With So Many for Sale. How Do I Sell a Cafe or Restaurant?

by SHREYANSH SHAH 17th of March, 2023

With So Many for Sale. How Do I Sell a Cafe or Restaurant?

With the new year underway, it’s a great time to sell your cafe – especially if you got all your financials sorted. There are many buyers shopping for a business at the moment, and the majority would prefer to purchase an established enterprise, rather than starting from scratch.

Buying an established café/restaurant is a great option, as it will have an established name and customer base, it is already trading, and the chances are the staff would be happy to stay on. There’s a fair bit to do once you decide to sell your cafe but, if you follow the processes, and seek expert advice, the whole transaction can be smooth and successful.

Improve the presentation of the business

The way a cafe or restaurant looks can be a major factor when it comes to the selling price. Buyers would be willing to pay more for a business which looks well maintained and presents well since it means they can immediately concentrate on growing the business without requiring any additional cost or effort.

A business which looks dirty and run down means the buyer may need to spend on equipment repairs or close the business for renovations down the track which increases the risk of buying the business. It can also make some buyers assume the seller has lost interest in the business causing them to make a low and opportunistic offer. Obviously, there’s no point in spending on a renovation just for the purpose of selling the business, however, things like making sure everything is clean

and well organised go a long way in helping you attract more buyers to fall in love with the business. You don’t get a second chance to make a first impression.

In addition to the physical location, online presentation is also becoming increasingly important and it's not uncommon for buyers to go on Facebook and Instagram to check what customers are saying about the business. A Facebook profile with a significant number of bad reviews can suggest a problem with the management and operation which causes doubt in the eyes of the buyer and can lead to them walking away if they feel they don’t have the experience or confidence to turn it around.

Price the business correctly

While a clean, fresh appearance might well attract prospective buyers to view, the value of the business is based on the bigger picture. For example,

How much profit does the cafe make?
What are the assets worth?
What is the cash flow?

Even the circumstances of the sale can affect the value. For example,

A forced sale will probably drive down the value, as the current owner needs a quick sale, so will take an early offer.

One of the biggest challenges in selling the café business is deciding on the asking price. Most sellers will have their business professionally valued. Why? Because sometimes, when you’ve quite literally put blood, sweat and tears into the business, it can be hard to put a price on it! Because the seller is emotionally involved, it can be hard to see the factors that could reduce the asking price. Or, the owner might put more value on a particular feature than a prospective buyer would.

A positive is that a café/restaurant has tangible assets – kitchen fittings and equipment, furniture, crockery, glasses, cutlery, and so on. That makes it easier to value, and attractive to a buyer, as they feel they are getting their money’s worth!

Business owners tend to advertise their businesses at a price that is higher than what it’s worth assuming this will lead to a higher offer. This is a MISTAKE which could end up costing you more than just your time.

Owners need to understand that the number of cafes in Victoria has grown exponentially over the last few years and has led to an increased supply of cafes selling on the market. This gives buyers a huge number of businesses to choose from and has created a market that is massively in favour of the buyers. The vast majority of buyers which we deal with on a daily basis would have looked at dozens of businesses by the time we get to show them yours, so pricing your business correctly is key to a having a successful sales campaign. Being a buyer’s market, they are less likely to waste their time negotiating with you and far more likely to just move onto another business with a more realistic price tag.

Advertising the business at an inflated price can be detrimental even after you decide to lower it as buyers can get sceptical once a business has been on the market for a long time (if it’s so good then why hasn’t someone bought it already).

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Keep proper records of the business

In the good old days, selling a café or restaurant was much easier and it wasn't uncommon for buyers to make an offer on a cafe business purely based off a 2-week trial. Unfortunately, these days are well and truly over.

Even though we can still sell businesses without adequate paperwork, you would be setting yourself up to get a selling price that is LOWER than equivalent businesses which can prove their profitability by providing documentation since buyers will always pay more for a business if they are confident in the numbers.

A potential buyer will want to see the financial records to establish the profitability of what they are buying. Be organised and ask your accountant to prepare the necessary documents, increasing your likelihood of selling the business at a higher price.

At the same time, banks are enforcing stricter lending criteria making loans more difficult to obtain. This means businesses that can show profitability on their tax returns and can be financed are worth more to buyers when compared with businesses where the owner has not declared the majority of their cash income (to avoid their GST commitments) and have a lot of personal expenses claimed against it which in turn makes it near impossible to get any sort of finance from the business.

Know your Lease and your landlord

Reading the fine print in leases can put anyone to sleep, but it’s important you know where you stand legally. A large part of a café or restaurant’s goodwill is tied to their location and lease tenure. This means a business with a lease which allows the buyer sufficient time to make a return on his investment and resell the business to another buyer after himself will command a better sale price.

Most buyers prefer a lease with at least 5-7 years left, obviously the longer the better.

Another factor often overlooked that can affect the sale price is how strict the landlord is when it comes to approving their next tenant (the buyer), a landlord who is open to accepting tenants with little to no experience means we can bring through more potential buyers and increase the likelihood of getting a better offer.

Depending on the relationship you have with the landlord, it may be worth talking to them about this before putting the business on the market as the last thing you want to happen is to think you have a buyer, only for the landlord to turn him down during the final stages of the sales process.

Engage a specialized broker

In light of everything mentioned above, choosing a specialised broker to sell your cafe and restaurant has become more important than ever and campaigns that just involve putting your ad up and hoping for the best without preparing for when the buyer actually comes to do their due diligence on the business is likely to be a waste of your valuable time and result in the buyer walking away.

Having a specialised business broker which knows how to properly price & prepare your business for sale according to the demands of the market and guide the buyer through the entire sales process means you increase the chances of selling your business faster and also likely to get a higher offer.

Tags: selling a business business brokers specialised brokers