EP 76: How to Sell an Independent Restaurant with Steve Weinbaum of WeSellRestaurants.com

Ed Mysogland  0:34  

Have you ever wanted to know how a restaurant is valued or how they're sold? Do you see them all over? I mean, they're everywhere, you know, they there is a restaurant in nearly every corner in every strip center, everywhere. And each of those businesses, you know, have a family behind them. And that family is dependent upon the not only the earnings ability of that particular business, but also when it goes to sell or when they go to sell. And so today I'm excited to have Steve Weinbaum of we sell restaurants. He is out of Atlanta and their their shop is called we sell restaurants.com. And they, they go across country and represent various various businesses, whether it be, you know, owner operated, absentee owned franchises, independents. And so on this episode, we dive deep on what makes these types of businesses valuable and how you sell them. So I hope you enjoy my conversation with Steve Weinbaum. I'm your host, Ed Mysogland. On this podcast, I interview buyers, sellers, deal makers and other professional advisors on what creates value in a business and then how those businesses can effectively be sold at a premium value. So on today's show, I'm so excited to welcome Steve Weinbaum of we sell restaurants, one of the things, one of the things that that has always been a challenge in selling businesses, especially in the food business, is just the level of complexity that people so underestimate how to operate it. And so I'm really excited to have Steve on to talk about, you know, how businesses actually get sold. Because it's truly when you think about, you know, how many of those types of businesses are out there. Those are families that need to be able to sell those businesses. And we're, we're certainly excited to have Steve on to visit about, you know, how you can make that type of business saleable. So Steve, welcome the show. Thanks. Appreciate

Steve Weinbaum  2:55  

1. Thanks for inviting me.

Ed Mysogland 2:57  

So before you came on, I was doing a little bit of an intro, but I thought maybe you could give me a little bit more of a, you know, kind of a high level overview of you and we sell restaurants.

Steve Weinbaum  3:10  

Sure. So my background is bleeding out retail marketing, worked for Macy's for close to 25 years. And a lot of my responsibilities more on the finance side, the planning, and whatnot. So certainly in selling a business, as you alluded to a lot of its numbers. So I've got a strong numbers background, I also have a marketing and sales background. And then I when I left retail, I went into the payments industry, you mentioned gift cards to me earlier before we started the show. And I work for a gift card company, and some of the most popular gift cards or franchise food gift cards, you know, the the red lobsters with the world, the Dunkin Donuts of the world. So I kind of got to learn the franchise well then. And then eventually I kind of moved into selling restaurants about seven and a half years ago. I've known actually the owners Robin and Eric of we sell restaurants before the company even started, we worked together at Macy's and stayed together and that's that's how I joined the company. A little bit about we sell restaurants, which a lot of people don't know. So we're the only restaurant brokerage company that has a national footprint. You have a lot of local brokers business broker that specializes in the category. We have big national brokers like Transworld or Sunbelt. We're unique in that we're national, but we only deal in restaurants, bars, pubs, cafes, and things like that. And again, I said we are a franchise. So we have brokers and offices in many cities around the country in Charlotte and Denver, in Minneapolis. I'm a corporate broker. So anywhere we list a restaurant or have a restaurant that needs to be sold that's not in one of those markets. I take that listing so I've sold them from Texas to Chicago to Atlanta. Oh to Michigan.

Ed Mysogland 5:01  

Nice. So, I guess I want to start with, you know, we're in this new post COVID world. So where where is the dealmaking industry for, for, for food and beverage?

Steve Weinbaum  5:17  

It's interesting because, you know, there were a lot of residual effects of COVID. And coming out of COVID, there were a lot less restaurants because some couldn't survive the pandemic, even though there was a fair amount of government assistance. But but the ones that did survive, came out a lot leaner and meaner, so to speak. Certainly the proliferation of third party delivery, Uber Eats GrubHub DoorDash. Prior to COVID, I used to see that representing somewhere between five and 15% of a restaurant sales, post COVID. I can see it representing a third of their sales in some instances, especially it depends on the cuisine, some cuisines travel very well, Italian travel as well. Subs travel well, so so so those businesses actually got got better coming out of COVID were those restaurants that relied a lot on social gathering had big footprints was more of an experiential type of dining event. Those are the ones that suffer but you know, to answer your question 2021 was a record year for we sell restaurants, ahead of 2019. And pre COVID, than 22 is off the charts, we were up about 40% in restaurant units sold, and again, for a myriad of reasons.

