Brian Harron Reports

SHOULD YOU SELLER FINANCE?

2010-09-07T16:36:00.000-07:00

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

2010-08-14T14:10:00.000-07:00

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

2010-06-14T14:20:00.000-07:00

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

2010-06-12T14:47:00.000-07:00

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

2010-05-28T15:21:00.000-07:00

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

2010-05-21T08:39:00.000-07:00

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

2010-05-10T16:39:00.000-07:00

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

A Day In The Life of a Restaurant Broker

2010-05-05T16:13:00.000-07:00

A DAY IN THE LIFE OF A RESTAURANT BROKER: Yesterday I was thinking that my business life is probably a most interesting one and today I have decided to tell you a little about it. Here is what a typical day consists of.

First, you need to know that I tend to work a lot and think nothing of working every day of the week. Maybe not necessary, but that is the way that I function best. I tend to concentrate on sales related activities Monday through Friday and save my admin and creative marketing stuff for the weekends unless there are buyers in town or sellers that need attention on Saturday or Sunday.

A typical day will start between 7:30 and 8:00 AM. I tend to buy my coffee in one or more of the coffee houses that I have for sale or have recently sold. It is good for business and it is good for business at lunch or dinner too. If I am anticipating a new restaurant or bar listing, I make sure to visit one or more times before meeting with the owner.

First project of the day is almost always getting to the email, unless I have an early meeting. Email is a very important part of my day and I get a lot of email from the approximately 20 business for sale websites that we post our listings on. Responding to buyer inquiries is a very high priority every day.

I also use Facebook to send teaser messages to my Friends, you know tidbits about businesses that I have for sale or have just sold. I am also constantly adding new Friends to my FB list including just about any real estate or business broker that is willing to participate.

Another constant is the posting of at least two restaurants, bars or liquor licenses on Craigslist. I use the Prescott market and the Phoenix market as the two exclusive places for Craigslist posting. Response from this marketing program has been pretty good.

About once per week, I find myself completing a listing process. This can involve analyzing the property lease, profit and loss statements, tax returns, contracts of the business and other items. Before the listing, you do this to create an opinion of price and after the listing you do this to process the listing, create flyers with photos, a listing profile sheet, lease summary, seller's discretionary cash flow statements and equipment lists. All of this information becomes available for buyers and some of it gets posted on the business for sale websites.

A typical day can also involve from two to four meetings with buyers and sellers, usually lasting up to one hour each. Beginning buyers seem to take the longest as there is a need to get them up to speed with procedures and to interview them to get a really good handle on what they want. I usually give them a copy of my book and plenty of forms to help explain the complicated process of properly buying a business.

Then there is the Prescott Area Independent Restaurant and Bar Association, of which I am an officer. My involvement with this relatively new and quite successful group can take as much as an hour a day on average for meetings, communications and phone calls.

The schedule really gets full when I have one or more deals in escrow. My role is to guide and to somewhat control all of the activities, negotiations, inspections and verifications that take place. I am always somewhat amazed at how much gets done, the time it takes and how all the other stuff gets done as well.

Yes, I do eat lunch. If I eat out I go to a restaurant that I have listed or have sold - I like repeat business and I get a fair amount of it. Most days, I go home for lunch to say hello to my buddy Mr. Dunker, a most agreeable terrier who loves me and protects me from myself whenever he can. He just has not yet figured out how to keep me from working too much!

