How to Sell a Restaurant in Australia

Selling a restaurant is more time-consuming than most restaurateurs think it will be. The process usually spans between six months to one year from the point at which the owner decides to sell until the actual transfer of ownership. All the actions that occur prior to the listing stage will have a significant impact on how things go. This guide provides the entire process from preparing for the sale to signing over the keys, as well as all the details concerning selling restaurants in Australia.

If your mind is already made up and you want professional guidance, talk to a hospitality business broker who can assess your situation and walk you through your options.

Start your exit planning 6 to 12 months before you list

The worst mistake most restaurateurs can make is that they want to sell on Monday and get listed by Friday. The restaurants that sell successfully, and at a reasonable price, are those that have already been prepared in secret for months before. What makes a difference is the preparation involved in sorting out all the things that make potential buyers nervous and enable them to lower your asking price.

This is the time to eliminate objections that a prospective buyer might have before they raise them. Disorganised records, short-term lease, absence of systems, or problems with compliance; all of these factors either decrease your price or kill the sale completely. At least six months should be spent in addressing these concerns, but ideally, twelve months should be spent doing so, especially if the financials of the business or the lease agreement require some effort. If you’re not sure where to start, our guide to exit planning for your business walks through the key steps.

Clean up your financial records

Buyers and their accountants will be going through your finances very closely. At minimum, they expect to see a couple of years’ worth of income statements, BAS payments, tax returns, and bank statements. If you haven’t been consistent with your accounting or have mixed personal expenses and business expenses, or even if your point of sale system does not match the sales figures and your bank figures do not align with your accounting, now is the time to make them right.

Have your accountant create accurate financial statements that show a clear distinction between profits and the owner’s remuneration. Normalised profits (which are also known as sellers’ discretionary earnings) are used by buyers to determine business valuation. Let’s say your business is showing $80,000 profit, but you have been taking $40,000 as salary and $15,000 personal car expenses from your restaurant. Your actual earnings as an owner are then close to $135,000, and that number determines the true value of your business.

Organise your payroll as well. Underpaying wages is an ongoing problem for the hospitality sector, and buyers will know about this. If they suspect that your labour costs may be too low, questions will arise. Should your company face any non-compliance issues, it would be better to address them prior to putting your business on the market.

Secure your lease position

The lease agreement will likely be one of the first pieces that a serious buyer looks at, and if it’s not good, then there’s no deal. It will be worth much more to have the same restaurant, but on a five to ten year lease rather than a two year left out of a five year lease. Buyers and lenders require security, and neither can be satisfied if the lease expires too soon into the loan period.

If there is less than four years left on the lease, it is important to talk to your landlord and find out if they are open to extending or renewing the lease prior to putting the business up for sale. This requires negotiation and could take time to do successfully. For a deeper look at how your lease affects the sale, read our guide on selling a business with a lease.

Check for clauses relating to assignments and changes of ownership. In some leases, the consent of the owner must be obtained if there is an assignment of the property, while others may have provisions for demolition clauses or personal guarantees, and some may contain clauses related to operating hours, which can affect the sale.

Document your operations with SOPs

Restaurants generally have all their operational information memorised by the owner. Information about how things operate in the kitchen, the process of opening and closing, what the order cycle entails, how the schedule for the week is made, who gets paid and when, etc. But that’s all worth absolutely nothing to anyone buying your restaurant unless it’s documented.

An operations manual turns your restaurant from a business that operates based upon your presence into one that can continue without you being around. This is the difference between an attractive restaurant and one that scares buyers off. A buyer will choose a restaurant that is almost identical to your own in terms of revenue, profit, location, and lease terms, but has its operations written out over any other.

Your SOPs do not need to be complicated. Having a simple package of manuals dealing with how to handle the morning and night operations, the way you cook, your standards in health and safety, ordering, inventory, cash management, employee hiring, and recipes (even your standard processes for cooking the menu items you offer) is enough to give you an edge over 90% of the restaurants that exist out there. If you employ key employees who oversee particular aspects of the operation, consult them. It is best done because they know better, and you will even determine which ones should be retained by the new owner.

This should be done at least six to twelve months in advance, rather than just the week before the first inspection by the buyer. It should be created while you are fully involved in the daily operations of your business.

Get a realistic valuation before you set your asking price

One of the most critical elements that will decide if your restaurant will sell is how it is priced to begin with. Unfortunately, far too many restaurants are priced according to either the owner’s idea of what their property is worth or how much is needed for the owner’s retirement funds. Neither will give you a concrete price for sale.

