Restaurant broker shaking hands

Puzzle pieces that a Specialised Hospitality and Restaurant Broker will have to paste together – Part 1

Initial tasks, gathering and assessing. The specialist broker’s reputation depends on the quality and accuracy of the information that is required to facilitate a purchase and sale agreement. The base of all the hard work to follow is based on the quality and accuracy of the foundation search.

Establish the Value of the Business. 

The broker will help the buyer evaluate the value of the business to help ensure the buyer doesn’t overpay. The methods of valuation of a business are the Assets-in-Place Method and the Going-Concern Method, extrapolation of the profitability. In some instances, the seller and the purchaser agree in advance on a method mutually accepted. I have been involved in a transaction where the average of the three methods was used and mutually accepted by the seller and the buyer.

Location analysis. 

The broker will help the buyer review the many factors involved in assessing the location of the business alternatively finding the right location if the business has to be relocated. Analysis of competitors that are located in close proximity. In many cases when a poorly performing business is sold it would be wise to relocate the business, the cost will be factored into the purchase price of course.

Review Seller’s Disclosure Statement. 

During the initial stages of the transaction, the buyer will be given a seller’s disclosure statement (completed by the seller) that discloses all the pertinent information regarding the business—business conditions, regulations, and other considerations of the business. All Certificate Of Compliance documents to be handed to the purchaser. These will include and are not limited to, Plumbing, electrical, air-conditioning, mechanical ventilation, extraction, open fire equipment, and LP gas to mention a few.

Investigate the Financial Health and Financial Statements of the Business. 

If the business being purchased is a Going-Concern, the broker should have prepared management accounts and a cash flow statement, which details the cash flow a buyer should be able to realize from the business. In addition, the broker will help the buyer evaluate several years of past tax returns and profit and loss statements, as well as the current year’s year-to-date profit and loss statement and applicable tax returns. Specialist Brokers will advise on using professional accountants for thorough analysis.

Review the asset register, Fixtures, Fittings, and Equipment List. 

Detailed lists of all the fixtures, fittings and equipment to be included with the sale. In a separate list, the seller should detail the assets that are specifically not included, personal items to be retained by the seller, and/or items that are rented and/or leased. If certain items are leased, the buyer usually has the option to continue the month-to-month rental agreement of these items, or he/she can cancel the rental agreement at the time he takes possession of the business. If some of the equipment is leased, it may be a condition of the sale for the buyer to formally assume this lease. 

Review the Physical Assets. 

During the due diligence period, the broker will arrange for the buyer to do a physical inspection of the premises. During the takeover or contingency period, the buyer is free to bring in any contractor he would like to inspect the premises; including the plumbing, electrical, refrigeration, heating, air conditioning, and ventilating systems, and any other mechanical systems. All the equipment must be in good working condition. 

Final inspection.

The buyer does another inspection of all the equipment immediately before the close of business on taking over date, to assure that it is in good working condition. Any items and or equipment, unless disclosed otherwise, that is not in good working condition must be repaired and/or replaced by the seller, or the buyer will receive a credit from the seller to have the item(s) repaired, and/or replaced. 

Take over day.

The exception to the rule is when the business is being sold “as is.” When the buyer gets a contract to purchase the business, it is disclosed in writing that certain items of equipment are not working and will not be repaired at the close of takeover day and that the buyer has agreed to these conditions. If a business is being sold “as is,” usually the price is adjusted accordingly.

Marius Joubert
Author: Marius Joubert

Founder of the first true community for the restaurant and hospitality industry.

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