Ed Mysogland 6:50  

So yeah, and it's funny you say that, because I told you that I had, I had been reading the most recent bizbuysell Insights report. And and Robin, you know, the Koch, your co founder was she was she contributed that article saying that restaurant sales across the board were up 20%. So I guess where I, the question is why why why restaurants are up of all of all the businesses, why would you? And I guess I theorize that. Okay, you know, I COVID stress tested my business, I got leaner, I added a different profit center with delivery. And now. Now I want to sell it. I mean, that's only a theory. But I mean, but there's got to be more than that, don't you think?

Steve Weinbaum  7:46  

Yeah. So we we have different categories of buyers. You always have the owner operator that's worked their whole life in the industry. They've been a chef, a manager, they've saved their nickels and dimes, and now they want to work for themselves. And that's always been a you know, a strong member of the buying pool, as are the investors, the ones who want to buy multi units, they don't want to be owner operators, they don't want enough EBITA where they can be absentee or semi absentee owners. But But COVID You know, though, I know the the job market now is very solid. But there were tons of layoffs during COVID. And a lot of them were corporate jobs, people making six figures. And the beautiful thing about selling a restaurant is as long as you have the verifiable earnings in books and records, which I think maybe we'll talk a little bit more about later. You can you can get a six figure earnings owning a restaurant with as little cost of entry is two times earnings. If you think about it, restaurants are constantly turning their inventory. So if you buy a liquor store, or you buy you know a retail store or something else that sells product, you also have to invest 10s of 1000s of dollars in inventory. Not so with a restaurant restaurants typically sell between a two and three multiple. So as I said if you if you have to protect $100,000 year income, because you are in some some corporate, you know, middle management job, you can buy a restaurant for 200,000 Have some operating capital and replace that that those earnings fairly quickly. As long as again, you're you work with an experienced business broker like URI who knows how to validate the numbers and do the valuation. But But I think that's one of the reasons sales are up, maybe some pent up demand because no one was buying restaurants in the first half of 2020. So there may have been some pent up demand. But again, if that article, total business sales were flat to down compared to restaurants being 20, which is a huge gap which just shows the resiliency and desirability of the industry.

Ed Mysogland 9:59  

Well, you eluded to, to staffing. And I know I mean, it seems at least in in the markets we serve, it seems that staffing is so, so difficult. In fact, we were. So my daughter, right, one second year. Oh, I got I had a little issue that, but I've fixed that. Okay. So what we're back to the question, so I had it, we've we've been seeing that, that staffing is difficult. So my daughter, when she comes home from college, she is she is in one of the one of the higher end restaurants here in town. And I know they have had a terrible time keeping people. And maybe it's just the market, but but boy, it seems as though every plate every restaurant that we go to, including the one we're recording, you know, the day after Valentine's Day, you know, those, we had our we had a rough experience last night, my wife and I, you know, just due to you no shortage of help. And this is a, you know, a fairly high end restaurant. So, I mean, so is it different than other markets that staffing isn't the challenge?

Steve Weinbaum  11:23  

No, it's it's pretty consistent across the country. You know, what, what the phenomenon is, I don't know, if it's just a change in attitude towards working. Or, you know, it's, it's, you know, it is also one of the reasons some people are selling because they're, they're tired of having to deal with the staffing shortage. And I remember so I remember, I had a pub listed, pre COVID. And it was listed for $250,000, based on a little over $100,000 a year in earnings. And then we took it off the market. And then we took put it back on the market post COVID. And I looked at the financials, and the volume was there, but the earnings, and the earnings were down because that dishwasher that was 950 an hour is 1350 an hour, you know, so people are demanding higher salaries, there's definitely still an issue. You know, as we talked about, you know, post COVID, you know, more delivery more carry out, it's, it's definitely an issue in the industry. And if you take that and layer on top of that, to supply chain issues, you know, the cost of a case of chicken going double in price. If you're a restaurant owner, you've got to be a number of savvy because restaurants, beep, you know, people, you know, people always hear that your your cost of goods should be less than 1/3, of what you sell. So if you do $750,000 a year in sales, your cost of goods should be 250 or less. But even with that number restaurants work on a very slim margin. So if your cost of goods goes up five points and your labor goes up five or 10 points, and you don't adjust prices accordingly. All your profits are gone. So, you know, it's good to pay people what they deserve. But you also then have to build that into your into your business.