Brian Harron is a licensed real estate broker specializing in the sale of restaurants, bars and liquor licenses. He is affiliated with Sunbelt Business Brokers in Prescott, AZ and can be reached at brian@arizonabizsales.com or

928-541-0890

Interesting Restuarants for Sale

2010-05-04T09:19:00.000-07:00

Right now, I have lots of Interesting Restaurants for Sale. Maybe I always do but now there is an interesting phenomenon affecting the restaurants that I sell. I believe there are three principal factors at work and they are as follows;
1. For almost two years now, I have noticed that successful restaurants are generally reluctant to put their businesses on the market. The syndrome appears to be " If I am making money and I sell, what will I do next? So, let's wait and see what the economy does".
2. Included in the syndrome of number one is the syndrome of number two - most of the restaurants currently on the market are those whose owners are forced by health, divorce or financial condition to sell. This creates a situation where most of the listings become true asset sales where there is no representation of goodwill based on the cash flow of the business.
3. Buyers are fewer, have less money to invest or if they do have dollars they wish to hang on to those bucks for as long as they can. This and other factors puts a significant downward pressure on the prices that are generally being received, perhaps down as much as 30 to 40 percent from a few years ago.
For an experienced restaurant operator looking for deals this is almost nirvana. Prices are lower, deals are better, many good locations are available and the majority of landlords recognize the reality of today's market and are willing to reduce rents to get or keep tenants.
Listen to a few of these businesses for sale.
* Quick service restaurant in good location. Original build out including FF and E cost over $300,000. Now listed for $75,000
* Liquor store license for sale for $125,000 and the owner will finance. Price from the state is almost $50,000 higher.
* Two #6 Bar licenses that the state wants almost $70,000 for are available from private owners for about $15,000 less and there is seller financing available.
* A fully fixtured, ready to go, freestanding restaurant with highway frontage and easy ingress and egress for $25,000. Unbelievable!
* A downtown Prescott, AZ restaurant with super location that a couple of years ago would have commanded at least $125,000 just for the equipment and the leasehold interest now on the market at $95,000. The seller will listen to any reasonable offer.
* And I have plenty more just like these.

Good News: Sellers may be getting a little more confident. I am starting to get some new and improved listings some of which I think are the result of increasing confidence on the part of the sellers. I always try to look on the bright side!

BEST TIME TO SELL A RESTAURANT OR BAR

2010-04-22T14:55:00.000-07:00

When is the best time to sell a restaurant or bar? Another question that I get asked is when is the best time to list a restaurant or bar for sale? So here are ten answers to the questions.

#1 Before you absolutely have to. The best time to sell is when there is no sense of desperation due to economic circumstances, divorce, health or whatever. Whenever desperation is present, it seems to infect the process everywhere and creates an unbelievable buyer advantage or a situation where buyers just stay away.

#2 After you have sought professional advice. Smart Sellers confer with their attorney, their tax adviser and a professional business broker and perhaps a business appraiser before putting their business on the market. Tie up loose ends first, not last, get your legal and tax house in order and know the consequences of the sale first so that when the sale is done there are no unpleasant surprises and you get a deal that you can live with.

#3 Before a deadline. You do not want to be trying to sell when the lease is running out or when you thought you were going to retire. When you want to sell, you need to know that the average time length for a business sale can be six months or longer. Allow for it and let the process unfold normally.

#4 After you spruce the business up. This is all about fixing up your business both physically and fiscally. Paint, clean, replace. This is no different than selling a house. Then get to work on the money side of your business. Clean up your financial reports, report all sales. remove unnecessary expenses and maximize your Seller's Discretionary Earnings, the thing that most likely will have the greatest impact on the price that you can get for your business.

#5 When cash flow is strong. Don't know what Seller's Discretionary Cash Flow is? SDE has a formula but in short it is the amount of cash taht an owner has access to directly or indirectly. Profit counts but not as much as SDE because most small business owners do not like paying taxes. SDE gets at the ways owners can have cash and it is generally the number that gets capitalized to create the estimate of listing price. Better read the Blog on SDE to be sure that you realize it importance to brokers, bankers and appraisers and yes, seller's too.

#6 When general economic trends are rising. Right now, April of 2010, is an excellent time to list a business. The economy is improving as is the general level of optimism. When the economy is hot is also a great time to have a business on the market as buyers are willing to pay higher prices and there are more buyers to deal with.