Business valuation performed by a professional takes into account your actual sales, expenses, income, and profit margins in light of current market conditions and the factors adding or detracting from the value of the restaurant itself (leasing issues, location, equipment, staffing, and even its reputation). This not only creates a realistic sale price but also provides a basis for negotiating. You can learn more about how the process works through our business valuation services.

How restaurant businesses are valued in Australia

The most common approach is an earnings multiple, which applies to your adjusted net profit. Adjusted net profit, also referred to as the seller’s discretionary earnings, is the net profit of your business after adding all costs, including the salaries of the owner, personal expenses, depreciation, and other non-recurring or discretionary expenses.

Adjusted net profit will then be adjusted using a multiplier based on the risk factor and attractiveness of the business you own. Restaurants usually have multipliers between 1.5x and 3x, depending on the kind of restaurant, location, lease period, growth trend, and dependence on the owner. A well-situated coffee shop with regular income and a long lease period would have a multiplier of around 2.5x. A high-end dining place that depends entirely on its owner would find it hard to have a multiplier of more than 1.5x. Our guide on how to value a hospitality business covers these multiples and the factors behind them in more detail.

Other considerations that affect the multiple include the state of the machinery and fitout (which impacts the buyer’s capital expense following acquisition), whether the operation is licensed to sell liquor, the diversity of the income generation (eating in, takeaways, catering, delivery services), and whether there is an identifiable brand that creates repeat customers and favourable internet comments. Trends in the market also have their part to play. The interest of the buyers will fluctuate according to economic circumstances.

Why overpricing costs you more than underpricing

This goes against the nature of most business owners, but from thousands of transactions, the trend is obvious: Overvalued businesses will find themselves with very few takers, who will eventually buy out the business for much less than if it had been valued correctly.

Here’s the mechanics of it. The first two to four weeks after the listing go by far the fastest in terms of buyer interest. This is because your business has just entered the marketplace, and the buyers who are active at the current price level know about this. If you price your business 20% above its value, these buyers are going to walk away. Why? Because they’re shopping around and comparing numbers.

After six to eight weeks, if there haven’t been any offers for your business yet, then the opportunity window has been blown. Your listing starts to lose interest. People who monitor the real estate market notice this and start wondering what’s the matter. Lowering your price to the right amount doesn’t solve this problem. Why? Because you are trying to sell an expired listing, which usually sells for 10% to 15% less than it should have initially sold for.

Underpricing, however, does not usually end up with money being left on the table. If the listing is offered just below its true worth, then there would be many people making inquiries and competing for the purchase, driving up the selling price to at least its original level since there are now interested buyers offering to purchase it. Clearly, the discrepancy lies here: the danger of overpricing involves the long process of discounts; whereas, underpricing simply results in a quicker sale.

This is the area where a skilled business broker makes commission. One who knows all about the current buyers’ database as well as the current comparables will know how to price the business accordingly.

Prepare your restaurant to attract serious buyers

With your finances sorted out, your lease in order, your selling price realistic, and your SOPs in place, you now need to get your business looking and sounding right. Your buyers make an assessment very quickly. Depending on the condition of your kitchen, dining area, equipment, and the overall picture presented by your business, the buyer may or may not find reason for negotiation of the price you’re asking for.

Presentation and equipment condition

As if looking at it for the first time, walk through your restaurant. Ceilings that are stained, carpet that is worn, damaged furniture, an exhaust hood caked in grease, lights that flicker: all of these things will factor into the calculations made by potential buyers who subtract maintenance cost from their initial offer price. You don’t have to make any upgrades, but you do have to show a business that’s been looked after and works properly.

Your equipment is important. If your combi oven is near the end of its life cycle or your cool room compressor has that familiar hum that “it always does,” then it needs fixing or replacing. Buyers will request an inventory list of equipment that includes rough estimates of ages and condition. It will help your case when buyers see a kitchen with commercial appliances maintained in good order, while it hurts it when the buyer sees a kitchen with equipment pieced together from various liquidation sales.

Front of house is important, too. Your restaurant doesn’t need to have a perfect Instagram aesthetic, but it needs to look like somewhere people would actually want to eat.

The business profile that sells your restaurant for you

Your business profile, which may be called the information memorandum (IM), is the document that buyers will read before considering looking into your business at all. Poorly written business profiles will not only lose buyers’ attention but also make it hard for them to trust your company later on.

