Despite the rising labour costs and food prices, the restaurant sector is thriving and dynamic, with many aspiring entrepreneurs keen to make their mark on the industry.
As countless niche, unique eateries open across Canada, it seems restauranteurs aren’t put off by the fierce competition and challenges that come with running a foodservice business. So this could be the ideal time to get out of the game and sell your restaurant.
Sector overview
There are more than 94,400 food service and drinking establishments across the country, with an average revenue of CA$642,000 and almost 68% of SMEs reporting a profit. Despite there being a steady increase in spending at restaurants, there is room for further growth.
In 2017, Canadians spent CA$68 billion at restaurants, cafes, and bars; the foodservice industry accounts for 36% of the country’s total food spend. In America, this figure is 50%, demonstrating there is potential for the industry to generate a further CA$26.5 billion.
Previously, the foodservice sector has been dominated by fast food and takeaway business; however, recently full-service restaurants have overtaken the fast-service businesses in growth. That makes this a great time to sell your restaurant business and attract more buyers.
The increase in minimum wage is also affecting the foodservice industry, with many independent restaurant owners forced to let go of workers or hire more experienced employees to avoid costly and time-consuming training programs.
Preparing for a sale
Before you put your restaurant on the market, make sure it’s looking its best. Small repairs can attract more potential buyers. Fix any broken, weathered signs; if you have plants, make sure they all look healthy; and consider repainting the building to improve its curb appeal.
It’s not only the physical side of the business that needs to be in order; your accounts and bookkeeping must be organised and detailed. Potential buyers will want to analyse your financials before they make an offer, especially the last three years of trading accounts.
It is best practise to wait until a deal is finalised before you break the news to your employees. However, it’s likely you’ll need to discuss the situation confidentially to your head chef and restaurant manager as a potential buyer may be interested in speaking with them.
Buyers will also want to review your legal documents such as any relevant permits and liquor license, as well as the current terms of the lease. Make sure all your business legalities are correct and up-to-date, and have all health, food and safety inspection records available.
Valuation
There are many ways to value a business, and each method will use the business’s selling points and financial standing. For example, the asset-based approach focuses on the net asset value, which is calculated by subtracting total liabilities from total assets.
Cash flow valuation methods are generally preferred; discounted cash flow estimates the value based on the future cash flow to determine the buyers return on investment. This method determines the present value of expected future cash flows using a discount rate.
The going-concern method considers the revenues of previous years to project future revenues, with the assumption that those revenues will not change. The greater the cash flow your restaurant expects to make in the future, the higher the current business value.
The price of a business may be how much a buyer is willing to pay for it; if someone has an attachment to your restaurant it could affect how much money they are willing to offer. Attracting more interest can encourage one buyer to outbid the other to secure the final bid.
Finding the right buyer
Owning a restaurant isn’t suited to everyone; you need to be prepared to work long hours, in the evenings and during weekends. Finding a buyer who has managerial experience in the hospitality industry will be an advantage as the restaurant industry is highly competitive.
A successful restaurateur is social, thrives in stressful situations, subconsciously multitasks and knows how to delegate and manage a team effectively. If an interested party has these attributes, then you can assume they are a serious buyer.
Listing your business proposition in restaurant trade magazines or local newspapers can help attract local entrepreneurs and industry-specific buyers. Listing your business online, on the other hand, will allow you to reach a much larger audience. Hiring a business broker who has experience selling in the hospitality and restaurant sector will also be highly beneficial.
Don’t underestimate your own network of contacts. After working in the industry for so many years, you could have an interested buyer within your own circle but just not know it yet. But remember, discretion throughout the sale process is key to ensure word doesn’t get back to your staff.
If you are interested in finding out more about selling your business, read our selling guides!
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