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Hanging Up Your Apron? Selling Hospitality Business the Right Way!


Hanging Up Your Apron? Selling Hospitality Business the Right Way!

Owning a hospitality business is hard work, it's hand-on and rarely do owners get to sleep in or take holidays. After a few years of dealing with a daily barrage of making, baking, cooking, cleaning, wages, expenses, orders, staff, stock, specials all day everyday seven days a week, hospitality can be an emotional and physical grind. 

If you are starting to daydream about sleep-ins and sunny beaches and thinking about the next adventure in between dishing up smashed avo's and rosters, it could be time to sell before the spark fizzles out. 

Whether selling your hospitality business for $20,000 or $5 million, as a business owner, deciding to list your business for sale is a major decision and should be your opportunity to walk away with a chunk of money and get your investment back plus some (hopefully) so you can happily move on to the next adventure.

The internet has made it very easy for brokers and private sellers to list a business for sale, hence there are thousands of hospitality businesses for sale in the market gathering dust. Your listing will be one of many. Your objective is to stand out as a desirable business in the market and make buyers want what you are selling.

Time is of the essence. How much and how quickly you sell for is up to you and a matter of planning, preparing and marketing your business for sale to get the best result. You don’t want to be for sale for years, which can happen and does because you were “undercooked & unprepared” so to speak.

Just like a house that gets prepared for sale, you need to take the same approach when selling your business.

It’s no secret, successful brokers and sellers in the market, Do It Right, preparing their businesses for sale, arming themselves with all the necessary information well in advance of listing, so when the time comes, they are ready to deal with enquiries, buyers, deal breakers, negotiate and close a deal.

Before contacting any brokers for an evaluation or listing online, plan for a successful exit of the business and consider what you need to do to prepare your business for sale. Selling a business can take up to a year or more, many business just never sell and end up closing when the lease runs out. Typically, each part of the process takes time and money;

  • Planning & Preparing the Business for sale: 1 to 3 months
  • Marketing and Advertising the business (finding a buyer): 1 to 9+ months
  • Formal Due Diligence: <>1 month
  • Closing the Deal: <>1 month


Planning to Sell

There are many variables and moving parts that can affect the sale of a business, jumping into listing your business for sale too quickly can cause unnecessary problems and become complicated if the business is not prepared to sell.

The key to a successful sale is doing your own pre-sale due diligence to address potential areas that could slow or become Deal Breakers and block your sale. As a business owner, you need to take a step back and view the business as if you were a prospective buyer in the market and see it from their perspective.

Any issues a prospective buyer discovers will give the buyer leverage to negotiate a lower price or put them off your business completely.

Delaying or not even doing any pre-sale planning could become your biggest Deal Breaker when selling a business. It's a good time to get on top of basic things that often get put on the back-burner.

  • Make a list of outstanding maintenance and cleaning items.
  • Check and service all equipment.
  • Make a list of improvements in the business.
  • Make a list of opportunities in the area.
  • Get receipts and records in order.
  • Do the Books
  • Be Proactive 
  • Don't Procrastinate


Preparing to Sell

Prospective buyers will ask you about all aspects of the business to investigate business health and substantiate your financial claims before they move forward. If you don’t have key information and documents ready when buyers contact you, buyers will get the impression you are not serious about selling and will walk away with their money and good business brokers will unlikely pay you any attention when you call.

  • Verified Financials & Tax Reports: 1 to 3+ years.
  • Premises Lease.
  • List of Equipment.
  • Licenses & Permits.


Marketing the Business

There are lots of businesses for sale in the market and it's unlikely buyers will remember every business owner they speak to or remember the financials and lease details you explained. Discussing the business with every buyer that calls is time consuming, explaining the business again and again with each new enquiry, playing telephone tag and waiting for responses is frustrating and not practical if you're trying to run a business.

Experienced brokers and savvy sellers prepare a Business Profile that explains the business thoroughly to buyers which can be as simple as a one page summary to a comprehensive professionally prepared 10-20 page document, it all depends on the type, price and complexity of the business.  Plus, buyers would prefer to receive a prepared document about the business first, then decide to see if it is worth looking at. Whether your business is worth $20,000 or $20 million, out of all the potential businesses a buyer might look at, they will remember the one with the information pack.

At the very least, a Business Profile should include enough information about the business to spark buyers interest, then they can come back to you for more detailed information if there is genuine interest.

Some things you could include in a business summary;

  • Short description of the business, hours, capacity, location
  • How it was started/ established.
  • List of plant & equipment included with the sale.
  • Intellectual Property such as domains name, website, social media.
  • Financial summary: turnover, rent, Cost of Goods, wages, expenses, addbacks and profit!
  • Lease details including rent, lease terms, annual increases
  • Asking price.

Do the Business Profile as standard practice and let the document sell the business for you, it will answer most of the buyer’s questions and many they didn’t think of.


Doing the Financials

The financial statements of a business are one of the main items buyers, accountants, solicitors, lenders, and brokers want to see. Good or bad, buyers and intermediaries will want to see the financials for at least 1-3 years, depending on how long you have been trading for. Have your financials done and invoices organized ready for buyers before you list the business for sale or call a business broker. If you have poor or average financials, a business summary can help explain why to prospective buyers which your financial reports alone won’t.

