SHOULD YOU SELLER FINANCE?

SHOULD YOU SELLER FINANCE? In the restaurant and bar brokerage market of 2010, if you want to sell and perhaps sell in a hurry, seller financing must be given very serious consideration. It might be the only way you are going to get your business sold, particularly if the sales and cash flow level of your business make your business not eligible for SBA financing. Currently, most buyers, at any level of purchase, do not seem to have the cash on hand or the willingness to do an all cash deal.

So, you want to sell and you acknowledge that most folks don't have a lot of cash right now and if they do they are reluctant to part with it. You, the seller may have no choice but to be the bank.

And if you do seller finance the sale of your business the sale of your restaurant or bar what are the top ten things you should take into consideration.

1. USE A PROFESSIONAL TO ASSIST YOU: The basic message here is to engage a really good business broker, escrow company or note buyer service to help draft the note and a lawyer to be sure that the financing documents say what you want them to say and protect you the way you want to or need to be protected.

2. DO A THOROUGH BACKGROUND CHECK ON THE BUYER: Insist on resumes, references, credit reports, personal and business financials statements to prove staying power. Do a background search for public records. Get a business plan or business outline prior to close of escrow so that you know where the buyer is going to take your business. Act like the SBA and turn them down if they do not have experience in the type of business you are selling. How about getting a resume with references that you can check?

3. MAKE SURE YOUR BUSINESS CURRENTLY GENERATES ENOUGH CASH FLOW FOR THE BUYER TO PAY THE DEBT SERVICE AND TO PAY A LIVING WAGE: Nothing unusual here. This is just what the SBA does to make sure they have a reasonable probability to get repaid. You should too. This might be hard to do, if your business is not making money or you are really just selling the assets without any financial representations.

4. GET A NOTE BUYER INVOLVED UP FRONT IF YOU THINK YOU MIGHT WANT TO SELL THE NOTE IN THE FUTURE: It is not uncommon for the note holder to want to sell the note in the future. It will be discounted for sure and more than you might like if not properly constructed in the first place. Input from a note buyer might just be the trick to get you on more secure ground for a sale of the note in the future.

5. MAKE SURE THE TERM OF THE NOTE IS NOT LONGER THAN THE LEASE: If you are selling a business that operates from leased premises you need to keep the term of the note and all payments within the duration of the term of the lease. This is very important to assure that there is cash from the business to pay the note. If the lease expires, that may be the end of the business and the end of your ability to collect any remaining balance or to re-enter the business in the event of default.

6. MAKE SURE YOU GET GUARANTEES: Guarantees are a promise to pay. You want personal guarantees and legal entity guarantees. Personal guarantees are a must if selling to a sole proprietor and if selling to a legal entity such as a corporation or LLC and you are selling a main street business you get guarantees from the legal entity and all of its members or stockholders. Get joint and several guarantees from the members or stockholders which means they are collectively responsible and individually responsible and get them from the current and future participants.

7. COLLATERAL FOR THE NOTE IS A MUST: Collateral is what secures the note. In a small business sale the collateral will generally be the business, the trade name and the assets of the business. If the value of the assets of the business does not reach the level of the note, you can also secure the note with collateral outside the business such as real or personal property belonging the the buyer.

8. MAKE THE PAYMENTS DOABLE FOR THE BUSINESS BY ADJUSTING THE AMORTIZATION LENGTH, IF NECESSARY: The payments on the note must be doable for the business. You can do this by adjusting the length of the amortization of the note without compromising your ability to get paid. Again, don't go beyond the length of the note for payments. This tactic most often leads to balloon payments throughout the payment period or at the end of the payment period. Balloons are sometimes good but you must realize that the balloon might put you at greater risk. Balloons are good in an environment where you let the buyer season the note and at a future date as the business grows you think you might be willing to renegotiate the loan and balloon terms.

9. IMPORTANT CLAUSES IN THE NOTE: I generally suggest a due on sale clause, a clause that permits or prohibits early payment, a clause or clauses outlining the buyer's ability or inability to remove or sell individual assets without your permission and an explanation as to what role any additional purchased assets will play in the loan collateralization, a clause that speaks to potential assignment of the note by the buyer, late payment stipulations, default procedures and process and late payment fees and interest.

10. INSURANCE ON THE COLLATERAL: If the assets of the business are the collateral, you will want to require specific amounts of coverage and you will want as the note holder to be a named party regarding payments on the collateral in the event that an insurance event is triggered.

