Selling a business is not a simple endeavor, and this is something many restaurant and bar owners looking to sell their business for the first time don’t appreciate. There are many steps in the process of getting the business ready to market to the final closing and transition of assets. Every business, regardless of industry, is unique, but the principles for selling your restaurant or bar remain constant. The better the books and records are organized and accurate, the greater the possibility for you to exit your business through a sale.
Ideally, the process of exit planning should begin at least two years from the time you need to sell. This provides opportunity for the business owner to implement any changes to operations or otherwise to maximize the sale price in the future. Planning early doesn’t mean you need to wait to sell; if the value of the business is in line with what you would need/want to exit the business, then you could be ready for the market then.
Maximizing the business sale price depends on several factors. One is the time of the sale. This year is proving to be a great time to sell a restaurant because there is an increased market demand and consumer spending. Through my work at Strategic Business Brokers Group facilitating many restaurant and bar sales over the past decade, I have identified a few of the key areas to focus on when deciding to sell your restaurant.
Supply and demand
Over the past couple of years, the strength of small businesses was tested, and buyers who were in the market for an opportunity in 2020 and 2021 held off on purchasing because of the pandemic’s effect on the industry. Now these buyers are in a more comfortable and confident position to acquire a quality business. With this increased demand, businesses with clean books and records and a strong 2022 year financially are poised to sell for top dollar.
Possible tax consequences
Under the Biden administration, there is a possibility capital gains taxes will rise over the next couple of years. Reports show that a 39.6% capital gain bracket will apply to taxpayers earning more than one-million dollars. The indexing of this will allow for inflation in 2023, which we are currently experiencing. If the net proceeds from your business sale exceed $1 million dollars, then you will want to consider tax implications of the sale and discuss it with a tax professional. Even though Congress has not voted on any tax increases, it is a smart idea to consider future tax increases or your taxable income position when selling a business.
Labor shortages
Labor shortages have hit the service industry especially hard over this past year. Having the ability to mitigate the increased labor cost through price increases or reducing other operating expenses and waste is a good direction to take.
If you are like many restaurant owners, the labor shortages and stresses that come along with replacing staff are a reason to exit the business. When selling a business versus selling a job, you will want to have a turn-key staff if possible. This lends itself to value in the acquisition because the act of hiring is so expensive—in time and money—so purchasing a running business with all the staff is very valuable.
Market advantage for sellers
The uncertainty of the past couple of years caused by the pandemic is beginning to go away. 2022 has seen a return to dine-in and as we get deeper into the 2023 year, it is a good time to revisit your desire and plan to sell. Many businesses closed their doors because of the pandemic, so now in 2023, the buyer demand exceeds the supply of available businesses. We are currently in a seller’s market, so expect sale prices to continue increasing for well-positioned, quality businesses as buyers are willing to pay for the opportunity. This period of low inventory on the market will pass, especially as more people are expected to retire and sell their businesses. As this takes place, the market will begin balancing out to pre-pandemic conditions. So, if selling a business is on the table, 2023 is the perfect time to consider it.
Quality businesses, those with staff in place and “clean” financials, are selling at record multiples of cash flows. Buyer demand continues to rise, putting sellers in a strong negotiating position. As the economy continues to recover, buyers will have more business acquisition opportunities and the competition for quality buyers will rise, leveling out the market. I recommend that if you are a restaurant owner considering selling, that you contact a business broker sooner rather than later to begin the process of understanding the value of the business and subsequently positioning your business in the best possible light for sale.
Bryan Vitagliano is the leading restaurant and bar broker at Strategic Business Brokers Group, in affiliation with American Realty Brokers who has helped dozens of owners sell their businesses across Arizona.
Plan to Attend or Participate in the 2024 Bar & Restaurant Expo, March 18-20, 2024
To learn about the latest trends, issues and hot topics, and to experience and taste the best products within the bar, restaurant and hospitality industry, plan to attend Bar & Restaurant Expo 2024 in Las Vegas. Visit BarandRestaurantExpo.com.
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