Restaurant Buyers: Why Does it Seem So Cumbersome to Find the Right Restaurant?
In today’s post, I want to focus on the hoops buyers have to jump through to access information on restaurants for sale that *might* meet their criteria.
Generally, first time restaurant buyers will do a Google search for “restaurants for sale in [the county or city they’re interested in operating],” and they’ll be directed to one of the business for sale exchange websites like BizBuySell, BizBen, or BizQuest. Or they will look at a site featuring commercial real property for sale or lease, which would be LoopNet. Sometimes they will end up on the site of a business broker with strong SEO.
If buyers end up on a one of the exchange sites, this is where the frustration begins because, for the most part, listings will not feature the addresses or restaurant names of the listings in some cases. Even the geographic location can be quite broad. For instance, the location can be listed as “Napa County” rather than “Yountville.” So, buyers don’t have access to some of the most pertinent information they need. This is done to protect the confidentiality of the sale.
Listing agents are generally listing a restaurant where confidentiality of the sale is paramount to the restaurant operator. The reason for this confidentiality varies. But for the most part, sellers are concerned that if the general public is aware a restaurant is for sale, that the operators will lose customers/sales. They also worry that this will be that they’ll be more vulnerable to their competitors and have issues with employee retention. In other words, the seller doesn’t want to lose employees in the case that they don’t want to stay with the restaurant under different ownership. This has always been a concern for sellers, but now it is even of greater concern. After all, employers are dealing with COVID-related issues, unemployment benefits, minimum wage increases, and other regional factors that have made employee retention difficult even under the best circumstances of an ownership transfer.
Another reason for the confidentiality of the sale is most operators do not want buyers to approach them directly and discuss the sale at the restaurant during business hours in front of employees and guests. As crazy as this sounds, it happens often.
One thing to note is that it’s not just buyers who are reviewing business exchange sites. Many restaurant operators will keep an eye on these sites to get an idea of what is happening in the market and to see what their competitors are doing. Therefore, it is up to us, as restaurant brokers, not to distribute sensitive restaurant information to individuals who aren’t serious qualified buyers.
So, think about it; If the adage is true: location, location, location, then the #1 criteria for a buyer in a seeking a restaurant is location. Yet, this would be in conflict with the #1 criteria of the seller, which is keeping the location of the restaurant confidential.
This issue is very frustrating for first time buyers because it makes the search process cumbersome. When buyers find an ad that interests them, they still have quite a few hoops to jump through before they can get information to find out if the restaurant fits even their basic requirements.
Enter the non-disclosure agreement, which I’ll be referring to as an NDA. All experienced business brokers will require a non-disclosure agreement to ensure the buyer will maintain the confidentiality of the sale and of the very sensitive information they’ll be receiving from the broker, such as financial information.
Some first-time buyers are quite leery of the non-disclosure statement. But it is of great importance to sellers that buyers agree to the terms of the NDA. If buyers want to move through the process of gaining information more quickly, they must sign the NDA. No broker will move forward in the process on behalf of their seller without a signed NDA. It may sound like I’m laboring over this point too much, but so much time is wasted by buyers trying to circumvent the signing of the NDA—they’ll call, text and email me asking for the location of the restaurant.
Buyers come to me through the business exchange websites, as well as Craigslist, my website, my brokerage website, other brokers, and word of mouth. On any given day, I’ll get between 3 to 15 communications on any given listing from buyers looking for restaurants. Of the hundreds of communications that I’ll engage with over the course of about a month, 2% of those engagements will end in a buyer moving forward with the purchase of a restaurant. But no matter how buyers contact me, I will always direct them back to the NDA of the specific listing agreement. The most efficient way for buyers to get information is to first complete the NDA.
The process of collecting NDAs from buyers is different for every broker. For old school brokers, they’ll send out a hardcopy NDA that clients need to print and complete or use a pdf software to complete. My website features NDAs tied to each specific listing that feeds into my CRM (client relationship management software.) As soon as I receive an NDA, I can quickly review the buyer’s name and send out the buyer packet.