11. LEASE CONSIDERATIONS: If you are selling a business that will be on a lease to which you have been a party, consider a cross default clause that you the buyer and the landlord will be a party to. Simply stated, a cross default clause means that if the buyer is in default on the lease it is also considered a default on the note and vice versa. And make sure that in the event of default that your right of re-entry is clearly spelled out in the cross default language or any lease assignment or sublet document.

Brian Harron is a licensed real estate broker specializing in the sale of restaurants, bars and liquor licenses in the State of Arizona. He is affiliated with Sunbelt Business Brokers, Prescott, Arizona and can be reached at 928-541-0890.

IS NOW THE RIGHT TIME TO BUY OR SELL A RESTAURANT OR BAR

IS NOW THE RIGHT TIME TO BUY OR SELL A RESTAURANT OR BAR,

Here is what I think about that. Yes and yes, with qualifications.

If you are a buyer, there are opportunities available the likes of which you may never see again. Real estate prices and lease rates are down and more business are available that are classified as distress sales/turnarounds/golden opportunities. In this economic environment, if you are an experienced operator, you have a big leg up on the first time restaurant or bar owner because you will have a shorter learning curve with a new business than a novice would have. You know what you are doing. If you have abundant cash, play your cash right and you could be a very big winner.

If you are a seller and you are putting a successful business on the market, patience will be a virtue. The average sale time for a "good" restaurant or bar may be twice as long as it was a few years ago as the biggest segment of buyers are those looking for the super, low priced deals and golden opportunities. And, you may very well have to offer owner financing to get your deal done.

If you are in the stressed, distressed, must sell category, you really have no choice but to put your business on the market now. Diminished sales and no cash flow remove all of the potential "goodwill" from your sale creating a price that may reflect only the "in place" value of your assets. Most likely you will be forced to sell at a price below that which you would want and the odds are very high that you will have to provide seller financing. The best way to sell quickly is to acknowledge the low price game that is going on and be a willing player. There is a price your business will sell at but most likely it is not the one that you would wish to have.

With all that said, I am going to tell you that I think this is a good time to put a restaurant or bar on the market. If your business is doing great, keep it going great to support your price. If your business is not doing great, you probably have no choice so you had better get the process started before things get worse.

I always think it is a good time to buy or sell, if you are a savvy buyer or seller with your eyes open to the realities of the market place. That is why I always suggest that restaurants and bars get bought or sold using the services of a competent restaurant and bar broker, who will look you in the eye and tell you the truth, because the truth of the marketplace is what such a specialist deals with every day, while getting the job done.

My name is Brian Harron. I specialize in the sale of Arizona restaurants, bars and liquor licenses. I can be reached at Sunbelt Business Brokers, Prescott, AZ, 928-541-0890. You can see most of the restaurants and bars that I have for sale by going to arizonabizsales.com

