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Category: Lastest News

Buying a Restaurant – things to know


So you are considering buying a Restaurant. Before you do so there are some things you should know.

Watch Your Margins

Experienced restaurant owners know that one of the keys to success is controlling costs. Restaurants run on tight margins and if costs are not controlled it is impossible to make a profit. Here is a general guide for the ratios of cost of goods to sales. This applies to a full service restaurant. Fast food restaurants operate at slightly different ratios.

Food costs should remain in the ratio of 28%-32% of gross food sales. Anything above 32% and as an owner you will find it difficult to be profitable. Below 28% could indicate that you are serving substandard food to your patrons and that will come back to bite you.

If you are serving alcohol, liquor costs should 18%-20% of gross liquor sales. Beer should run 24%-28% (bottle) and 15%-20% (draft). Wine should generally run 23%-35%.

Labor costs should not be much higher than 30% of total gross Sales. Most restaurateurs try to keep property rent at 8% or lower.

The margins for food and alcohol can also help to spotlight employee theft. If margins suddenly change it might be because a new employee has sticky fingers or is being a little too generous on their pours. Restaurateurs are well advised to keep a close eye on margins. Monitor your costs on a monthly or even weekly basis.

Employees

Managing employees can be a major drag. Employee turnover is a big problem in the service economy. Keeping good employees can be a difficult task. The one thing that can help and costs nothing is attitude. Be fair and respectful to your employees.

Cleanliness is next to…

The health department is another major concern. A bad inspection has ruined many a good restaurant. Make sure you keep up with the requirements of your local health department. If there is a problem, fix it immediately and properly. This is one area you cannot afford to be lax.

McDonalds

Know your niche. McDonalds has made billions serving bad food but they serve it cheap, fast and they are consistent. If you want to charge a premium for your food then you will need to deliver quality food with good service.

Last Words

My last piece of advice when it comes to buying a restaurant is this. Think long and hard before you do. Many restaurants fail. Even experienced operators go under. If you don’t have a background in the Industry the odds are against you. But hopefully the advice I offer here will get you off on the right foot.

Anthony John Rigney PA

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Selecting a Business Broker

Selecting a Business Broker

When the time comes to sell your business you will be best served by finding a qualified professional to assist you. You should seek out an experienced Business Broker. Business Brokers specialize in selling businesses. Be careful, Realtors and Commercial agents are generally not experienced in the sale of a business enterprise. Most realize this and don’t attempt to operate outside their skill set. However some residential and commercial realtors will seek to “pick up” a business listing. The results can be disastrous. In general Realtors do not understand the complex process of selling a business or the critical importance of confidentiality.

Business Brokers are the only ones who can guide you through the sale of your business and do so while maintaining confidentiality throughout the process. In Florida we have a Professional Association of Business Brokers called the Business Brokers of Florida (BBF). A good first place to start would be to visit their website at www.bbfmls.com. There you will find a directory of members. By selecting a member of the BBF you know you are working with a professional who is bound to the high ethical standards of our profession.

It is also a good idea to ask your Broker the follow questions.

1. How many businesses have you sold?
2. Do you have a professional designation?
3. How will you advertise my business?
4. Will you protect the confidentiality of my business during the sales process?

A good Business Broker will assist you in properly pricing and marketing your business. They will walk you through the process and bring it to a successful conclusion. Knowing how to select the right Broker is your first step in the process of selling your business.

Anthony John Rigney PA is licensed Business Broker in the State of Florida

He is a Board Certified Intermediary and Licensed Real Estate Broker Associate.

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Launch of New Facebook Page

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The Jacksonville Branch of Florida Business Exchange has just launched a new Facebook page.

Please visit us at the link below and of course like our page but only if you like it.

https://www.facebook.com/jacksonvillebusinessbroker    

Tips for Selling your Business

I am often asked by business owners “when should I start preparing to sell my business”. The startling answer is from the first moment you own it. The day you open the doors on your business is the day you should begin planning your exit strategy.

Here are nine tips for selling your business.