#7 When it is a Seller's market. A wonderful time to sell is when there are more buyers than sellers and buyers get anxious to buy, sometimes becoming a little less demanding than what they might ordinarily be. Supply and demand is always in the favor of the seller when there is a small supply and a great demand.

#8 When you have ample time left on your lease. The length of time on your lease can be critical to your ability to sell your business. Your buyer needs time to get his investment back and then time to get a return on the investment. Anything less than three or four years will cause a very deep discount in your price. With an average life span for restaurant ownership of approximately five years, a five year lease with one or more renewal options can be very important to your sale strategy.

#9 When sales are steady or increasing. Strong sales are a very good indicator of a healthy business. Generally only bottom feeders are going to be interested in a business with significant reductions in sales. Start your sales plan two to three years ahead of the time that you list your business for sale and make increasing sales one of your biggest goals.

#10 When the business is no longer fun. Most entrepreneurs get into the restaurant business because it is fun and they love it. it is for many, a physically and emotionally demanding business. When it is no longer fun or when you can feel the burnout arriving, it is most likely time to sell - before your performance,. your attitude and the business deteriorates, making it harder to get the best price at the time you want it.

Brian Harron is a licensed real estate broker and Restaurant and Bar Broker affiliated with Sunbelt Business Brokers in Prescott, Arizona. He can be reached at brian@arizonabizsales.com or 928-541-0890.

Buyer's Market: What Does That Mean?

2010-04-13T12:56:00.000-07:00

Buyer's Market: What Does That Mean? Everyone is saying that this is a Buyer's Market and I agree that it is. But, just what is a Buyer's Market?

First thing it means is that the Buyer's are more in charge than are the Seller's. They seem to have more influence and more power relative to what happens in the business brokerage marketplace. It also means that there are generally more Sellers than Buyers. Too many restaurants and bars for sale and not enough Buyers.

A Buyer's Market also generally infers that a Buyer can expect and even demand terms and conditions unheard of in a balanced market or a Seller's Market. How about lower prices, lower rents and Seller financing to a degree unheard of just a few short years ago. How about Landlord's being willing to make major concessions just to get or keep tenants and cash flow.

What makes this Buyer's Market a little different is that in general the few Buyers that enter the marketplace seem to have less money to spend or if they do have money they are much less willing to part. Then you get the savvy Buyer with money and brains and boy can they drive a bargain.

Buyer's Markets create considerable strain for Seller's that need to sell rather than just want to sell. It is a very compromising marketplace for owners of restaurants and bars that want to or need to move on to other things.

What I have found in this market is that businesses can take up to twice as long to sell as compared to what I used to consider normal, close to a year rather than six months. While all of the formal methods of valuing a business, such as what an appraiser, business broker or the SBA might use to set a business price remain the same, the marketplace is quite different.

In the good old days, my average sale was in excess of $200,000, now it is half that. I used to do a lot of all cash sales and now to get a business sold in a reasonable amount of time, one probably will have to use some creative financing on the part of the Seller. The multiple of Seller's Discretionary Earnings (SDE) used to be close to three to set a price and now that number is closer to two. Appraised value may remain the same but the marketplace is demanding more for less. Things are just selling for less. Period.

This market has also created another unusual situation. Those of us that sell restaurants and bars have always sold a number of distressed or stressed business with little or no SDE. Now the number of these businesses being sold is higher and the strong cash flow businesses on the market are less than normal. My experience is that when the market is like this, it seems to attract more stressed Buyers and fewer prospects with strong financial underpinnings.

I have tried several times to predict when this current market condition will improve to be a balanced or Seller's Market and every time I think we are getting back to the old normal, I feel like I have been tricked. I think it is getting better and then I discover, it is the same.

The best way to make a prediction is play the numbers. The number 11 is one of the lucky ones, right? Okay, I predict that 2011 will see the return to a much more balanced market for selling a restaurant or bar. In the meantime, if you want a very good, experienced professional restaurant and bar broker to help you buy or sell, email me at brian@arizonabizsales.com and I will be there to assist you.