TOP TEN CONSIDERATIONS WHEN BUYING A RESTAURANT OR BAR

Here they are, my ten top considerations that a buyer should have when thinking of buying a restaurant or bar. I know there are actually many more and any list can vary according to the needs, financial capability and experience of the buyer but you gotta start somewhere, so here we go.
1. THE LEASE - Many areas to check but start with the length of the term. You need no less than five years. Check the rent and other charges. Do sales projections and remember that all charges should never exceed 10% of your projected sales. You better check the rent increases too. Make sure you have the right to assign the lease which may be critical to your exit strategy.
Check what aspects of the premise you will be responsible for maintaining and replacing.
2. SALES TRENDS - Even if you are participating in a pure asset sale and are going to change the concept, it is still a good idea to have an idea of what the location has produced for sales. Get annual numbers and at least the last 12 months of monthly sales to track seasonal trends.
3. FINANCIAL RECORDS - If you are buying an operating business, it is probably a good idea to get up to three years of P and L's and Tax Returns plus a reasonable number of prior monthly P and L's. You might also ask for any contracts that the business has and sales tax returns to verify the numbers on the P and L's.
4. SELLER'S DISCRETIONARY EARNINGS (SDE) - SDE is profit or loss plus depreciation, amortization, interest expense, owner's salary, taxes and benefits, personal expenses and unique or one time expenses. Most small business owners do not want to pay taxes so this number tells what level of "earnings" is available and then this number should be a key figure in creating a sales price agreeable to you and to show you what level of income might be available to you.
5. FURNITURE, TRADE FIXTURES AND EQUIPMENT - These are the hard assets that you are buying. Inspect, inspect, inspect. Everything should be in good working order and the allocation of the purchase price to FF and E should be reasonably close to realistic value.
6. INVENTORY - The inventory of food, beverages and supplies is not normally included in the purchase price and it purchased separately at the close of escrow. Depending on the size and complexity of the restaurant or bar this can run from several thousand to many thousands of dollars. As far as you are concerned, this is part of the purchase price and you need to know what the amount is going to be.
7. ALLOCATION OF THE PURCHASE PRICE - The allocation can include the value of hard assets, intellectual assets, a non compete clause, training and consulting by the Seller, trade name and goodwill. If you are about to buy a restaurant or bar, it is time for you to get a good understanding of these items and how they will affect you from a tax standpoint and also how they affect the asking and purchase price.
8. VITAL STATISTICS - Might be a good idea to know the size of the space, the number of seats, food to alcohol mix, average check per person, the age of the building, number of employees and employee wages buy position, the menu and menu mix, lunch vs dinner guest counts and average checks and then get trends for any of these items that you can.
9. TERMS OF THE SALE - Is this to be an all cash deal? Will the owner finance the deal and if so how much will the down payment be and what are the terms of the Note? How fast can the deal be closed. What will the contingencies be and how long will the contingency removal period be?
10. AREA DYNAMICS - What are the neighborhood dynamics and demographics, business generators and traffic counts, access and egress, parking situation, competitors and competitor growth or decline, local population growth or decline, availability of labor, availability of suppliers and whatever else you feel you need to know.
11. BONUS - Please use a broker so that you are dealing with someone who knows the market and the process, can get you sales comps and help to structure your deal. I am obviously a fan of using brokers and also of using brokers that specialize in an area of business brokerage. I only sell restaurants, bars and liquor licenses. Do you think I might just know a little more than the broker that has never been involved in buying or selling a restaurant or bar? Sometimes. I even know more than an attorney or a CPA!

Brian Harron is an Arizona and California licensed real estate broker who exclusively sells restaurants, bars and liquor licenses. He can be reached at Sunbelt Business Brokers, Prescott, AZ, 928-541-0890 or at brian@arizonabizsales.com

REPRESSION

We seem to be in some very different economic times, challenging for most, to say the least. At times I have heard and thought that we have been in a very deep Recession and then I have actually believed that this might just be or have been a Depression. Now I think we have been in something that I have begun to call a Repression.

Now, just what might a Repression be and what would be its impact on the restaurant and bar business and the business of restaurant and bar brokerage.

Look at at this way. Recession is based of the process of receding - our economy recedes. Depression is based on depressing or pressing down or a depression can be a great big hole in something. So I think Repression is a pretty good term for a combination of both and particularly when we are not sure we are in or have been in one or the other. Repression could be defined as a state of the economy somewhere between a classic Recession and a classic Depression. Which makes it even more difficult to figure out.

There are a whole bunch of impacts to be acknowledged. We have seen some depressing of prices and values, a trend to receding back to basics. a return to an emphasis on saving and fiscal conservatism, a retreating of stock and other investment values, the need for more value for the money spent, a retrenching of money spent on things not considered to be a luxury and on and on we go. We are challenged to meet the challenges of the marketplace and the economy in this Great Repression.

Where to from here. First acknowledge that the glass is half full and the taste is getting better. Don't sit and wait, be on your game, in your game and at it. Be at your best because just maybe the way you used to do things is not good enough anymore. Think of the future not your past. Go for it.

I exclusively sell restaurants, bars and liquor licenses. My business and the techniques that I use have changed dramatically in the past three years. I am doing things I did 25 years ago and also leaning new things and using new technology at a faster pace than I might have dreamed of. I am not going to be left behind.

Facebook, Twitter, Craigslist and other social media techniques have joined my marketing strategies. More group involvement, more networking, more emails, more listings and very soon a significant expansion of the territory that I serve as a restaurant and bar broker.

Most of the time, I think all this change is fun and I hope that you do too. Better to smile than to be recessed, depressed or repressed!

Brian Harron is a licensed Arizona Real Estate Broker with Sunbelt Business Brokers in Prescott, Arizona. He exclusively sells restaurants and bars in Arizona. He can be reached at brian@arizonabizsales.com or 928-541-0890. He is available for restaurant and bar brokerage and consulting services.