Ed Mysogland  13:24  

Well, I'll tell you, when, as we were talking, before we started, you know, we were down visiting Clemson, and we were we were at Chick fil A, and they were hiring at $28 An hour 28. I

Steve Weinbaum  13:38  

haven't seen that. But that's that's,

Ed Mysogland 13:40  

that's remarkable. It was and it's like, clearly they're, they're not going to have a staffing issue. And, and we were just I mean, totally dumbfounded. You know, we're seeing 17 $18 an hour here in here in here in the Midwest, but boy, oh, boy, what a like I said it. And I think the important part that you that you said is that you it's one thing to pay him it's another thing not to adjust your prices to reflect to keep those margins. My next question has to do with with independent restaurants, you know, you know, I love independent restaurants. I think there's a personality that that you can't say you can't get with a franchise but often you can't, you know, and it's it's a mom and pop and, and probably a family. You know, there's family members in there and I enjoy that but but part of it is that whole concept of personal goodwill that you know if if Steve isn't there anymore, I don't want to come because I've been I've been seeing Steve there for for 20 years. So our independent restaurants difficult to sell. So How do I make them safer, more saleable?

Steve Weinbaum  15:02  

So sometimes the answer is sometimes, you know, contrasting them or comparing them to franchises, franchises provide a comfort level, because you've got that corporate support the corporate marketing, someone to call, you know, if your point of sale system goes down or you're having issues, there are other franchisees in the market, you can call on, you know, to ask questions and help they help you with supply chain and those other things. So, so there is a comfort level, with franchises that inherently make them a little bit more sellable or easy to sell. You're also paying for that comfort. I mean, you know, six 8% royalties and marketing fee is not uncommon with a franchise. And when you're in an industry where where you're lucky, if you're making 15% on your on your sales, that's a big bite. So you know, so there are certainly advantages to owning and selling a franchise. But again, there are also some challenges financially because of the royalty that you're paying. Now shifting to independence. I said sometimes because it is the number one thing that you need, when you're selling a restaurant is good books and records, you need to be able to verify and validate your sales, and then also your your earnings. So you know, a point of sale system that you can run reports on to show what your true sales are sales tax filings that then match your point of sale report. And then a p&l that ties back to all of those things is critical. If you're if you're a independent restaurant owner, to have good books and records, and then obviously keep up with all your expenses. That doesn't mean if you can legitimately put your life insurance or health insurance or auto, or cell phone through the business, you know, those are all things that business owners do every day. But as long as it's verifiable, then that doesn't count against you, when you're doing the business valuation. What makes an end. And so that's the number one most important thing. Number two is longevity. Especially when you're you're trying to get lending, you want to have at least three years under your belt. And at least two or three years of tax returns again that are you can validate to help sell your restaurant so good books and records at least three, three years in the business. And then believe it or not, I get this question a lot, my lease is about to expire, I want to sell my restaurant, what should I do? Good leases help sell restaurants. So if you have a restaurant and you have a good long term lease at a good rate is a good percent of sales. Extend that as long as you can, if you're looking to sell, because that just takes one element out of the out of the sales process. So with those things in mind, independence will sell as well or better than franchise because they can be more profitable.

Ed Mysogland 17:59  

And the more flexible and more flexible. One of the things that you brought up is the lease. And I'll tell you that. I know. It's not necessarily I don't want to say I disagree with you. But I from the standpoint of you know, every landlord locks you down with that personal guarantee, you know, and it's like I said, if my lease is expiring, you know, I don't know if I if I want to go on the hook for another three or five years. So I can sell the business. But conversely, I'm and again, I acknowledge I'm talking out of both sides of my mouth. But you know, conversely, it's, you know, our advice to every business owner, regardless of the type of business is to operate your business as if we're going to be unsuccessful. So what would so what would you do?