Brian Harron is a licensed real estate broker employed by Sunbelt Business Brokers of Prescott, AZ. He can be reached at 928-541-0890. Go to arizonabizsales.com to see most of the restaurants and bars that he has for sale. Brian is also available for restaurant and bar brokerage and lease consulting

What is a Business Broker

2010-03-25T16:57:00.000-07:00

What is a Business Broker? Yes, I am a business broker. And, I take it one step further by being a specialist Business Broker, a broker of restaurants, bars and liquor licenses. Okay, what is a business broker?

A Business Broker is one who brokers businesses. In most states, including Arizona where I reside and work, a Business Broker must also hold a real estate license either as an agent or as a broker. A Business Broker generally sells the assets of the business such as furniture, trade fixtures and equipment, the trade name, intellectual assets and the goodwill of the business. It is rather unusual for a Business Broker to sell a legal entity such as a corporation or limited liability company as such sales, depending upon circumstances, may require a securities license. Most Business Brokers are not involved in the sale of real property unless it is being sold in conjunction with the business.

Why is a real estate license necessary? In 99.9% of sales by Business Brokers, there is an interest in real estate involved either as a leasehold interest or as the sale of the real property related to the business. To be a really good Business Broker, one must know the ins and outs of both commercial real estate and business brokerage.

What education does a Business Broker normally have? Some formal education for sure. At the very least, one must take required real estate education and then pass the state real estate exam for an agent's license. Then, many Business Brokers continue to climb the real estate ladder by getting a brokers license. Specialized business brokerage education normally occurs along the way through organizations such as a state business brokers association. In Arizona, The Arizona Business Brokers Association is very active on the education front. At the national level there is the International Business Brokers Association which has high level education as a primary purpose.

Important skills develop from experience and education. A Business Broker has to have the mind of an accountant, the experience of a business owner and the mindset of a business appraiser. We are heavily involved in analyzing financial statements, business records, contracts, leases and real estate documents. You need to know about taxes, business formation, the specialized listing forms and purchase contracts and escrows that most escrow companies don't know how to do and don't want to do. We help to set prices for businesses and know all the necessities of protecting buyers and sellers throughout the process. We even have disclosure statements that are different than in any other area of real estate.

Most business sales require a high level of confidentiality. Specialized forms are used to engage buyers in order to protect the business as experience has shown that allowing the general public and the business community to become aware that a business is for sale will have a detrimental effect on the business and its relationships with emplyees, customers, vendors and competitors. Few Business Brokers belong to an association of Realtors or the local MLS as postings on MLS would represent an immediate breach of confidentiality. Specialized business brokerage websites are a primary tool of the Business Broker. Networking amongst other business broker professionals is also an integral part of the sales process.

So, I am a specialist. I have very good skills as a Business Broker. I only sell restaurants, bars and liquor licenses. Many Business Brokers are generalists selling businesses of all types. I grew up in the restaurant and bar business, have developed a number of them for others and have owned several restaurants myself. Most of my friends own or work in restaurants and bars. I have been a dishwasher, a cook, a waiter, an owner and a restaurant consultant. A very special person in my life is a tiny little chef and cookbook author. I love to eat and drink. What else could I be but a Restaurant and Bar Business Broker?

Brian Harron is a licensed real estate broker employed by Sunbelt Business Brokers of Prescott, Arizona. He can be reached at 928-541-0890 or at brian@arizonabizsales.com. Go to the arizonabizsales.com to see most of the restaurants and bars that he has for sale. Brian is also available for restaurant and bar brokerage and leasing consulting.