MEMORIES AND MUSINGS

MEMORIES AND MUSINGS

Over the last few days, I have developed the urge to say something different, something not so scholarly like my other posts and more like the way I feel and think. Hey, I am old enough to have made a few thoughtful observations.

RECESSION DEPRESSION: This recession is a real depression for some. Can't get ahead of the game, can't make enough money, don't have enough customers, my bank account is low and so is the cash flow. What is missing here? Is the glass half empty or half full? I gotta go with half full because this recession is like an AA meeting for a first timer. There is no where to go but up and if I put my optimistic hat on, I begin seeing opportunities that would otherwise elude me. I happen to think this is a grand time to be in business and a grand time to plot a major expansion strategy. I have one that I will be announcing very soon.

THE WORLD CHANGED ALL AT ONCE: It did. This new economy got here all at once . It got here so fast that it took a lot of us by surprise. Most economic changes can be tracked over time. Just look at all the energy being expended to measure the road to recovery. Fast calamity requires fast decisions and sometimes improvisation to survive. Quick decisions based on intuition and experience have always worked well for me.

GO BACKWARD, GO FORWARD: If you are old enough to have gone through a major recession, you know that they don't last forever. Hunkering down is okay, but how about going backwards for a while. I mean going back to basics, remembering and practicing all the things that made your business a success a few years ago like super guest service, the best food and drink possible and giving real value for the price. After you have gone backward, you will find it much easier to go forward. In my restaurant consulting days, I would tell a troubled restaurant operator that we need to fix all your in house stuff before we go after the new business. It works great anytime but particularly well in a recession, depression.

SOCIAL MEDIA, INTERNET MARKETING: Bold and beautiful, fun and generally free. This stuff is the new breeding ground for restaurant and bar promotions. I mean aren't your guests supposed to be treated like best Friends and when they love your food or drink they get all a Twitter. And don't you want your professional friends to be Linked In to you. This stuff is like getting a Bachelor's Degree in Marketing. It is nothing but advertising, promotion, publicity and sales in a different package. Imagine the beauty of being able to connect with current and future customers, promoting your restaurant or bar in this new manner. Heck, just write a press release for millions and be able to control where it goes and only be spending money for results. Non- believers beware. you are getting left behind!

THE RESTAURANT AND BAR BUSINESS IS CHANGED FOREVER: Of course it is! How could it be otherwise. The past couple of years have been like a war for many. Changing liquor and smoking laws have changed the true bar forever. Consumers are expecting different things from food and beverage operators. New concepts are emerging. At least for the time being most landlords can almost be considered an friend rather than a foe. It has always been good practice to be staff development conscious. It is now more than ever. Technology will continue to increase the pace of change in our restaurants and bars.

DON'T GET OLD: Am I or am I not? Attitude is everything. Get excited about the new. Throw out some old clothes and watch the new ones arrive. Have an exciting plan for the new future and be prepared to move fast. Getting older is the opportunity of a lifetime. More brains and less brawn. Use the best of the old along with the best of the new. Be like a kid and get excited about new. It is what one needs to do in business and in life.

FACT: The average lifespan of an independently owned restaurant is five years or less. Smart owners have an exit plan put together as soon as they open the doors.

Brian Harron is a licensed real estate broker specializing in the sale of restaurants and bars. He is affiliated with Sunbelt Business Brokers in Prescott, Arizona and can be reached at 928-541-0890.

Pricing a Restaurant or Bar/Biggest Influences

PRICING A RESTAURANT FOR SALE/WHAT ARE THE BIGGEST FACTORS?

Let's set the stage for what I do with restaurants and bars for sale pricing. Notice the word pricing. Biggest thing it means is that I do not appraise a business. It means that I can tell you after appropriate analysis a range of pricing that the business might go on the market for.

My range of suggested prices is arrived at through my knowledge of the restaurant and bar market, my awareness of comparable sales and the review of the books, records and other documents of the business.

Please also note that I suggest a range of prices for the business and not for the related real property which relatively infrequently is involved with the sale of a business. That is one of the reasons why the lease terms become such an important factor in a business pricing strategy.


All I do is suggest a price to a potential seller. If the seller wants a price higher or lower, I consider the suggestion and if it is too far out of line from what my experience tells me will work and we can not negotiate a compromise, most likely I will not take the listing.

The suggested price is influenced by a number of items that drive the final estimate. To start the opinion of price process I will normally want to see tax returns and profit and loss statements for the last three years, a current Balance Sheet, year to date Profit and Loss Statement, copies of any contracts of the business and also any Notes payable, the real property lease and any other leases of the business and if a franchised business, a copy of the franchise agreement.