Steve Weinbaum  18:50  

Well, let me just address that for one sec. Because we could do a whole segment just on leases. Landlords, some are great and some are not so great. We'll leave it there no offense to amen. Amen to that. But you know, you bring up a good point, that personal guarantee and not to go off track but I would say 90% of the sellers I work with when it comes time to talk about the lease and they see the lease assignment and they see that verbiage that none of this releases the seller from their their their liability and sometimes even through through continued options to extend your right if if you know you're going to sell your business and you want and again you have a great lease you want to extend it and not give the landlord the chance to leverage that that sale transaction. Negotiate out the personal guarantee. I mean, you know, look, I mean everything in life is negotiable. And we work some very strong Real Estate Attorneys if necessary, but you can you can you can limit your exposure to one year on a personal guarantee doesn't have to be the whole length of the lease. You can have it phase out after X number of on time payments or If you're if you've been with that landlord, five or 10 years, and you want to renew, you say, Look, you know, me, let's just eliminate the personal guarantee at this point. And I'll be happy to renew for another five or 10 years. So there are certainly a lot of techniques and approaches to take with the Lent, you won't always be successful. But again, if you don't ask you don't get. Yeah, well, you

Ed Mysogland  20:19  

know, those those mid mid term leases, you know, where there's a few years left, and that and there's that personal guarantee and there, and, and boy, it's like, Man, I may have to take some seller financing, and I'm stuck if this guy or this woman can't, can't operate this business. So I, I recognize I recognize that risk, but boy, oh, boy. Okay, the so we had you earlier, we started talking a little bit about financial metrics. And, and I know you said about a third goes to cost of goods. So payroll, or I'm sorry, occupancy, since we're on rent, where, where, where does that fall?

Steve Weinbaum  21:04  

So for a restaurant, you want to keep your occupancy or gross rent, not just your net rent, but you know, cams, share property tax property insurance, your gross rent, what you're paying out each month, including your extra your additional rent, you want to keep it no more than 10%. So if your restaurant is doing, you know, half a million a year, with 4000, that's 40,000 a month, you want to have a total rent, that's 4000 or less, I would say the number one reason I see restaurants underwater, meaning it's they're not selling, they're not selling because of the money they're making. They're selling because they're working. And making no money is because they're working for the landlord, because their rent is 1617 20% or more of their of their of their monthly sales. And when you're already working from that disadvantage, it's very hard to turn a profit.

Ed Mysogland  22:09  

So is that is that a matter of renegotiating your your your lease? Or is it you know what, you got a crappy business and there's nothing we can do?

Steve Weinbaum  22:19  

Well, I mean, so what so you're doing a commercial for we sell restaurants. So that's what I'm about. The the owners of our company put out a book, it's called appetite for acquisition and something available on Amazon that was on a plug, but there's an entire chapter about resells versus building from scratch, especially as it relates to franchises. So, you know, my advice is, if you're buying an existing business, which is what we're talking about, look at the p&l look at the sales are doing look at it two or three year history, look at the rent, if the rent is consistently 10% or less, then you know you're in a good place. If you're starting a new business, whether it's a new franchise, or let's say you're let's say you're buying an asset, so I'm talking about asset sales. But a lot of times people saw restaurants are not profitable, they just want to get out, someone sees a beautiful build out, that would cost them a quarter of a million dollars and get into the space for half that money, but they're not going to keep it a sandwich shop or they're making pizza joint, then make sure you have a realistic sales plan. Don't sign off on a $9,000 a month rent and a 3000 square foot location in the metropolitan area. If you only think you're gonna do six $600,000 a year, you're never going to make any money. So if you're buying an existing restaurant, it's easy. Look at the sales, look at the rent, if you're going to open up a new business, have a realistic sales plan, and then look to see what the rent is. And it makes sense. I mean, can you go back to a landlord negotiate? Maybe, but yeah, it depends on demand, you know, if they think he's had space for, you know, for for that rate and put a paint store in there, then that's what they're gonna do.

Ed Mysogland  24:03  

I'll tell you what, I I've known a lot of landlords and there's, there's not a whole lot of motivation. If I got a lease with a personal guarantee that I don't have a lot of motivation to do anything. Well, you

Steve Weinbaum  24:16  

know what, no one wants a lawsuit to have to go after the money. And the interesting thing about landlords is, you know, most of them are more concerned with the valuation of the property than the income that they're generating. So, if you know if the building is valued at $30 a square foot, they would rather sometimes leave a space open for a few months at $30 a square foot, then lease it at $20 a square foot because then that that that devalues the real estate. So you know most, most tenants aren't don't kind of understand that dynamic. But that's why landlords don't like to go down on rent, they'd rather give you tea island. They want to give you to money and raise the rent.

