Restaurant Brokerage: What is It and Why Would You Ever Need a Restaurant Broker?
A restaurant broker is an intermediary that facilitates the sale (or transfer) of a restaurant by the owner/seller and a buyer. So, let’s unpack this…
Sometimes a restaurateur owns the real property, but more often than not, the restaurateur leases the commercial space. In most states a business broker doesn’t require any type of professional license, but in CA (as well as in 13 other states) business brokers have to have a real estate license. But I want to be clear about this point –there is very little in the education required to be real estate agent. Further, there is almost nothing on the Department of Real estate exam that covers handling the sale of businesses or business brokerage.
I want to talk a bit about this term “broker.” In California, a real estate license is required to sell businesses, but the term broker is confusing. The term “business broker” refers to an individual who works between two parties, a buyer and seller, to transfer businesses.
In real estate, a broker is a license designation. Real Estate Brokers are real estate agents who have completed additional training and licensing requirements. They can work independently and hire other real estate agents to work for them.
In California, the “broker” in business broker refers to a description of what the agent does, not the degree or license that the agent holds.
In the world of real estate, there are two main camps with many subcamps under each. The two main camps are residential and commercial real estate. Business brokerage operates in the realm of commercial real estate. Business brokers often work with commercial leases and sometimes commercial real estate sales associated with a business.
Business brokers work predominantly with what are called “main street” businesses. These are buyers and sellers of independently owned businesses.
And restaurant brokerage refers to a restaurant broker who specializes in the sale of food and hospitality related business: mainly restaurants, bars and cafes.
The reason there is a distinction between business brokerage and restaurant brokerage is because restaurant brokerage requires very specific licenses and permits that are critical in the transfer of the business.
The most important thing a restaurant broker offers clients is experience. And there are three ways to achieve this experience when starting out.
These are as follows:
- Trial and error
- Experience or working under a mentor
For business brokers, experience isn’t offered through the department of real estate. Instead, it is offered from professional business brokerage membership organizations at the state and national level. In CA, the California Association of Business Brokers offers the Certified Business Broker (CBB) certification, which requires experience, education, testing, and participation in the organization. On the national level, there is the International Business Brokers Association, which offers the Certified Business Intermediary (CBI) certification. This is a slightly more rigorous certification with a similar process as the CBB. Both take years to accomplish.
Next, I want to talk about my path to restaurant brokerage. When I was in my late 20s, I spent what I thought was going to be seven days at Tassajara Zen Mountain Center. I was placed in the kitchen as a dishwasher for what turned into a 2-year culinary immersion into high-end vegetarian cooking. After I left Tassajara, I worked at Greens in San Francisco, then I was the personal chef to the actor Don Johnson and his family, and then I served as the executive chef at Amy’s Kitchen—that is how I got to Sonoma County. I knew early on in my cheffing career that I wanted to own my own restaurant, but I had no way of knowing how I’d do it.
That is when I met Tom Barnett, a man who many people in the county remember. Tom was a business broker who specialized in restaurant brokerage. He was also an amazing person, and he worked with me to find a location which I purchased for $55K for the “Assets in Place” (see this post for more about an assets in place sale). Before meeting Tom, I had no idea there were people who specialized in helping people buy and sell restaurants.
Ultimately, I sold my restaurant. When I did, Tom suggested I get my real estate license and come work for him. In 2004, I decided to do just that. And…I hated it.
I was selling all types of businesses, bookshops, art supply stores, as well as restaurants. Although I love those types of retail businesses, I didn’t connect with them. But what I really struggled with was how much is required of business brokers. A business broker needs to know a lot about a lot of seemingly disparate things: city, state, and industry specific licensing. Also, my job entailed working with all the details of a commercial lease (of which there are many), the escrow process, the financials of the business, tax returns, marketing, and talking to buyers, talking to CPAs, bookkeepers, landlords and attorneys. It was just too much.
I ended up going to grad school, as I thought I’d get an MBA and say goodbye to the restaurant industry once and for all. But instead, nearly every graduate project I worked on was related to the restaurant and hospitality industries. When I graduated, I secured two teaching positions in college culinary management: one at the Art Institute in SF and the other at the Culinary Institute of America at Greystone.
After two years of teaching, I got a call that Tom had passed away suddenly. I decided to return to the office to work with the new broker, Jeff Sacher. And this is when my career as a restaurant broker really took off. I made the decision to only represent businesses that are food related, because this is what I know and love. Because of my MBA, I was much more knowledgeable about the financials and the marketing side of brokerage. As soon as I had closed enough deals, I applied for certification. The following year, I studied for the more grueling CBI. Once I secured my Certified Business Intermediary license, I returned to real estate education and secured my broker’s license with the DRE.
On a macro level, restaurant transfers require very specific licenses and permit and if they are done properly or in the proper order, the deal can be protracted or it can fall apart entirely.
But the first thing a broker does is to list the restaurant properly for sale. I covered this extensively in Episode III. If a restaurant doesn’t have a proper list price, it can be very difficult to sell. Achieving this goal requires knowledge of restaurant margins, restaurant occupancy costs, and restaurant cash flow.
When it comes to marketing a restaurant, it’s important for the broker to know what is important to buyers.
-What fixed assets are onsite? (For example, a Type 1 hood or walk-in refrigerator)
-What type of lease is in place?
-What type of ABC license does the premise have?
-Does the broker subscribe to the business brokerage websites? (These are expensive sites. Although buyers may be found through agents on MLS, this is not where buyers look for restaurants; they look on business brokers websites.)
All this knowledge is before buyer and seller are in contract. Once they’re in contract, this is where the real work begins. It’s the make-or-break moment for a successful transfer.
- Health dept site review
- Landlord approval and agreeable lease terms
- ABC license transfer
- Consideration as to happens with the inventory (. i.e., food, dairy, alcohol)
- Review of outstanding gift certificates and/or upcoming catering events
I hope this blog has given you some new insight into my background as well as my current scope of work. My clients often tell me how much they appreciate my years of background in the restaurant industry, as I have a uniquely high level of understanding for their needs.
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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, and 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.