  1. Profitability – It may seem redundant but the first thing buyers are looking for is a profitable business. Since businesses are priced based on multiples of Net Profit (EBITDA or Adjusted Net), the more profitable the business the more attractive it is to a buyer.
  2. Good Books – The rule is if you are not showing it to Uncle Sam, the buyer won’t pay you for it. Keep good books, records and manuals. Not only will you get more money for your business but it will make the process go more smoothly.
  3. Employees – A well trained and stable staff will encourage them to believe that the business can continue without you.
  4. System – Have a system in place. The most attractive business is the one that runs efficiently in the owner’s absence. Don’t make the mistake of having the business too dependent on you. Ideally you should be able to remove yourself from the business and insert the new owner with little or no disruption.
  5. Branding – It can be a mistake to identify the business too closely with your personality. Big Tom’s Pizza might sound catchy but how will it affect the business when big Tom is no longer around. A more generic name will make it easier to sell. How about The Good Pizza Company.
  6. Don’t be greedy – If you ask too much for your business you run the risk of frightening away buyers. A professional Business Broker will help you price the business correctly. And be prepared to hold a partial loan for the seller. This increases your pool of buyers, can increase the overall price you receive and has many additional advantages you should discuss with your accountant.
  7. Be honest – When you get a good buyer tell the truth. If you are upfront about the negatives they may not mean as much to them as you imagine. Furthermore your honesty will build the trust which is critical to a successful transaction.
  8. Help – Don’t disappear with check. You should offer a transition period to train and assist the seller. Even after this period make yourself available if needed for the occasional phone call.
  9. Let go – This is the other side of the coin. Don’t disappear but don’t overstay your welcome either. You sold the business now let it go. It’s time to sail off into the sunset.

Anthony John Rigney PA
Anthony is a Board Certified Intermediary and licensed Real Estate Broker Associate in the State of Florida. He is currently active as a Business Broker operating out of the City of Jacksonville.

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Multiple of Earnings – Business Valuation Method


In an earlier post I dealt with EBITDA a formula for determining the earnings of a business. Once we have determined the EBITDA or true cash flow of a business the next step to determining its value is to apply a Multiple of Earnings. We can find this value in a number of places. A first stop would be to consult the Business Reference Guide published annually by Business Broker Press.

Another good source of information is a database of business sales. Such a database is maintained by the BBF (Business Brokers of Florida) our State Association. From this database we can draw on actual sales and determine typical Multiples of Earnings for various business types.

There are also other databases that compile sold statistics such as Pratts Stats. There is typically no public record for the sale of a privately held business. This means that useful statistics are proprietary and subject to membership or use fees and dependent on voluntary reporting.

Industry organizations and even the sellers themselves can also provide guidance on the standard multiple for the Industry in question. Finally many experienced Business Brokers will rely on a “gut check” before arriving at a Multiple of Earnings. Having done their research they will apply their own judgment and knowledge of the subject business to determine if the multiple is realistic.

Once a multiple has been arrived at it must then be applied to the EBITDA. Using this Example from my earlier post we will determine the likely selling price of Company B.
For the sake of this exercise we will assume a multiple of 4 times EBITDA.

Company B.
2011 $800,000
2012 $1,000,000
2013 $1,200,000

Because we already determined that the most recent years earnings are the best reflection of the Companies performance and because our analysis shows that the earnings are continuing on this track for 2014 we will use the EBITDA figure of $1,200,000.

Applying the Multiple of Earnings we get.
$1,200,000 x 4 = a likely selling price of $4,800,000
Business Brokers often prefer to offer a range of value rather than a set number. In this case a Broker might suggest a range of $4,500,000 to $5,000,000 with the likely selling price falling within this range.
While the Multiple of Earnings Method is not the only valuation method available it is considered to be the most accurate as it relies on real world data to arrive at its conclusions.

Anthony John Rigney PA

Anthony is a Board Certified Intermediary and licensed Real Estate Broker Associate in the State of Florida. He is currently active as a Business Broker operating out of the City of Jacksonville.

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Buying or selling a business is a complex process. Make sure you have the right team on your side. Contact us today!