Ed Mysogland  24:57  

So totally understand. I mean, I don't want to straight with you with that, um, I'm just saying that the reluctance is there's not a, there's not a whole lot of mode Well,

Steve Weinbaum  25:06  

coming out of COVID, real quick, you know, you had landlords that did nothing for the tenants, you had landlords that and some didn't even some of the tenancy, we understand it, they abated their rent, which was the most generous thing they actually said, you don't have to, you can only pay me 10% of your sales for these months, didn't know you're struggling. And then other landlords deferred, right where they said, You can pay me less now, but you're gonna have to pay me later, which was just moving the nut forward. But you're right. landlords don't have a summer Great. I'm like, I'm not I work with a ton of your landlords in my career. Some are great. Some are not. But at the end of the day, they're worried about the value of their property and collecting their money.

Ed Mysogland 25:44  

100%. No. And again, I mean, that's they they have a business. I'm not I'm not

Steve Weinbaum  25:50  

No, no, absolutely.

Ed Mysogland 25:53  

All right, so continuing down our income statement. So our payroll, what's what's our labor cost, what's a good labor cost to make it sales so

Steve Weinbaum  26:03  

so so let's say we're at 30 to 35%, cost of goods. Now, cost of goods could include restaurant supplies, like paper, we know people do accounting is done differently. So say 30, to 35%. Labor, if you're an owner operator, you own a small Italian restaurant or a sandwich shop, and you're there 40 5060 hours a week, you know, running the place, then honestly, you want to get your labor as close to 20% of sales as possible. If you're an absentee or semi absentee, so now you've got a general manager making a premium salary, who's also you know, who's who's kind of taking the place of the owner, you ideally you want to be a 25%, those with those numbers, especially in this environment are harder to hit. So you know, maybe those numbers are now up to 30%. But the most successful restaurants and the other thing you think about is, if you own let's call it a like a sports ball, your servers don't even have to make minimum because they're making tips so you can pay them I don't want to set whatever that number is. Same thing with the bartenders because they're making a lot of money on tips. So most of your salary is in your management, and then in your back a house. So you got to just kind of watch your back a house expense, you know, how much what kind of, if you're serving $40 dishes, you know, $30, dishes, steaks and seafood, you can afford an $80,000 Chef, if you're serving, you know, chicken wings, and hush puppies, you know, you've got to manage your back a house. Yeah, but I would say 20 to 25% is the ideal range.

Ed Mysoglandr  27:37  

So and then, lastly, you you've said it a couple of times that you know, your your, your pre tax profit should be between roughly between five and 15%. Yeah,

Steve Weinbaum  27:51  

that's that's typically what I see. There are certainly exceptions. I mean, I've seen I'm in the I've got a deal in contract. Now it's a Latin American restaurant in New Jersey, and they are in 2400 square feet. And I think 1800 square feet of it, his kitchen, they have no sit down, they do seven things, and their rents like 4000 a month. So their rent is like less than 4% and net sales, that additional five or six points that rolls right through to the bottom line. So they're running like a 22% EBIT. So it's, you know, each business has its own character to it. But if you're a restaurant owner, understanding, you know, you want Cost of Goods under 35, labor under 25, and rent under 10. Then when you add in, which I think is where this conversation is going, your utilities, your credit card fees, or licensing, your repairs and maintenance, you know, well, well, the other, you know, trash removal, or all those other things aside, let's say they're in the 15 or 5% of sales, you should then be left with, you know, again, around 10% for yourself, you know, five to 15, I would say is you know, it's kind of more of a range.

Ed Mysogland  29:12  

Alright, I'm wanting to move into structures. And, and the first thing is the first thing I wanted to talk about is the difference between a lifestyle type restaurant where, you know, it's the owner operator and, and their, you know, their sleeping and breathing it. And conversely I want to talk about, you know, I don't want to say an actual business but because that's not how I mean it to come across. But like I was telling you that my daughter, you know, she works for a company and it is a machine here. I mean multiple multiple locations, you know, operates you know, there's different levels of management. It is it is a truly, truly a machine and And so, so my my question is, you know, I know that the, the buyer pool is higher for the first one. So the like the lifestyle ones, because just simply because there's, there's more there, it's easier to buy. Conversely, the larger operations, I think it's, I think it's more difficult. Just only because it's harder to to bring the secret sauce that makes that business special, if that makes sense. So anyway, what's what's a you?

