Our burning question: when you’ve poured your everything into a café or restaurant business, how do you get the best sale price for it? Good news is, Paul brought the goods.
The bad news? Out of every ten cafés and restaurants Paul walks into, eight of them will be for sale (or thinking about it). So yeah, that’s a wee bit of a buyers’ market for selling your restaurant or cafe. But that doesn’t mean giving up – it just means you need to do a few things to make sure your business is worth buying – and paying top dollar for.
1. Plan your exit the day you open
Like with any business, you should be planning your exit strategy before you even open your doors: constantly future proofing, putting great systems in place, buying high-quality kit and hiring with a long-term plan.
A POS system that integrates with your accounting package will mean you’re tracking your profitability from day dot, so you’ll see immediately when things go off the rails.
Paul acknowledges that doing all this isn’t the easiest.
“The reality is that in hospo it’s very difficult to do that. You’re busy from the word go – every waking hour you’re running around like a crazy person,” he says. “The value of your café will be dependent on the risks the buyer sees, so in a perfect world you’d be making sure you put in systems that remove that risk.”
2. Get an expert café valuation
In general, the value of your business will be between one and three times your net profit – that’s called a multiple. Getting a multiple that’s one, two or three times your net profit is the difference between an average deal and a great one.
There are loads of factors that affect that multiple:
- How many days or hours the café operates
- How involved you are in the day to day
- The length of your lease
- If there’s a demo clause on the lease
- How much competition you have
- How well established it is
It’s an expert calculation, and as Paul says, you can’t base it on what you see on the internet.
“A lot of people will base the value on what they paid or what they want,” he explains. “Pricing is critical – price it too high and it won’t sell, too low and you’ll miss out on $20k to $30k.”
3. Pick the best time to sell
It’s best to sell when the business is still on the up. Paul remembers one client’s business that was very difficult to sell because it had reached full capacity – its growth and income was capped.
It needs to be the right time for you. What debts are outstanding? How much money do you need to take your next big step?
“Often hospo owners haven’t thought that far,” says Paul. “They just want to get it done. Sometimes it might pay to wait another year to hit the perfect timing.”
4. Drive it like you stole it
The best prices are for the best businesses, not the ones with the most potential.
That means you need to keep your business humming like the well-oiled-coffee-making-machine that it is. Keep up the advertising, stay pumping on Insta or Facebook and go hard on maintaining the day-to-day traffic. If there’s an easy, profit-boosting win to be had, do it.
“It’s a bit like real estate,” says Paul. “If they come to have a look and they’re the only customers in there, it’s not ideal. The more you can do to keep it pumping the better.”
5. The wow factor makes a difference (but not as much as you think)
A cool café with an awesome buzz is important, and it draws in the buyers initially. But what’s more important is what happens under that veneer. Sit with your accountant, get all your documents in order and focus on getting the business in top shape. Genuine buyers are more interested in the profitability than the cool lamp shades.
“That warm fuzzy feeling really helps with the initial phase – people get drawn in emotionally, but they still have to justify it logically,” Paul explains. “It’s so important to have all the documents in place so you get the deal over the line.”
6. Plan, plan and then plan some more
Buyers are fickle. Once you get potential buyers on the hook, you need to be prepared for their questions, or they’ll find someone else who is.
Paul compares it to opening your café having done no prep—chaos and highly unprofessional. Instead, get professional advice before you even advertise the sale. Your books should be up to date, which means your accountant can give advice about valuation and anything that might put buyers off.
“Your accountant will give you a fair idea of what other accountants will say about your business. They’ll spot the red flags that you can then work to remove.”
Get an NDA or confidentiality agreement ready and have the potential buyer sign it right at the start.
Paul notes, “NDA gets rid of about 40% of enquiries. Ask for it early on, and if anyone is serious about buying, they’ll be expecting it.”
7. Invest in your buyers
Chucking a free ad in the free Buy, Sell and Swap page will get enquiries, but they won’t be good ones. If you’re serious about selling, you need to be serious about advertising.
Hot tip from Paul: “The serious buyers are all on the bigger websites – they cost, but they’re worth it.”
Brokers will also have a database of qualified buyers – once again, investing in the pros may save a lot of time and heartache.
8. Do your homework on the buyer
Landlords have a lot of power in all this. They can refuse to reassign a lease for any reason at all. A quick check to see if your landlord and the buyer are compatible will save drama later. You can also ask for an asset-and-liability statement from the buyer. This can feel invasive, but you need to make sure that money is actually there before taking your café off the market.
“They’ll be doing their due diligence on you, so you should do the same,” says Paul.
9. Stone cold emotions
Keep your emotions out of it – this business might be your baby, but this is a financial transaction. If you think you might be a bit close to the process, a broker can manage the sale and keep it professional.
Paul notes, “If you get drawn in emotionally, it’s very easy to drop the price 10-30% over the phone, whereas if you have a great broker acting impartially, they’ll keep emotions out of it, and save you enough to more than cover their own fee.”
Get a seller’s mindset
If you’re smart, from the minute you open your café you’ll be running it with the intention to sell. From operational decisions through to how you gather your information for the potential buyer, you’re always looking forward.
If you’re unsure, investing in a professional may make the process easier and net you a better sale price. Trust in your hired experts to give you advice and make great decisions with you. The results will be worth it: a quicker sale and more profit, so you can move on to your next big adventure.
For more insights on selling a cafe, Paul and the team at GSE have you covered www.gsebusinessconsultants.com.au