It needs to have the following information: business history, location, description of the lease agreement, financial information (revenue and profit trends with normalised financials), employee numbers and structure, a list of the main assets that are offered for sale, the competitive position of the company, and prospects of its further development. Remember that no one will believe you when you say that “the sky is the limit” for your business because they know what real numbers mean.

When you use a business broker’s services, they prepare such a document for you. When selling the business independently, you will have to write a profile yourself. Our quick-start guide to selling a business covers what to include and how to structure it.

Market your restaurant for sale without alarming staff or customers

The most important aspect that comes up time and again when selling a restaurant is the issue of confidentiality. This becomes critical if your employees learn about your plans before they should. Your key employees will look for another job opportunity. Similarly, your customers will start going elsewhere. Suppliers will become cautious with payment terms. Even worse, competitors will try to capitalise on the knowledge.

How non-disclosure agreements protect your business

The first step, before any buyer is privy to your company’s financial statements or profile, is having them sign a Non-Disclosure Agreement (NDA). The NDA is a legally binding document that will prevent your potential buyer from disclosing any confidential information regarding your company and its finances to any other third party.

While NDAs may not stop all leaks, they do have two benefits: there will be consequences for violating confidentiality and it tells the buyer you take your business’ privacy seriously. An experienced business broker will know how to properly handle an NDA. If you plan on selling your business privately, then your lawyer should create one for you and follow through with it. For café and restaurant owners specifically, our article on selling cafes confidentially covers the unique risks and how to manage them.

Where your listing should appear

The goal here is to target qualified buyers while not making the sale known to your employees and customers. This is where the value of a broker’s buyer database comes in handy. Many times, the sale of a restaurant is accomplished by directly approaching qualified buyers, without having the restaurant advertised at all in a public forum.

Where public advertising takes place, the listing will include details about the type of business, general location, income levels, and asking price, but without any information about the restaurant itself. The listings usually come on specialised websites that sell businesses for sale (including the listings site at Benchmark and other national listings sites), as well as the network of the hospitality industry. With the help of a broker that has access to qualified buyers’ databases, it may take just days before getting some inquiries following the listing.

Filter tyre kickers and qualify potential buyers

There is always going to be a combination of legitimate prospective buyers and others out looking and perhaps dreaming about becoming owners of a restaurant, but having neither the funds nor the experience for it at their disposal. Your time is precious, and the time wasted talking with those who were never planning on buying your establishment could otherwise have been used much better with the genuine prospect of a buyer.

By qualifying potential buyers, you will be making sure that these people not only have enough financial resources to go through with the deal but also that they are aware of all the ins and outs of running a restaurant business. A reliable business broker will find out about the buyer’s capital, financing capabilities, experience, and timeframe before even thinking of approaching your business venture. If selling your restaurant business privately, don’t hesitate to make such inquiries yourself.

Financial pre-qualification is the most critical screen. If the price of your business is $450,000 and your potential buyer has only $80,000 saved up and hasn’t been pre-approved, this contact is not going anywhere. It’s better to discover this in the very first phone conversation rather than after four weeks of negotiations.

Navigate negotiations for the best overall outcome

After you locate an interested and capable buyer, the bargaining process will begin. It is during this phase that agreements are formed or broken. The price of the sale may be crucial, but it is not usually the sole number that counts.

What buyers and their advisors will focus on

The buyer’s accountant will examine your finances from top to bottom. This includes the growth of your business, how good your profit margins are compared to other companies within the same industry, the percentage of labour costs to your income, the percentage of food costs to your income, and consistency in your figures across your BAS, taxation, bank, and POS records.

Your leases will be checked, as well as the age of your equipment and whether or not you have any existing liabilities like trade creditors, employee entitlements, ATO bills, or even financing on your equipment. Your licenses and permits will be reviewed, as well as the risks involved in your business, such as owner dependence and the retention of key employees and suppliers. The answer is clear and clean if you have done the preparation suggested. Otherwise, this is where everything fails.

Why the best deal is not always the highest price

A buyer offering $500,000 for the sale with a settlement term of 90 days and no conditions, including finance and landlord approval and with a due diligence term of 14 days, can often be considered preferable than a buyer offering $540,000 for sale with a settlement term of 180 days with finance and landlord approval conditions attached, including a due diligence term of 14 days. The latter may not ever settle. The first one will.

