Sell my Restaurant FAST –What Does This Look Like for Both Buyers and Sellers?
There are two components necessary for a fast restaurant sale. These are as follows:
- Quickly getting into contract with a qualified buyer
- Quickly moving through the escrow process
I have found that getting into a contract quickly with a qualified buyer is basically determined by two overarching things. First, the restaurant must be priced properly (I discuss how to properly price a restaurant sale in many episodes, but especially in Episode III where I live streamed from Valette). Secondly, the restaurant for sale must be publicly promoted. Many restaurant owners are hesitant to list their restaurant for sale publicly for fear of losing customers and/or employees. Certainly, in some situations, listing a restaurant publicly may not be a wise strategy. But for the most part, listing a restaurant for sale publicly is the best way for sellers to get at or above their asking price—an event that is not very common in business brokerage.
I’ll use one of my current listings, The Downtown Bakery & Creamery, as an example because we decided not to keep the sale confidential. There are several reasons why we decided to make the listing public:
- The restaurant has operated successfully on the square for over 35 years and is literally a local institution. This is an attractive business and location for a buyer.
- The owner, Kathleen Stewart, is retiring (she’s not selling the business because she’s burnt out or because the bakery isn’t profitable).
- Healdsburg square is one of the most sought out retail locations in the San Francisco North Bay.
- Because of the nature of the sale, the local newspaper, The Press Democrat featured an article on Kathleen’s retirement, the history of the bakery, and the opportunity for a new operator to purchase it. Buyer interest in the bakery has been incredible! The one downside to this strategy is buyers want to discuss the sale with the seller during business hours.
- The buyer for a business like this may not be the typical buyer who searches online brokerage sites for opportunities. Instead, it may be a local who has had interest in owning and operating the bakery, but has not yet taken action—an open listing can attract that buyer.
So those are strategies about how to attract a buyer quickly; it is during the purchase negotiations that strategies for a short escrow process are executed. At first glance, you might be thinking, who wouldn’t want a quick sales process? Under many conditions, the answer to that question is the buyer. Does the buyer plan to have an interruption in operations after the close of escrow? In other words, is the buyer planning to remodel or make changes to the premise? If the answer is yes, then there may be an opportunity for a short escrow process.
Aside from the buyer’s plans for a remodel. there are two other major considerations: the county agencies change of ownership requirements (mostly the health department) and the transfer of the ABC Beer and Wine or full liquor license.
Here are two examples of how to sell a restaurant fast:
The first one is a restaurant sale I’m currently working on and is moving through the escrow process quickly. It is for an independently operated quick service restaurant (customers place their order online or at the counter and eat offsite). It doesn’t have an ABC beer and wine license and has been operating for a little under three years.
The current operator brought the facility up to current health codes when they opened less than three years ago. So, the health department is issuing the buyer their health permit with very few change of ownership requirements. Since there isn’t a beer and wine license that needs to be transferred, the escrow for this restaurant sale is right around 45 days. In the world of restaurant transfers, this time period is quite short.
In this same example, let’s say there was a beer and wine license. In that case, the buyer could make an attractive offer to the seller by securing an original beer and wine license rather than transferring the seller’s license. The reason for this is that if the license is transferred, the escrow timeline is tied to the ABC license transfer timeline, which can be between 60 and 90 days depending on the district office servicing the transfer. 60 to 90 days!!
But if a buyer secures an original beer and wine license – which costs about the same and has an almost identical application process as the transfer – then the escrow process can be shortened. Although the original license application process can begin during escrow, there is a risk to the buyer that there may be an interruption in alcohol service if the escrow closes before the original license becomes active.
If the restaurant/bar has Type-47/48 full liquor license, that license has to be transferred in escrow. This is the case in most every county in California because the ABC no longer issues original full liquor licenses. I’ll talk more about this issue in a subsequent blog post.
The other example I want to point to is a café that just closed escrow. The café didn’t have an ABC license, so that timeline wasn’t a consideration. However, the county health department required the new operator to install a hand sink and a prep sink. The addition of the two sinks put the water heater out of compliance, so the water heater also needed to be replaced.
There are two pathways the buyer and seller could take on this business transfer. They are as follows:
In this case, the café continues to operate under the seller’s ownership while the work is completed to ensure the buyer will be issued their permits and licenses at the close of escrow. There may be some short disruptions in service to accommodate water shut offs and construction. The seller will also be paying rent during this time. In this scenario, there is less buyer risk in the event that other costly things were to arise, such as bad plumbing/electrical, etc.
In this scenario, the business closes at the close of escrow to have the work completed. This means that the buyer experiences an interruption in service because the health department won’t issue the health permit until the work is completed. The buyer takes on some risk, as other issues might arise as the work is completed. In this scenario, the seller generally accepts a lower purchase price, because the buyer is paying rent but not enjoying any revenue.
In the above instance, the buyer and seller chose the shorter escrow after the buyer met with an experienced restaurant designer and her contractor to understand exactly what would be needed to satisfy the health department requirements. We were able to secure some rent abatement from the landlord to help offset the costs.
If you’re hoping to quickly buy or sell a restaurant, it certainly is possible. However, there are a variety of considerations associated with that path. Feel free to reach out to me if you’d like to discuss the nuances of a quick sale.
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.