No matter how a buyer engages with me (except for Craigslist and Facebook), they’ll be directed to the NDA. If buyers contact me through advertising on Craigslist or Facebook, I can easily link them to the NDA for that specific listing. For some buyers, it is off-putting that they must sign an NDA prior to communicating with the broker and/or receiving information on a listing. But there is absolutely no additional information other than what is already listed in the ad that brokers can share—other than whether or not the opportunity is still available—prior to the signing of the NDA.
Why is the NDA such a barrier? Many brokers will take the opportunity to vet buyers during the same process by adding additional mandatory fields that have nothing to do with securing the confidentiality of the sale. Although this additional data collection can benefit the seller, the true benefit is to the broker, as it can filter out buyers who might take more time or energy to get through the sales process.
These additional filters are what can make the process even more cumbersome for buyers. Don’t get me wrong, the questions aren’t unreasonable. It’s just that at this initial stage of searching for a space, many first-time buyers may not appear to be “qualified” buyers. They will ask questions like, “What is your experience?” “How will you fund the purchase?” “How much working capital to you have?” And “What is your timeframe to purchase?” These are reasonable questions, but when I was a first-time buyer, I would not have made it through this vetting process. Yet, I went on to purchase a restaurant asset sale and create a restaurant that enjoyed over 15 years of success.
Another purpose of the additional fields is for the broker to populate their CRM. Again, this isn’t unreasonable. But these added requirements of the buyer benefit the broker, not the seller. I have found the more streamlined the process is for buyers in this initial stage, the more likely buyers are to move through the NDA process, and the more it will benefit my sellers.
There is another big reason why restaurant brokers (vs business brokers representing other types of businesses) would set up barriers to buyers gaining access to listings. It is because restaurant listings attract many more buyers (both qualified and unqualified) than other types of business listings. I think this is because the dream of restaurant ownership captivates people across many different socio-economic lines. There is a very emotional tug for people to want to share their love of food, cooking, conviviality, and cuisine specific to their upbringing or culture. And this situation creates a very large pool of buyers.
And there are low barriers of entry for restaurant ownership, meaning restaurant ownership doesn’t ***necessarily** require special training, licensing, or education. Oftentimes, the most difficult part of restaurant ownership is getting landlord approval. My point here is that many people harbor a dream to open a restaurant, and this makes for a lot of engagement by a restaurant broker with buyers who will never move past the searching stage of purchasing a restaurant. Hence, restaurant brokers are apt to put in place a more stringent vetting process.
After contacting me, many buyers will dive into a detailed conversation about what they’re looking for and where they want to be located. They do this in the hopes they can work with me like a residential or commercial real property agent and that I will point them to available restaurants that match their criteria. That would allow them to circumvent hunting and pecking through the exchange websites. But the truth of the matter is I’m only going to have this information for my listings or the listings in my brokerage firm. And for each listing, we’d have to collect an NDA.
As you can see, this process is cumbersome. It’s all about maintaining confidentiality. This is the polar opposite of how residential and commercial agents work. When it comes to the sale of homes and real property, it is the agent’s primary job is to get as much exposure on the listing as possible. Listings feature multiple photos of the property, addresses are published, and ads are meant to get in front of as many people as possible. This is VERY different from restaurant brokerage. For 99.9% of my listings, it is paramount to the seller that the sale of their restaurant is kept confidential.
And other business brokers are not going to share information with me without first collecting an NDA from my client. That sentence alone is cumbersome, so you can only imagine what that is like for the buyer.
In California, business brokers can act as dual agents which means they can represent both buyers and sellers. This is actually super helpful in restaurant brokerage so most restaurant brokers will not co-broker. I discuss this issue at length in a previous episode. But because of this factor, brokers will not share restaurant listing information with me because they will not be co-brokering. Buyers can pay the commission to selling agents. But why would they when the seller is paying the commission as long as the buyer and seller use the same broker. Cumbersome, right?
The upshot here is buyers should work with a qualified restaurant broker vs any other type of business broker or real estate agent. Restaurant brokers are much more apt to know what restaurants are actually available for sale. But even then, buyers will have to take a very proactive lead during the search process. Brokers that tell buyers otherwise are not working in the buyer’s best interest.
Please check back next month, as I will be continuing to explore this topic. Hopefully, the end result will be that you have an easier time in your search.
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.