While negotiating, the entire deal should be considered. The deposit amount, the form in which the deposit is taken and the term of the deposit are important. Aspects such as the terms of the settlement and whether it meets your requirements should also be considered. It would be wise to establish if a buyer is seeking a transition and training period (often found in restaurants, lasting between two to four weeks where the buyer works alongside the seller).

The role of the skilled broker in this respect is to weigh up competing offers and provide advice on how to achieve the best results.

Handle due diligence without derailing the sale

Due diligence is the buyer’s opportunity to confirm that your claims have some truth to them. This is also the period during which many more restaurant transactions are cancelled than in any other period of the process. Delay, lack of documentation, unforeseen liabilities, or the defensive reaction of the seller to any inquiry can bring the entire transaction to a halt.

What you should always do is stay organised and proactive. If you’ve done the work right, you probably already have everything in order that the buyer would request. The quicker you’ll be able to provide them with the requested documents, the smaller the chances that the buyer will back out or get attracted by another business opportunity.

What documents buyers will request

Expect to be asked to show: two to three years’ worth of profit and loss accounts, BAS, tax accounts, and bank statements. Your current lease, plus any amendments to that lease. The number of staff employed, including their payroll information and entitlements such as accrued leave and long service leave, if applicable. Information on the age and condition of equipment used. Supplier agreements. Copy of your liquor license (if applicable). Approval from the local council, food safety certificate, fire safety certificate, and any other permit you have. Copies of your insurance policies. Intellectual property details (trademarks, if there are any, recipes, if relevant). Data about your customers (no personal information, but trends in customer numbers, per capita spending, deliveries, bookings).

Some potential buyers may request monthly, or even weekly sales data, in addition to, or rather than, annual sales data, depending on how they perceive your business may have been seasonal, or declining recently. If you have this, you look more honest and well-versed about your business.

Legal requirements specific to Australian restaurant sales

Some of the things that may surprise you when it comes to the conditions of sale are related to food and liquor enterprises. The liquor license is probably the most widespread. In the case where you operate a restaurant with an existing liquor license, the buyer will have to transfer the license from one owner to another or get a new license by submitting the necessary application to the appropriate office. In Queensland, you should contact the Office of Liquor and Gaming Regulation for that purpose, whereas in New South Wales it would be Liquor & Gaming NSW.

The food business registration and qualifications of the food safety supervisor will become the responsibility of the buyer right from the first day of their possession of the business.

Stamp duty also applies to sales in business and differs depending on the state in which they occur. In certain states, the stamp duty is determined based on the worth of business assets (goodwill, plant and machinery, stock, and intangibles), but not based on the value of stock. The process differs based on whether it is an asset transfer or share purchase. Our guide to stamp duty in Australia breaks down the state-by-state differences.

The entitlements of employees are regulated by the Fair Work Act. In case the sale is conducted as a transfer of business (as is common in restaurant sales), the employees can be transferred along with their entitlements to the buyer. The new owner takes over the liabilities for the accrued leave, and sometimes the long-service leave too. This is an expense that the buyer considers when making an offer, so ensure that your records are up to date.

Move through contracts and settlement

After the completion of due diligence and both parties are satisfied, the next step involves the exchange of the contract and settlement. In this process, your solicitor and the solicitor representing the buyer will draw up and negotiate the sale contract. Generally, this contract will stipulate what is being sold, the purchase price, the date of settlement, conditions that must be fulfilled before settlement takes place, and the responsibilities of each party during this period.

The contract will also include the division of the purchase price among goodwill, plant and equipment, inventory, and other assets. This allocation process is tax-driven for both parties, so you should expect some negotiations on how the total purchase price will be allocated. Inventory is typically valued on the date of or close to the date of settlement and will be paid for based on cost in addition to the purchase price. If this sale is treated as a going concern, GST may not apply. Our article on selling a business as a going concern explains the criteria and tax treatment.

Settlement is mainly a legal and financial process. The money changes hands, leases are assigned, licences are assigned or applied for, and keys are exchanged. Your lawyer should give you a statement of settlement indicating the bottom line, which includes adjustments for prepaid costs and security deposits, as well as staff entitlements.

During the period between the contract and settlement, continue with your normal operations. Pay your suppliers, maintain your equipment, and continue scheduling shifts as usual. The contract requires that you deliver the business in its current condition, more or less in the same state it was in when the buyer had it checked out.

Keep your restaurant profitable until handover day

That is where many sellers make mistakes and lose a lot of money. Having signed the contract, they switch off their minds. The deal is done, and settlement will be made in four to six weeks. Why push harder? Because your buyer is monitoring the business. Because it’s a condition in the contract.