  • Good Financials (Deal Maker)
  • Bad Financials (Deal Breaker)
  • No Financials (Deal Breaker)


Securing the Lease

The next main document is the lease, prospective buyers will want to review the rent, lease terms, annual increases, rent reviews, disclosure statement and investigate if there are any clauses that will create issues for them in the future. Businesses with secure lengthy leases and low rent are highly desirable as it gives buyers time to get into the business and if need be, sell it down the track too. If you are in the last term or at the end of your lease, consider approaching the landlord to secure a longer lease for the business making it more attractive to buyers.

  • Long Lease (Deal Maker)
  • Low Rent (Deal Maker)
  • Short Lease and High Rent (Deal Breaker)


Preempting the Health Inspection

Many food business sales are delayed or fall over at the last minute here because a health inspection from the council has surfaced food safety issues or breaches that must be resolved before you sell which can result in thousands of dollars of additional cost to you, the seller to fix.

Don’t wait till you are standing in the kitchen with the buyer and health inspector a week out from settlement. It would be wise to book in a health inspection before you list your business for sale and address any items that come up, so when it comes time to selling, everything is done, you have a clear path to settlement and handover.


Working out the Sale Price

With many hospitality businesses, the amount of actual income can vary from what is stated in financial reports. It’s important that the sale price is based on reported figures – not just an estimate. Valuing a business to sell is both an art and science with many variables taken into consideration. As a rough guide, the sale price is calculated at 1 to 3 times the multiple of annual profit. Regardless, the value of the business is entirely determined by what information the seller provides the broker or accountant.


Presentation of the Business

Presentation of your business and staff is a key aspect of making the business desirable to prospective buyers. Just like a house that gets prettied up for open for inspections, you need to take the same approach when selling your business and make it feel welcoming and look as fresh as the day you opened. First impressions count.

Due to the nature of hospitality and the intense daily use, wear and tear on equipment and fixtures is acceptable to a point. The most obvious things are often overlooked by sellers but noticed by buyers when they come to visit which can put them off before they even walk in the door. 

Here are a few areas as a starting point;

  • Regularly clean inside and outside shop windows and entrance.
  • Clean food display cabinets and fridges.
  • Fix external signage and lights.
  • Wipe down table items such as salt & pepper shakers and sugar dispensers.
  • Remove grit and crumbs in the cracks of the chairs.
  • Remove gum and crusty bits from under the table tops.
  • Wipe down sticky menus or reprint and replace cruddy ones.
  • Make sure staff are always in clean aprons.
  • Service the coffee machine.
  • Wipe down shelves and products on display if you're selling items.

It goes without saying all food businesses should be compliant with food safety regulations and keep up to date food safety logs. Back of House areas such as the kitchen, equipment, benches, cold and dry food storage areas should be kept clean and organized always.

  • Clean and tidy food storage areas.
  • Remove grime from all fridge seals,
  • Fix broken tiles.
  • Seal exposed timber in wet areas.
  • Silicone exposed gaps around sink areas.
  • Clean kitchen canopy filters.
  • Clean and degrease heavy use kitchen equipment like fryers, grills, ovens and cooktops


Advertising = Screaming You're For Sale - discretely!

Once you have fully prepared your business to sell armed with your documents and summary, letting the market know you are for sale is key to a swift and successful exit. Equally, taking shortcuts at this crucial point in the process and not advertising the business sufficiently means fewer buyers will see the opportunity and you could miss out on selling and be on the market for longer than you expect and not sell at all.

As a rule of thumb, but rarely followed, you should have a budget of up to 3% of the asking price of your business for advertising and marketing the business for sale. So, if the asking price is $100,000, anything from $1000 to $3000 to spend on advertising. It should not be any different to advertising a property for sale. Remember - houses and property are an easy sell and sure bet, businesses are not!


Listing on Portals

Listing a business for sale online is very easy and quick, and the starting point for most buyers, hence it’s the last thing to do. There are many portals on the internet like ours, hospitalityTrader.com where you can list your business for sale for a small fee or even free like Gumtree, then there are others for brokers only.

Don’t put your eggs in one basket and choose just one portal, add your listing to a few to get a good mix of eyeballs and enquiries. Prepare a short description of the business with key points, stock photo or even actual images of the business if you are comfortable disclosing the identity.  Buyers scan listings before they will actually click or enquire. Make sure the headline sums up exactly what you are selling eg:

Café for Sale | Bayside Suburbs $220k + SAV NEG


Ethnic Papers

Don’t let language hold you back from selling. For many non-english people in the community, don’t underestimate the power of ethnic newspapers and publications as they are still the local go to source for information on real estate and business, not only the internet, as many websites don’t offer language translation, the papers make for familiar territory. Hospitality business are a popular choice that appeal to all cultures and ethnic publications are a direct way to connect with non-English speaking buyers.


Takeout

Selling a business is a process and doing it on your own will take planning, organisation and patience.   Dealing with constant enquiries, phone calls not being returned, conversations that go nowhere will test your emotions and resilience. How long it takes to sell is anybody’s guess. It’s what you give buyers when they enquire that makes the difference.


By Peter Kais | hospitalitytrader.com


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