Guide to buying and selling your business

When buying or selling a restaurant as a going concern the process can be riddled with potential pitfalls. So how can restaurateurs be sure they are making the right decision and ensure they get the best deal?

Reasons to buy include:​

• to increase market share more quickly than through organic growth
• to introduce economies of scale and reduce overheads
• to achieve geographical expansion or increase the product range
• to eliminate the competition

Planning is crucial. If you already have a successful restaurant up and running, buying another represents a significant cost and ties up senior people in the integration. That said, sometimes unplanned opportunities arise that are simply too good to pass up, for example, if a competitor slips into receivership and becomes available at a favourable price.

Plan properly and you should be able to:​

• specify and search for ideal targets. A buyer with several options will be in a stronger bargaining position. Trade bodies, Companies House, the internet and business advisers can all help with this.
• ensure favourable funding is in place prior to making an approach. This could be via a combination of a bank loan, equity finance and deferred payments to the vendor.
• develop an integration plan and realistic projections for the business.
• review timings and motives. Acquisitions are risky at the best of times. Would it be better to go for slower organic growth?

A good business adviser will assist in this process by researching a short list of companies to approach. This not only saves precious time and stress, but provides a dispassionate and objective viewpoint on what may have become an emotional issue.

Considerations for the seller include:​

• whether selling is an unplanned reaction to receipt of a tempting offer. If so, the seller is unlikely to get the best price and should beware.
• whether it is the right time to sell. A common error is to sell too late. As a rule of thumb, try to sell a year before you think you should. The best price will come when there is still significant potential left in the restaurant and market sector. Selling the business should ideally be part of the business plan from the outset.
• grooming the business towards sale. Ensure the valuable asset of goodwill, is vested in the restaurant itself, rather than in the owner who will be stepping down.
• preparing a realistic projection of the business's prospects along with supporting evidence.

Both buyer and seller will be keen to settle on an attractive price - so what are the negotiating tools each party should use to ensure they get what they want?

While getting the best price is important, money is often not the seller's only motivation. Therefore, the buyer needs to know the seller's ‘hotspots', i.e. what's most important to them. This may be ensuring long-serving members of staff are looked after, or a retained equity stake.

To get the best deal, work quickly and give the vendor no reason to go through a wider sale process. Keeping the momentum of the transaction closes out other potential bidders as the vendor is likely to think a bird in the hand is better than two in the bush.

The buyer or his adviser must also complete due diligence investigations on the companies under consideration; due diligence being when you will have access to all of the company's books, records and files, and the investigations should include management, financial and legal reviews.

The seller should obtain a fair and sensible valuation of the business. Don't hold back from potential buyers any negative information, as it will emerge eventually, and declaring it up front puts the seller in a stronger position to retain credibility.

Even if a seemingly tempting offer has landed on the table, resist the temptation to jump at it. Research potential buyers and seek specialist advice if a management buyout (MBO) is on the cards.

To obtain the best price, the seller should never reveal what they want for the business.

It will set a ceiling and the buyer will expect to negotiate down considerably from this level.

The key message to buyers and sellers is to plan, plan, plan. Start early - a minimum of six, preferably 12, months before you begin the process of buying or selling. Do your homework, understand why you want to do the deal, keep key staff involved, and allow for everything to take longer than planned.

Finally, don't cut corners, make best use of experienced advisers to smooth the course, and be prepared to walk away if the deal isn't what you want.

By Jonathan Perrin, Head of Hospitality and Leisure Group at Vantis. vantisplc.com