Dips in income from signing of the contract until the day of settlement are probably the main cause of renegotiations and failure of transactions altogether. If the buyer agreed to spend $400,000 when weekly income was $18,000, but sees that the income goes down to $13,000, they will definitely mention it. Their solicitor will mention it too. And you’ll either be renegotiating the price or risking the buyer walking away under a material adverse change clause.

This is easy to do practically. Keep your staff numbers normal. Do not reduce them to save on costs during the last few weeks. Keep your promotions going, be it on social media, special deals, loyalty programs, or local advertising. Order inventory at normal levels and maintain a steady menu. If you have staff members who are vital to your operations, ensure that they are still on board until the time of settlement.

It all starts from your mindset. You set the example for your entire team. If you are clearly disconnected, then your staff will be too, and the impact will reflect much sooner than you realise. Reviews posted online towards the end of your tenure can haunt your business for years to come.

Continue to operate as though you intend to run the establishment indefinitely until you turn it over to your buyer. Remember that the new owner purchased a functioning business that performed to the standards observed during inspection.

Talk to a hospitality business broker

Selling a restaurant can be considered one of the most difficult transactions in business. The fact that the sale will involve lease agreements, alcohol licensing, health and hygiene issues, employee entitlements, perishable stock, and a lot more, makes it unlike any other business transaction.

A business broker who is experienced in handling similar situations in the past knows very well how to evaluate your restaurant in terms of its worth today and how to sell it effectively to a pool of potential buyers. They also know how to keep everything moving along smoothly, even until the time of transfer.

Benchmark Business Sales has been selling businesses across Australia since 1999, with specialist hospitality business brokers across six offices in five states. If you’re thinking about selling your restaurant, a confidential conversation with one of our team is a practical first step. There’s no cost involved. Contact us to talk through your situation.

FAQs

How long does it take to sell a restaurant business in Australia?

On average, the process of selling a restaurant in Australia takes four to nine months from the time that the property goes on the market. This is based on the value of the restaurant, its location, the remaining years on its lease, and current market conditions. Restaurants that are well-prepared and properly valued will be sold more quickly. Restaurants that have shorter leases and low revenue streams will be harder to sell, especially if they are priced too high.

Do I need a business broker to sell my restaurant?

It’s possible to sell on your own, but selling is considerably more difficult without a business broker involved. The broker would be responsible for valuing the business, its marketing, finding qualified buyers, managing confidentiality, negotiating, and coordinating the transaction. For the sale of restaurants in particular, there is a risk of confidentiality (employee and customer disruption), and also the potential buyer pool is specialised. A business broker who has a current list of hospitality buyers will likely find a greater number of qualified buyers.

What tax implications should I expect when selling my restaurant?

Capital gains tax will be a significant factor. In order to qualify for the 50% discount on capital gains tax, you must have held the asset for more than twelve months prior to selling the property. In addition, small business CGT concessions will help defer or lessen your capital gains tax depending on whether or not your business qualifies under the threshold criteria (aggregate turnover under $2 million or aggregate taxable assets under $6 million). No GST arises from the sale of a business if certain criteria are met. Our guide on capital gains tax when selling a business covers the concessions and planning tips in detail.

Can I sell my restaurant if the lease is short or expiring?

Yes, you can, but this will limit considerably the number of potential buyers and how much money they might offer you. The typical buyer needs a lease period of at least five years to feel comfortable enough and meet the demands of their finance provider. If your lease expires soon, try talking to your landlord about renewing it before you put up your restaurant for sale. If that is not feasible, consider lowering the expected price of your property accordingly.

What happens to my staff when the restaurant is sold?

As per the Fair Work Act, in the event that there is a transfer of business (most cases of asset sale in a restaurant fall into this category), any staff member that is employed at the time of the transaction, and which transfers to the new employer, retains all his or her service entitlements, such as annual and possibly long-service leave. The new employer must also provide employment under no less favourable terms for a certain period of time. Generally, most purchasers tend to like experienced staff members, especially key staff members.

How do I sell my restaurant business confidentially?

One way to do this is by looking at how the business is marketed. A good business broker will market using blind ads, meaning the business itself will not be named. Furthermore, every person who comes to look at your business should have to sign an NDA first before any identifiable information is shared. No staff members should be told about it until a deal is struck, and even then, care must be taken when broaching the topic. Continue to market the business normally for customers, but avoid scheduling inspections or meetings while the business is operating.