Presuming for the moment that the business has reasonable sales and profit, the first thing I determine is the Seller's Discretionary Cash Flow which is defined as profit or loss plus amortization, depreciation, interest expense, owner's salary, owner's payroll taxes and benefits and unique or one time expenses. SDE then has a multiple applied to it to get to a possible starting price. Restaurants and bars might, depending on other factors, go on the market in a range of 2.0 to 3.0 times SDE. Nationally, the average selling multiple for a restaurant with SDE is 2.2.

Lots of things influence the final price recommendation including comparable sales and replacement cost for the furniture, fixtures and equipment and the leasehold improvements. These two items take on even greater importance when there is no Seller's Discretionary Earnings or the business is closed when it is really a true asset sale rather than a business sale.

Here are some other things that can impact the value of the business. Value of Inventory, condition of the premises, location of the premises, length of lease remaining and rent increases to be incurred, assumable liabilities, recipes, administrative systems, key employees, marketing programs, the value of the liquor license, the value of the franchise, non compete clauses, name and reputation, competitive trends, area demographics and trends and general economic conditions.

And there are several rules of thumb to be looked at as a check against the pricing formulas. One that stands out for me is that restaurants will sell in a range of 25 to 75% of average annual sales. At the low end, most likely there is little or no SDE so it probably is an asset sale and at the high end there should be good SDE, good location, good lease and good physical condition for the premises and the business assets. Nationally, restaurants and bars sell on average at 35% of average annual sales.

Suggesting a price for restaurant is a combination or science, math, comps, knowledge of the market and the market conditions and what the seller wishes to ask and what the broker is willing to list for.

Brian Harron is a licensed Real Estate Broker with Sunbelt Business Brokers of Prescott, Arizona and a licensed California Real Estate Agent with Sunbelt Business Brokers of San Diego. He exclusively sell restaurants, bars and liquor licenses and can be reached at 928-830-899

WHAT DO I HAVE FOR SALE ON MAY 10, 2010

WHAT DO I HAVE FOR SALE ON MAY 10, 2010? Actually I have quite a few restaurants and liquor licenses for sale as of this date. No bars for sale right now, but I expect that to change in the next couple of weeks.

Before I give you the list of listings let me tell you a little about myself. I am the only real estate or business broker in North Central Arizona that devotes 100% of his time to the buying, selling and leasing of restaurants, bars and liquor licenses. This is my 100% occupation and I love it. I have been doing restaurant and bar brokerage for over 30 years, so I can report a lot of deals have been done and I have some stories to tell. It also helps that my background includes restaurant ownership, restaurant development and restaurant consulting.

RESTAURANTS, BARS AND LIQUOR LICENSES FOR SALE, MAY 10,2010

NEW LISTINGS IN THE LAST THIRTY DAYS

* Big Name, Franchised Sandwich Shop. $85,000

* Prescott Area, Quick Service Restaurant with Full Kitchen. $75,000

* Beautiful, Like New Coffee House, Terrific Location. $89,900

* 4000 SF, Historic Building, Steakhouse for Lease

* Prescott Area, Well Established Breakfast and Lunch. $79,000

* Drive Up Diner in Prescott Valley, Includes Real Property and FFE. $295,000

* Yavapai County, Arizona #6 Bar License for On Premise and To Go Sales. $57,500

MORE RESTAURANTS AND BARS FOR SALE

* Deli and Convenience Store, Unbelievable Lease. $125,000

* Retail Liquor Store License, Bargain Price, Seller Financing. $125,000

* Coffee Kiosk on Ground Lease, Includes Kiosk and Equipment. $65,000

* Prescott Breakfast and Lunch in Commercial Area, Great Lease. $125,000

* Prescott Restaurant on Courthouse Square. Below Market Lease. $85,000

* Fully Equipped, 2,500 Sf Restaurant in Prescott Valley, Hwy Frontage. $25,000

* Burgers, subs and Salads in Freestanding Building, Full Kitchen, $55,000

* Yavapai County #7 Beer and Wine Bar License. $13,500

All of the Restaurants and Bars Listed For Sale are Located Within 75 Miles of Prescott, AZ

Brian Harron is a licensed Arizona real estate broker with Sunbelt Business Brokers, Prescott Arizona. He can be contacted at 928-830-8996 or brian@arizonabizsales.com