So how long does it take to sell a cafe? The average cafe sells within 3-4 months but there are some which stay on the market much longer than than the average.
In order to avoid having your cafe or restaurant just sit on the market, you need to make sure you start preparing it for sale and make it attractive to potential buyers BEFORE it hits the market.
Keep Proper Records and Be Prepared to Provide Documentation
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.
Advanced reporting functions of POS systems and software such as MYOB and Xero means record keeping has become easier and cheaper for small business owners. Therefore, the vast majority of buyers have come to expect that they will get financial documents to help them verify the figures (Profit & Loss, Invoices for expenses, Z readings, eftpos statements etc).
We are also seeing a large number of buyers (mostly overseas) with readily available funds (cash) abandon their dreams of owning a cafe and choosing to invest in the property market instead so the chances of getting a buyer which will require finance is also higher than before.
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.
Look at your lease and speak with your landlord
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 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 your landlord, it may be worth talking to them about this before putting your 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.
Make Sure Your Business Can Run Without You There
Most people love to go to an establishment with a friendly owner behind the counter who knows everyone by their first name as it adds a warm personal touch to the dining experience.
Unfortunately, the same can’t be said when it comes to selling the business. In our experience, cafes and restaurants with an owner operator usually sell for 25% less when compared with one that is under full management.
If your cafe or restaurant relies on you to run its day to day operations then this can work against you when it comes to selling. What a lot of owners don’t realise is that although a buyer may look to work in the business, they will ultimately want to know whether they’ll still have a “business” if you were to walk out the door tomorrow.
This is the reason a business with a full management team in place usually commands a premium over family run businesses where the buyer is likely to lose the majority of the staff once they take over.
Additionally, buying a business where the owner isn’t required for the day to day operation means the buyer would be buying an investment which gives him a good return rather than buying a job where he is working for a wage.
Price Your Business According To The Market
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 Sydney 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 amount of businesses to choose from and has created a market that is massively in favour of the buyers (buyers market).
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 buyers 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 your business at an inflated price can be detrimental even after you decide to lower it as buyers can get skeptical 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).
Improve the Presentation of Your Business
The way a cafe or restaurant looks can be a major factor when it comes to the final 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.
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 your customers are saying about your business.
A facebook profile with a significant amount 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.
In light of everything mentioned above, choosing the right business 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 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.
This article was written by Steven Ung – Business broker, for more tips or a free business valuation, you can contact him on 0427 978 477