Steve Weinbaum  30:40  

It's it varies. So the toughest restaurant to sell and value is one where it's a chef operator, for the reasons you get, right? Hey, because at that point, when he leaves, the, you know, the quality of food, which is what most people are going for leaves. Now, if if you have a large operation, and again, I've I literally sold restaurants from $40,000, where it's just a seller wanting to get out up to, you know, $2 million, whether it's a single store or multi unit. And if the if the owner is more the operator, you know, the scheduling the hiring the financials, then then it's, then it's an easier sale, because, you know, a great chef is, is a lot harder to come by, especially, you know, Mark, you know, marine Aqua zine than someone who just as efficient operation. So, so as far as, you know, it being lifestyle, and again, like just, you know, in any business brokerage business, you got to understand the the makeup of the business you're selling, is it owner operated, is absentee owner owned, is there a GM in place, and what is the owners role, because, because the buyer like said, they're buying a business, they're buying an income, but they're also buying a lifestyle. And, you know, if, if that individual is strong, operationally but horrible in the kitchen, then you're not going to recommend a restaurant that is chef driven. And on the contrary, if they're if they're a chef, and they want to buy their own place, then finding a place that chef driven is actually appealing to them. So it really, it's, it's, you know, I always tell my clients, whether it's housing to take to sell a restaurant, all these other things, I say, this is like a marriage, you know, it's just finding the right buyer and the right seller, at the right time. And that could take days, weeks, months, or sometimes even years. And again, for all the reasons you just brought up, you just want to make sure that it's a good fit, and that the skill set of the buyer, and the infrastructure that the seller is leaving behind will mesh.

Ed Mysogland  32:54  

So when you're moving into deals, I mean it and keeping all of that in mind, what are the structures, you're seeing what what, you know, how, you know, everybody fails to understand that. It's one thing about buying a job, but it's it, you're really this is this is an investment like anything else. So so I'm trying to mitigate my risk in making this kind of investment. So what are the structures you're seeing, you know, who's financing? Is there any any rough, rough structures that you can share?

Steve Weinbaum  33:31  

Well, that's there's there's basically four different ways to finance a restaurant, there is cash, which is king, amen, there seller financing, where the buyer brings some dollar amount to the table, and the seller holds a note for the rest. There's SBA lending, which is I think, a lot of what a lot of what buyers feel they can get. And then there are some there are some unsecured lending approaches where they're not really they're learning based on other factors of the buyer, not necessarily the performance of the business. The thing that everyone looking to buy or sell the restaurant has to keep in mind, especially the buyers is that the buyer needs it with an SBA loan, the buyer needs to collateralize the loan. And what I mean by that is, when you buy a house, they do an appraisal on the house, they'll lend you up to a certain percent of the value of the house. If you don't pay your mortgage, they're going to take your house, you don't have that when you're selling your restaurant because the value the restaurant, as we talked about, is in the earnings. It's in the sales. It's not in the value of some used equipment, and maybe we're 50 or $100,000. So when you're doing an SBA loan, you have to the SBA or the bank is going to want the buyer to take a second mortgage on your house possibly become a beneficiary of your real estate. It's very requiring which look it adds to the risk if you're doing an SBA loan, but sometimes that is by far the best route to go Now the deals that best qualify for SBA loans to answer your question, larger price deals, most SBA lenders want to see somebody at least above $250,000 price point, and at least two, two or three years of tax returns. And they want to make sure that the debt service is there. So when when someone's buying a restaurant, the SBA is going to say, Okay, here's the verifiable seller discretionary earnings, here's what the notes gonna look like, here's what the buyer needs to live on, you know, if, if the restaurant is making 10,000 a month, and the viruses, they need five, and the SBA note is going to be three, that's fairly easy math, because they have enough to cover the note. So, so, well, well established restaurants, good books, and records profitable. At least three years of books and records, over 250, I'd say is a basic threshold, you're good to go with SBA, if that's the direction you want to go. And you can get SBA loan, you know, loans were 20% or less of the purchase price. So you can buy at your $1,000 restaurant with $40,000, down, plus closing costs and some operating capital. If SBA isn't the way to go, and you don't have the cash, then seller financing is certainly an option. That's where the seller will carry a note for a certain amount for a period of time, we do a fair amount of those. But people that sell restaurants are not banks. So you know, typically there, you want the buyer to come to the table with 5060 70% of the purchase price, then have a seller hold a note for the balance. So in this example of a $20,000 restaurant, if a buyer can bring 100 or 150 to the table, but can't get the whole amount, then maybe the seller will hold a 50 or $75,000 note for a couple of years. And then you know, so those are in demand, then obviously cash and you know, you don't see a lot of those, but you do see some cash flows?

