Selling a Restaurant: Working with Prospective Buyers

In part one, you prepared all the documents you needed to begin offering your restaurant for sale. In part two, you wrote an informative ad and began marketing your restaurant.

At this point in the sales process, you should soon begin to receive emails or phone calls from prospective buyers.

In this next section, you will:

• Safeguard your time and energy by screening potential buyers
• Invite qualified, serious buyers to view your restaurant at its best
• Schedule walk-throughs that inspire competition between bidders
• Prepare and rehearse your answer for the toughest question buyers will ask

Once you’ve moved through the steps outlined in this section with a serious prospect, you’ll be ready to begin the actual sales negotiations.

Let’s begin.

Selling a Restaurant-Screening Prospective Buyers

The purpose of your first contact with potential buyers is to judge whether they’re serious and qualified. Don’t waste your time with tire-kickers and unqualified buyers.

At this stage prospective buyers can’t be expected to hand over a financial statement, but you can still determine if they’re qualified by asking questions and requiring them to sign a non-disclosure agreement.

The best approach is to tell them that the landlord needs to approve the buyer and before spending too much time you want to make sure they meet the minimum requirements of the landlord.

If you’re selling for all cash, you want to determine if they have the funds to buy your restaurant. You can phrase it this way: “The landlord has minimum cash in the bank requirement. How much cash can you show in your bank accounts?” Ask them about their concept and experience in the restaurant business or general business experience. Again, you can explain the landlord has certain requirements and that you don’t want to waste either party’s time.

If they provide satisfactory answers, ask them to sign a non-disclosure agreement. This added hurdle may frustrate the buyer, but the majority of sellers and business brokers require them, so if they are serious, they should be willing to sign the non-disclosure.

What is a Non-Disclosure Agreement?

Wikipedia provides the following explanation:

A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects nonpublic business information.

NDAs are commonly signed when two companies, individuals , or other entities (such as partnerships, societies, etc.) are considering doing business and need to understand the processes used in each other’s business for the purpose of evaluating the potential business relationship. NDAs can be “mutual”, meaning both parties are restricted in their use of the materials provided, or they can restrict the use of material by a single party.

Selling a Restaurant-Keep Track of Prospects

It’s very easy to lose track of prospective buyers during the marketing process. A prospect that does not seem like a good fit today may be a real buyer next month. Keep track of everyone that inquires about your restaurant.

The following spreadsheet can be used. Fill-in their name, contact information and brief description about them based on your communications. If circumstances change, such as a price reduction, go through the list and contact each prospect again to see if they may reconsider your restaurant.

Selling a Restaurant-Pre-Meeting

Once you receive the potential buyer’s signature on a non-disclosure agreement, you can provide the restaurant’s address to your prospect.

Prior to signing the non-disclosure, the buyer knows very little about your location. It’s a good idea to have the prospect drive to the site and take a look as a customer. If they like the location, you can schedule a meeting to show them the entire space including the kitchen.

If you are busy at certain times of the day, suggest they stop by at those times so they can get a feel for the traffic. Nothing sells a restaurant more than foot traffic and customers.

Remind the prospects not to ask any questions or discuss the sale with your employees. You will recognize potential buyers as they stand outside looking at your restaurant or how they look around as they order a meal or drink.

Selling a Restaurant-Meeting with Prospects

After the initial impression, most prospects will need to see the space in more detail prior to making an offer. It’s best to schedule a walk-through when you are slow and will not be distracted with running your business. If you are very sensitive about your employees knowing, you can limit showings to early morning or after closing.

If you have multiple prospects interested, it’s a good idea to schedule a showing with more than one prospect to create a sense of demand and competition.

Selling a Restaurant-Showing the Space

Be prepared to answer questions, and try to understand the prospective buyer’s perspective. “If your restaurant is such a great place,” they may ask, “Why are you selling?” Practice your response to this question and have a good answer prepared. “Retirement” and “I’m moving out of the state” are better answers than “I want to focus on my other more profitable restaurants.”

Be as open as possible, but avoid getting into too much detail about financial operations if you are selling the restaurant for its assets. You should answer questions truthfully and don’t make any misrepresentations.

Let the buyers know that upon acceptance of an offer they will have time to inspect the premises and review the lease agreement and any other information you have available.

Highlight the key selling features that you’ve identified, such as: “I’ve been told it’s almost impossible to get this type of liquor license in this neighborhood” or “The vacancy rate in this area is almost zero. It’s very hard to find a place to rent and I have a below market lease.”

Don’t oversell, and let the prospect do most of the talking if possible. Let them know you are happy to answer any questions they may have.

Summary

Selling a Restaurant-Screening Potential Buyer

The purpose of your first contact with potential buyers is to judge whether they’re serious and qualified. If they are qualified send Non Disclosure Agreement

Non Disclosure Agreement

Buyer agrees not to disclose any confidential information about the business or sale.

Keep Track of Prospects

Keep track of everyone that inquires about your restaurant using the prospect tracking sheet.

Selling a Restaurant-Pre-Meeting

Once you receive the potential buyer’s signature on a non-disclosure agreement, you can provide the restaurant’s address to your prospect.

Have the prospect drive to the site and take a look as a customer. If they like the location, you can schedule a meeting to show them the entire space including the kitchen.

Selling a Restaurant-Meeting with Prospects

Most prospects will need to see the space in more detail prior to making an offer. It’s best to schedule a walk-through when you are slow and will not be distracted with running your business.

Selling a Restaurant-Showing the Space

Be prepared to answer questions, and try to understand the prospective buyer’s perspective.

Answer questions truthfully and don’t make any misrepresentations.

If you have completed the steps above you are now closer to receiving an offer to purchase or have learned what issues may be preventing buyers from taking the next step. Some issues you may be able to address may include the perceived value compared with your asking price.

Congratulations!

Let’s move on to Part 4: Negotiating the Deal.