By Greg Kells
Many restaurant owners have days when they really wish they could just walk away from the business. Such days can happen because of equipment malfunctions, weather, delivery problems, cash flow issues or — the No. 1 reason — staff issues. Sometimes the feeling is temporary but when it happens on a recurring basis it’s time to evaluate your life, your business and your future.
Typically, business owners enjoy what they do and this is particularly true of people in the hospitality and foodservice industry. They have significant contact with their clients and have many opportunities for creativity. When work becomes a drudge, something to be endured rather than something to look forward to each day, it’s time to evaluate.
Cause of frustration
I have sold many restaurants on behalf of their owners and the most common reason for owners wanting to exit their business relates to their frustrations in managing staff. Often kitchen staff and servers look at their jobs as a temporary means to make a living rather than as a long-term career into which they will invest their time and energy to continually improve their abilities. This can cause great frustration for restaurant owners, particularly in chef-driven restaurants.
So back to our question: How do you know it’s time to sell your restaurant? Your first indication is that rather than looking forward to getting to work each day, you resent having to go in. The second indicator would be an increasing lack of patience with staff. The third indicator would be your focus on simply surviving each day rather than approaching problems as opportunities to improve. Apathy sets in and you are doing things the way you always have instead of using creativity and energy to keep constantly improving. You are simply coasting, while growing increasingly tired and frustrated. You waited too long to make the move.
It typically takes three to nine months to sell a restaurant or foodservice business, but it can take longer. It takes time in advance of that to prepare your business for sale. If you own a profitable, busy foodservice business, you would want to do a share sale in order to take advantage of the Lifetime Capital Gains Exemption so you get to keep the money you receive and minimize tax. This is particularly true if the building is going with the business but is true most of the time even if you operate in leased space.
Getting your house in order
Many food service operators do not declare all of the revenue. Some supply their home kitchens from the restaurant. Some enjoy management perks which can include personal entertaining, travel, life insurance, home improvements, vehicle use, etc. Many do not pay much attention to their financial reporting, inventory management, staff training programs, processes, and systems. This inattention will hurt you operationally but will cost you heavily when you go to sell. No one will do a share purchase unless the financial records are well maintained and effective cost control systems are in place. We, as business owners, often fall into the trap of leaving what is not broken alone. Preparing your business for sale takes time, so waiting until you are experiencing burn out to start the process is not the right plan.
In addition to taking up to a year to accomplish the sale, some of the tax structuring issues require two years to be effective, along with the amount of time and energy required to prepare the business for sale. We recommend that you start 2.5 years before you expect to close. In many cases, the new owner will want you to stay on for up to six months so start the process three years before your anticipated exit date.
Assess the situation
Now back to the problem: How do you know when it is time to start? Look at your energy level. Talk with your family. Envision your future. Honestly assess your passion for what you are doing. Consider the changes you have to make to stay competitive and their cost in money, time and energy. If you are unsure, start the process. You can always delay the last part (selling). Start with a competitive analysis of your business and at the same time start the tax planning. Meet with an experienced and competent business broker to obtain an independent valuation of your business. They will produce a Most Probable Selling Price Report based upon its current operations, equipment, facilities, lease, staff, menus and systems and will identify what you should be focussing on to increase value. They will also steer you to the right resources to get your tax structuring in order.
What changes are needed?
You may need to set up a family trust, or not. You may need to stop taking all of the perks. You may need a facelift or menu change. You may need to start using marketing automation services. You may need to move to review engagement financial statements prepared by a CPA. The key here is that whatever you do, the effort will not be wasted. Your operations will benefit over the coming three years, your business value will grow, and you will (ideally) have a lineup of buyers when you are ready.
When do you start the process of selling your restaurant? Three years before you want to exit. How do you know it is time? When your answer to the question, “have you ever thought about selling your business?” is “yes, I sometimes think about selling.” The key is to ACT, not just think about it. What is your first action? Talk with your family. Your second action is to call the best business broker you can find.
About the author:
Greg Kells is President of Sunbelt Business Brokers, Canada’s largest business brokerage. With offices across the country, Sunbelt helps restaurant and foodservice business owners to maximize their selling price, reduce taxes, reduce risk and take the hassle out of selling. They also help many budding entrepreneurs to make the right choices in acquiring a business that works for them and matches their financial resources, skill, experience, and lifestyle goals. For more information, visit www.sunbeltcanada.com.