Tips on Selling a Restaurant or Bar Business

2010-03-23T10:28:00.000-07:00

Tips on Selling a Restaurant or Bar Business. Over the years, I have observed many things that help to facilitate the sale of a restaurant or bar. I hope the list below helps those of you that have their business for sale now or are thinking of listing it for sale in the near future.
1 Use an experienced business broker. This may sound self serving but it is the truth. Most folks would not think of selling their house without a broker and the need to use a broker is even stronger with a business, particularly with a confidential sale.
2. Get your legal and financial counsel involved early so that they can advise on things like tax issues and legal implications. Bringing these advisers in at the last minute may kill a deal rather than facilitate it.
3. Most business sales require a high level of confidentiality. Make sure anyone that gets involved in the sales process understands this and be sure that your broker undertakes appropriate confidentiality measures and agreements.
4. Realistically price your business. High prices go nowhere and too low prices get you too little. Realistic pricing comes from a broker with lots of experience or through the engagement of a business appraiser to help set a price for your business.
5. Qualify buyers on the basis of the experience in your type of business and their financial capability. There is very little gained by wasting time with people who are not qualified to buy your business.
6. After a buyers agreeing to maintain confidentiality and proving their qualifications, be willing to provide reasonable amounts of financial and other data on your business. Thorough investigation of books and records, contracts etc should be left to occur during the escrow process.
7. Disclosure is just as important in a business sale as it is in a real property sale. Do not hide current or known future problems with your business. If you do fail to disclose, you may be inviting a lawsuit.
8. Initiate personal contact with buyers as part of your evaluation and negotiating strategy. This is particularly important if seller financing may be part of your deal.
9. Remember, all agreements must be in writing. Accept no verbal offers and don't negotiate on verbal offers either.
10. During the time that your restaurant or bar is for sale, continue to operate it as if you were going to operate it forever with growth and constant improvement is your goal.
11. It pays to polish the apple. Before and during the time that your business is for sale, make it as pleasing to the eye as possible. Improve your business physically and fiscally.
12. If you get an offer substantially lower that your asking price, work with your broker to bring it to a reasonable level. Do not knowingly push any buyer away. Most of the time, you will be able to find a compromise that works. Be willing to negotiate almost anything.
13. If seller financing is involved, maximize the cash down payment to minimize your risks. And make sure that the Note for the financing has plenty of protections involving the collateral, the payoff mechanisms and the guarantees.
14. Be patient, the process of selling a business inevitably takes longer than you might wish. In today's market that can be six months to a year, presuming that you are asking a fair price that can be supported and there is a fairly active market for your type of business.
15. The best deals are where everyone plays fair and honest and the end is a win/win for both the seller and the buyer.

Brian Harron is an Arizona and California licensed real estate broker in the sale of restaurant and bar businesses and related real property. He is affiliated with Sunbelt Business Brokers in Prescott, Arizona and can be reached at:

brian@arizonabizsales.com

website - arizonabizsales.com

928-541-0890

Restaurant Killers

2010-03-15T09:18:00.000-07:00

So, what is a Restaurant Killer?

A Restaurant Killer is an expense that may very well put the restaurant in financial stress or out of business. From the standpoint of a restaurant broker, the two most important Killers might just be the cost of the Lease and the amount of Debt Service that the restaurant has to carry. There are lots of others that can put a restaurant in financial distress, but for now let's presume that the owner/operator knows their way around the operations end of the business and therefore knows how to keep things like Cost of Goods and Labor Cost under control.

Smart and experienced restaurant buyers seem always to look at the lease before they begin a love affair with a business that they want to buy. The experienced buyer wants to be sure that the lease has enough time to achieve return of investment and return on investment. Most are looking for a minimum of five years, probably more like ten including the initial term and any renewal options.

Then these smart people look at the rent itself. Restaurateurs run much of their business by looking at percentages, the relationship of an expense to sales. Occupancy cost, including rent, has an established relationship to sales that has proven over time to create a safe range of expense. Generally rent should never exceed 10% of sales with the industry standard more like 6%. Anything below 6% should be a guarantee that you are going to be profitable.