Ed Mysogland  36:56  

Well, I'll tell you, it is hard, especially with the SBA climate lending climate that we're seeing for, like, if I'm looking at to two businesses, one is a restaurant and another is a manufacturing company. And I can take that same 100 grand, and I can put it into a restaurant versus a manufacturing company, the risk seems easier, or less than if I if I go say manufacturing or something like that. And that and and that's kind of where I'm heading with my next question is you have, let's let's just say you have the same, you have two businesses, to two restaurants doing the same amount of revenue, same amount of earnings, yet they sell differently, the multiple will be different depending on what and fill in the blank. Because that I think every business every every operator, every restaurant operator sitting here going, you know, my business is worth more than that person. And I understand that I'm out in the suburbs, they're downtown, you know what I'm assuming location does, but what other things? You know, I'm Forgive me, I'm answering your question. I

Steve Weinbaum  38:22  

know I hear where you're coming from. I mean, the short answer is they should sell for the same amount, assuming they're both either independence or franchises. Now, as we talked about earlier, for reasons franchises work off a higher multiple. So we're independence, the multiple is two to two and a half times earnings. franchises, we use two and a half to three times earnings begin because of the security with a franchise. So taking that differentiate that differential saying they're both independence, they theoretically should sell for the same amount. However, have they both been in business the same number of years, you know, one may have been in business for three years one in business for 30 years, the one for 30 years, has a little bit more of a comfort level. The caliber of the lease, you know, one of them the lease is expired, you're gonna have to renegotiate a new lease that hasn't been negotiated for 10 years. The landlord's looking to get more money versus this guy has a 20 year lease with three options to renew. So there's There's comfort in the lease, right that the lease is your single biggest fixed expense. So So longevity quality the lease, and it actually quality the books. I've seen a lot of restaurants where the value that the cashflow or earning well, the term is seller discretionary earnings, discretionary earnings is cashflow on paper plus non operating personal expenses. Take out depreciation, what you're paying yourself, you know those types of things. If you've got a very clean p&l, and the earnings is the bottom line cash flow, that's more attractive than if you have a money p&l, and all the earnings are in my auto and I'm paying myself. So, you know, again, it kind of goes back to the whole valuation model, what are the books lease longevity?

Ed Mysogland  40:16  

Well, what prompted the question is years ago when when we were when we were in this type of business, we, we had a portfolio of subways, and there was 15 of these things. And, and he wanted to sell them individually. The family didn't want to keep it. And we, we, you know, you could have nearly identical businesses, but in two different parts of the state, and they sold for different amounts, which, and, and like, like you, he's like, you know, what the hell is wrong? I mean, it's the same business. And, yeah, that's I mean, the only thing I can think of there

Steve Weinbaum  40:57  

could be the buyer pool, you know, buying, you know, certainly, the restaurant I mentioned earlier that I sold where the owner wasn't, you know, it was the operator at the chef that was in a small town outside of Burlington, Vermont. So you get a lot less people looking at that listing, but actually, the caliber buyer is better. So you know, it couldn't be buying. But if it's two sideways with identical numbers, it's just yeah, they should sell for less well, the

Ed Mysogland  41:29  

the finding the moral of that story is that it was, it was they ultimately did not sell individually, we, we found an operator that just bought them all and called it a day.

Steve Weinbaum  41:44  

times, so it has the best way to go for them. as well. I will tell you that in franchises, though, even when in the franchise space, or even on the same space. certain brands, like anything else in life are harder than others. You know, you could have a subway, a Jimmy John's, and a firehouse with the same numbers, and they'll sell for different prices because of the appeal of a sudden,

Ed Mysogland 42:07  

that's great example 100%. All right, well, so I'm bumping up on time. And my last question is, one that I asked everyone before they leave is what's the one piece of advice that you can give to the business owners, you know, in this type of industry, that would have the most immediate impact on their business or their restaurant, from a not only from a value standpoint, but a scalability standpoint.

