Challenges in Closing a Restaurant Transaction

1. LANDLORD ISSUES – a) landlords value their space at rates that are higher than the existing market rent, b) landlords won’t give adequate time on the lease to give the tenant enough time to obtain a reasonable return on their investment and to give them enough security to make it worth their time to build the business at the space, c) landlords won’t give the tenant a predictable future of what their rent will be (i.e. on an option the landlord has the rent tied to market rent rather than a predictable future rent such as rent based on the Consumer Price Index or a fixed rent schedule etc.), d) landlords won’t give the tenant free rent during the remodeling period which ultimately results in improving the landlords building at the tenant’s cost and e) landlords won’t give reasonable use clauses or reasonable assignment rights for the sale of the business.

2. SELLER’S BOOKS & RECORDS ISSUES – Not keeping good books and records frequently results in a deal going south. Some sellers claim that they are doing a certain level of business while their books and record show they are doing significantly less than what they are claiming. To minimize this problem, we get the sellers tax returns for the past two years and sales tax returns for the current year when we list the business for sale.

3. HEALTH DEPARTMENT INSPECTION REPORT ISSUES – Most sales require that the seller give a buyer a health department inspection clearance. Most sellers assume that this is no problem as their past health department inspections have been no problem. However most sellers don’t realize that there are more stringent criteria imposed by the health department on a sale versus a normal health inspection during the course of operating the business. The reason for this is that there is new money coming into the deal which gives the health department the opportunity to have the business brought up to current standards (i.e. they require the following on a sale: 3 compartment sinks, mop sinks, hand sinks, smooth washable surfaces on all floors, walls and ceilings and replacement of all domestic appliances with commercial appliances, etc.)

An experienced broker should be adept at working through these situations and should guide you in selling your business.

Written by Steven Zimmerman - Restaurant Realty Company

Disclaimer: The information in our articles has been provided by Restaurant Realty Company in collaboration with Restaurants For Sale Online. Restaurant Realty Company and Restaurants For Sale Online assumes no responsibility for decisions made by buyers, sellers or other parties to any transaction. Information has been provided based on experience and research. The results of various articles and studies reflect such information. Restaurant Realty Company and Restaurants For Sale Online assumes no responsibility for pricing or recommendation of pricing to any of our users. If you are interested in buying a business, Restaurants For Sale Online, LLC recommends you do your own due diligence to verify the source of any information provided to you by a seller and/or intermediary. If you are interested in selling your business, Restaurants For Sale Online recommends you contact an intermediary that specializes in transactions similar to the respective business.