Knowing the rent is also an easy way to do a quick break-even point. If your rent is $2,500 per month and you will only be satisfied with an expense of 6% of sales, divide $2,500 by .06 and you get $41,666.66 or the amount of sales needed to get the rent to 6%. Any less sales and your rent is getting out of line and the business may be getting in trouble.

Don't forget to analyze the called for rent increases in the lease. Open ended CPI increases are a no-no. If the lease has a CPI increase then put a cap on it, such as not to exceed 5% of the prior year. You need certainty to be a long term success. Likewise, it is generally quite foolish to accept a renewal period rental rate that will be adjusted to "Market Rate" unless some guidelines are set and a maximum increase is agreed to.

Debt Service works pretty much the same way. Too much and the business is going to be in trouble. 2% to 3% of actual or projected sales is a good guideline. Loans with floating rates, subject to increase, can be just as much of a threat as a lease without restrictions. You can do the same kind of "Break Even" projection here as one can do with rent and occupancy cost.

When you are considering a restaurant business purchase, better to be within the safe guidelines than to have to deal with a Restaurant Killer.

Brian Harron is an Arizona licensed real estate broker specializing in the sale of restaurant and bar businesses and real estate. He is affiliated with Sunbelt Business Brokers in Prescott, AZ

brian@arizonabizsales.com

website -arizonabizsales.com

928-541-0890

Restaurant and Bar Brokerage Update

2010-03-12T15:41:00.000-08:00

RESTAURANT AND BAR BROKERAGE UPDATE FOR THE WEEK OF MARCH 8

This has been a pretty good week. The buyer and seller activity was slow in the beginning of the week and came on strong Wednesday, Thursday and Friday. I took two new listings today, Friday and have another one pending that should be completed by the end of next week. I also had several good meetings with potential buyers in the last couple of days.

BUYERS ARE DIFFERENT: In the good old days there were a lot more buyers with a lot more money. Fewer buyers with less money means the prices that restaurants and bars are generally not what they used to be. Premium prices are only available for opportunities with very good sales, good cash flow and meticulous financial records. Another major difference from the good old days is that seller carry back financing is back in vogue. For business without strong sales and cash flow as well as good financial records, more often than not, it will take some seller financing to get the deal done. It is still very much a buyer's market.

MOST RECENT SALE: On Monday March 1, the Y-Not Lounge on Hwy 69 in Prescott Valley was sold. The new owners have done some remodeling, given the bar a new name and added some sophisticated games to the place. The new bar, named Royal T Sports Hall is now open . Wish I could tell you what it was sold for but no can do. Business sales are not publicly recorded and generally the price and terms never become public knowledge. The only way for business appraisers to get comps is to get to know a successful business broker or to use some of the research studies done annually on business sales. You just can't call your favorite title company and get a listing packet with a bunch of comps so it is a nice idea to deal with a business broker or in my case, a restaurant and bar specialist that has had a lot of sales, knows the market and can at least give you an idea of what comparable businesses are selling for.

WHAT IS A BUSINESS BROKER: Business brokers are real estate licensees that specialize in the sale of a business which would include the business assets, the intellectual assets, the trade name, and the goodwill. Included in the goodwill would be the spread between the asset value and the price for the business which would be computed based on the seller's discretionary earnings and the applicable capitalization rate (rate of return) for the business and the business category. Most business brokers are engaged int the sale of "Main Street" businesses, are not securities licensed and therefore do not sell the legal entity such as the corporation or limited liability company. To be good at what I do, you have to be part accountant, part business appraiser, be very marketing savvy and be a very good salesperson. I like being a specialist in restaurants and bars. It is the business I grew up in, was educated in and I like to eat and drink. As a specialist you can really develop a strong network of buyers and sellers and since I only sell a particular product and to an extent that most other business don't, I tend to get a lot of calls from other broker with clients looking for restaurants or bars.