Steve Weinbaum  42:38  

Back to what we kind of touched on earlier is, you may have a passion for food, or a passion for service. But what sells restaurants, or you know, are your most recent financials. The old adage and maybe in all in all walks of industry is people, people value on the finances, but they buy in the potential. So you can't tell me your restaurant should sell for more because it has a ton of potential? Because my question is, then why haven't you realized it? So if you're thinking of selling your restaurant in the next 12 to 36 months, that's a long stretch. But sure I've had I've had clients I spoke to back in 2000. And you know, 17, and 18, I finally come to me and 21 and 22 that want to sell their restaurant Yep. Is get get your financials in order, not just not just make sure you report all the cash and try not to put a lot of personal expenses to the business. But what we talked about earlier, analyze your numbers. What is your cost of goods running? If your cost of goods is running in the low 30s? You're fine. Don't don't fix it if it's not broke. But if you're running in the high 30s or low 40s figure out why is your pricing too low? Is your Are you are your portions too big? Is there theft? You know so so looking at cost, look at your numbers, are you earning that five to 15% and certainly closer the 15 is better to help sell your restaurant because then that'll help you help you either restaurant for anyone who owns a restaurant that's thinking of selling the math is very simple. Your restaurant should value this is kind of you know, generic shouldn't value it around 1/3 of your net sales. And the way you get to that is if you're doing 600,000 in sales 1/3 of that is 200 if you're doing 600,000 in sales and you're making 15% that's 92 to two and a half 90 is also 200 So it's just kind of man but but but make sure that your cash flowing properly. And that your your again your p&l ties to your tax return it ties to your sales tax filings, and then you made my job much easier finding you a buyer, and also then getting you lending because when I'm telling you to do the same thing, the lenders are gonna look for hundreds. So So getting your finances in order, doing it over a period of time, even if you're biting the bullet and paying a little bit more in federal tax and things like that. If you can improve your cash flow on your restaurant by $10,000, that may cost you another 1000 or two and taxes that increases the value restaurant by 20 to 25. It's tenfold.

Ed Mysogland 45:28  

Yeah, again, well, my friend. So what's the best way can we get? How do we how do we find you?

Steve Weinbaum  45:35  

So our company is we sell restaurants, our website is we sell restaurants.com. You google searchers, we come up to page one. And we probably have any given time we have close to 600 listings on our website, and all of our contact information is there as well as our current listings. My email address is Steve at we sell restaurants.com. And my phone number is 770-714-4552. So any of those ways you can reach us or reach me specifically. And just one quick thing to add on as long as I've got this. You just off the train of thought you're gonna have to edit that one out. Sorry, I just, I just lost that one. No worries. Okay. So now I'm sorry, can I can I go back and do that one again. So one thing I do want to add, when most business brokers are this way, not all, when you when you work with myself, when we sell restaurants, we we will do evaluation for you at no cost, no obligation. And you know, and it's confidential. And when we list it's the same thing we list in confidence, we don't put the name of your restaurant out there, so everyone knows what it is. And like most like Most brokers, you pay us nothing until we get you to the closing table. So reaching out to us what is my restaurant worth? How long does it take? Can you give me some advice to make it more sellable? These are things we do every day, and we do it in the hopes of building relationships.

Ed Mysogland  47:06  

You know, and, and same, you know, we have a 41 year old practice, and we've sold 2200 deals and and I'm telling you that, you know, people like us and people like you we stay in business because of the generosity of of the information we provide. And, and knowing you guys because you guys are we refer to you guys. You know, I appreciate you. I know, I know you're a great shop. So a Steve, you know, and I appreciate your your time today. It's, you know it, I can't I can't overestimate or over, over. Emphasize I can't over emphasize just Just what how difficult selling restaurants is. And it's a different animal. And so I'm so grateful that you took the time to kind of you really made a complex sale situation a lot simpler. So I appreciate your time. But

Steve Weinbaum  48:13  

we appreciate the opportunity to, you know, to speak to you and your podcasts, attendees. And again, we're happy to help we're very we're very, you know, easy folks to deal with and we're happy to help.

Ed Mysogland  48:25  

Well, my friend well thanks so much and keep keep selling and I'll be following up to see how 20 threes shaping up for you later in the year. So far. So good.

Steve Weinbaum  48:35  

Thanks so much for your time.