My net profit x 3-3.5 per cent.
Q: Did you sell it with the name, recipes, phone number and equipment? Or part of?
A: I sold the name, phone number, the equipment – everything.
Q: Did you place any conditions on the sale of your pizzeria? For example, that they cannot change recipes or cannot change the name.
A: No, I didn’t add any conditions, because they were going to rebrand the name and everything. They added a brand-new oven, an air make-up unit and a walk-in cooler. They shut down for three weeks for renovations.
Q: How did you market your pizzeria for sale?
A: I found an agent. I found it was better to use an agent than to do it myself. Because an agent has a network.
Q: Did you get the asking price?
A: Not exactly the asking price, but pretty close.
Q: Is there anything else you’d like to add?
A: There are lots of businesses on the market, and every day there are more. It’s a buyer’s market, so it’s really tough to sell this year, and I expect the same for the next two years.
I hope this column gives those of you who are struggling with this decision some food for thought, some hope and some direction on how to come to the best decision for you and the business you’ve poured so much of yourselves into. I think it’s interesting to note that while my friend was good and ready to sell his pizzeria business, someone new was good and ready to jump in, and even invest in some new equipment to boot. May they both find success in the next chapters of their journeys.
Diana Cline is an award-winning pizza chef, a partner with Diana’s Cucina & Lounge in Winnipeg. In addition to creating award-winning recipes, Diana is a consultant to other pizzeria owner/operators in menu development, creating operational systems and marketing to help operators grow their business strategically. Contact her at email@example.com.
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