DEAL OF THE WEEK: For only $25,000, you can own the former Pearl's Place on Hwy 69 in Prescott Valley. Fully equipped with a Series #12 restaurant liquor license in place. 2500 square feet and seats 68. Has a full kitchen with hood and plenty of equipment. Located at an intersection with a traffic light and easy access. email me at brian@arizonabisales.com.

NEXT TIME: SOME SIMPLE RULES FOR PRICING A RESTAURANT OR BAR BUSINESS.

Liquor License Review

2010-03-09T10:38:00.000-08:00

LIQUOR LICENSES FOR RESTAURANTS AND BARS IN ARIZONA..... Common sense says that you need a liquor license to serve alcoholic beverages in a restaurant or bar in Arizona. Which one to use and how much does is cost? What else do I need to know?

Here is some basic information on Arizona liquor licenses, some information on their values and the impact of a license on the sale of a restaurant or bar. Each is identified by a Series number as you will now see.

Series #6 - This is the true bar license. All are county specific and can only be used in the county in which they are issued. You can buy through a one time per year state lottery, through an owner or through a broker such as myself. A #6 has no requirement for the sale of food. You can sell as much food or as little as you want. This license is personal property and can be bought and sold freely. The license can be assigned to any location as long as the city, municipality and/or county zoning and other requirements can be met. Must be at least 300 feet from the nearest school or church. You can sell any alcoholic beverage legal in the State of Arizona and you can sell both on premise and to go. A Yavapai county # 6 is worth, as of March 2010, approximately $60,000 to $65,000. Used by bars, nightclubs and very high liquor sales restaurants. I have one for sale at $60,000 and the owner will carry some of the price for a qualified buyer.

Series #7 - Also a bar license but restricted to the sale of beer and wine only, Just like the #6, it is personal property and can be freely bought and sold, there is no requirement for food sales, has the same zoning requirements, can do on premise and to go sales, can obtain through Liquor Dept lottery or through owner or broker, must be at least 300 feet from school or church. Current Yavapai Liquor Lottery price around $9,000 while private market tends to be as much as 50% higher. I currently have one for sale for $13,500. Again, this license is county specific and must be used in the county where issued. This license is popular with wine bars, small restaurants, pizza places, golf courses and locations where "to go" sales are advantageous.

Series #12 - This is the restaurant license. In order for a business to operate with a #12, it must have at least 40% food sales. Less that 40% food sales will result in a requirement to operate with a bar license, not always easy to find and perhaps not landlord or Zoning permissible. This license is NOT personal property. it is location specific and can not be bought or sold. It has no value in a restaurant sale. No "to go" sales permitted and it can not be moved to another location. Total fees and costs Will range from $2,000 to $5,000 depending on the city and/or county fees added to the state fees. When a restaurant is sold a new license will be issued by the state. The greatest impact of the license on a sale is taht it creates the opportunity to receive an interim permit thus assuring continuous sale of alcoholic beverages when the restaurant changes hands.

General Information - In a business sale, a #6 and a #7 will have an impact on the selling price because they are personal property, a #12 will not. the value of a #12 in a restaurant sale is the assurance that the premises can be licensed and that an interim permit is possible. The process of buying a #6 or a #7 is very simple with very little necessary due diligence, a short escrow period and an easy purchase contract. Depending on the situation, the state application can be very simple or somewhat complicated.

BRIAN HARRON IS A LICENSED ARIZONA REAL ESTATE BROKER AFFILIATED WITH SUNBELT BUSINESS BROKERS IN PRESCOTT, ARIZONA. HE IS THE ONLY EXCLUSIVELY RESTAURANT, BAR AND LIQUOR LICENSE BROKER IN NORTHERN ARIZONA AND CAN BE REACHED AT brianharron@cableone.net or by calling 928-830-8996.

HE IS AVAILBLE TO ASSIST IN THE BUYING OR SELLING OF A LIQUOR LICENSE.