How to choose a broker to sell your restaurant: 5 questions to ask
To be a business broker in the state of California, you must be a licensed real estate agent. This is only the case in I think….13 states. The reason other states don’t require real estate licenses is because the sale of businesses is personal, not real property (land). Although the sale of businesses can also include the sale of land, most business owners and especially restaurant owners, lease rather than own the space in which they operate. Even if the business operator also owns the real property the sale of the business and the real property are two separate transactions involving two separate escrows. The SBA has two distinct programs for lending on the purchase of real property and lending on a business purchase.
Either way, in CA a business broker must hold a real estate license, or be a licensed in Attorney, to list and sell businesses. But just because someone is licensed is sell business it does not mean they are qualified. What I see happen most is a seller may have a real estate agent, or attorney, who, over the years, has helped them buy and sell residential and/or commercial real estate and they have developed a relationship of trust in the agent so it is only natural the seller would ask the agent to list the sale of their restaurant.
At this point, if the agent or attorney doesn’t refer their client to a qualified restaurant broker, I imagine they must be thinking—how hard can it be to list and sell a restaurant? If you follow my series or if you’ve ever bought or sold a restaurant you know that although selling a restaurant is not rocket science, it is complicated. If you work with an agent or attorney that does not know what the transfer of a restaurant takes (above and beyond the contracts) you can end up in a very long and drawn-out escrow process. And for the most part, sellers don’t know they are working with the wrong agent until it is too late.
I think about this topic a lot and I wonder why a restaurant sale being handled by an unqualified agent happens because it can cause so much distress. I believe there may be 3 basic reasons for this: naivete, greed and/or hubris. For unqualified agents who mean well it is naivete—it’s the “how hard can it be? Hell, I’m licensed to sell businesses…let’s give it a whirl.” For qualified business brokers who don’t provide full service, I think it’s greed. Yep, greed. And then there are the agents/attorneys who decide to knowingly work in this space without the experience and I’d say it’s hubris—excessive pride or self-confidence. I know, kind of a lofty assertion on my part, but honestly, if an agent or attorney decides to work in an area of their profession, they have never worked without securing a consultant or mentor of some sort, what else am I left to assume?
You may be wondering why an experienced business broker does not automatically qualify them as a good agent to work with on the sale of your restaurant and the answer is a business broker may decide not to take care of some very important aspects of the sale (the health department change of ownership and the ABC license transfer) because those will lengthen the amount of time for him acquiring his commission. This is what I refer to as greed.
Teasing out the questions to ask when choosing a business broker and avoid distressful situations during escrow can be tricky. Here are a five I recommend:
- Have you ever owned a business? And if so, tell me about your experience of working with a business broker in the sale of your business. Every one of us at Santa Rosa Business & Commercial has been a small business owner and I think it’s one of the reasons we provide such comprehensive and competent service. We’ve been there.
- How many restaurants have you sold in the last year? The answer to this may be surprising. If the agent/attorney has not assisted in one restaurant sale in the last year I wouldn’t work with them. Conversely, if they’ve sold too many (more than 8?) I wouldn’t work with that agent either. If a business broker is selling that many restaurants a year, they are not handling the intricacy of the sale and I’d venture to say there is some carnage in the wake of those sales. Ask for the contact information for every seller the agent worked with in the year, rather than getting a curated list of references, and call each one of them. You might be surprised with what you discover.
These first two questions may be enough, but here are three more:
- Where will you advertise the restaurant listing? If the agent lists their company website and MLS, move along. This isn’t the agent for you. A qualified business broker will hold subscriptions to the major business brokerage websites: BizBuySell, BizBen, BizQuest and Businesses for Sale.
- How many ABC license have you transferred? The answer to this question will tell you everything you need to know. And why is it important? If the buyer is transferring your beer and wine license (to avoid and interruption in beverage service at the close of escrow) then the transfer of that license will drive the entire escrow timeline—if the application isn’t done properly, it can cause delays.
If you hold a Type-47 full liquor license, it must be transferred in escrow and if your agent doesn’t know to ask a handful of important questions of the buyer it make for a very protracted and painful escrow process (check out episode XII which live streamed last year from Parish Café in Healdsburg for more on this topic).
- How many restaurant buyers have you represented in the last year? As with question 2, if the answer is none, this is not the person to work with. If it is more than, let’s say 8, you might not get the attention and service required to sell your restaurant. Again, ask for the contact information of each buyer, randomly select 3 or 4 of them to call and ask them about their experience. There answers will tell you everything you need to know about whether you should work with that agent.
Ryn Longmaid is a restaurant broker and consultant at Santa Rosa Business & Commercial in the San Francisco NorthBay and the host and founder of the Facebook Live Series, Deep Dish: discussions on the business of restaurants for restaurateurs, restaurant buyers and sellers and the restaurant curious.
As well as being a licensed real estate broker, Ryn is a CBB with the California Association of Business Brokers (CABB), a CBI with the IBBA and she holds an MBA in Sustainable Business Management. In addition to being a proficient business broker, Ryn has over 20 years’ experience in the restaurant, hospitality, and food industries. She has served as the executive chef for Amy’s Kitchen, personal chef to actor Don Johnson, she founded and operated a successful and longstanding restaurant. She has also held teaching posts in restaurant management at the Art Institute-San Francisco and The Culinary Institute of America-Greystone.