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If you’re the owner of a building used as a restaurant or an investor in a restaurant who is looking to sell the property, you may discover that it’s more complicated than trying to find a buyer for a house or flat. This guide walks you through the important parts of trying to sell a restaurant, and offers key tips for you on how to make a fast and fair sale more likely.
- Deciding to sell your restaurant
- Information buyers will want to see
- Pros and cons with trying to sell a restaurant
- Preparing your restaurant for sale
- Will you pay Capital Gains Tax when selling a restaurant?
- Choosing how to find a buyer for your restaurant
- Top questions about how to sell a restaurant
Deciding to sell your restaurant
Owning a restaurant can be quite unpredictable, because it’s an industry that can see its fortunes improve just as rapidly as they decline as discussed in the Nation’s Restaurant News article. There are many different factors that might affect the success or failure of an individual restaurant, and many such businesses unfortunately fail.
Location, the economy, changing customer dining habits, the décor or of a property and more are just some of the varied elements that might be affecting how your restaurant is doing.
And it can be a very stressful business because of this unpredictability, causing some owners to suffer financial difficulty that prompts them to sell the building in which their restaurant is located. Other owners might simply no longer have the energy required for the stress of running this type of business. And there are restaurant owners who might simply want to sell to generate funds for retirement.
Whatever your reason for deciding to sell your property, you should be aware that there can be a few more complications involved compared to the process of trying to find a buyer for a conventional house or flat – but getting a speedy and competitive offer is still possible.
Under the terms of a law known as The Town and Country Planning (Use Classes) Order 1987, restaurants are part of the leisure “use class” of commercial property, which is a broad category of properties that also includes cafes, pubs, bed and breakfast venues, and gyms.
This guide will help you navigate the ins and outs of selling your restaurant, whether you’re the owner of a building that’s used primarily as a restaurant, or the owner of a restaurant who wans to sell the property, or both. And it applies to both freehold restaurants, where you would own the building and the land on which it sits outright, and leasehold restaurants, where the owner pays an annual fee to the freeholder in exchange for owning the building for a set period.
Information buyers will want to see
One of the first, and most important, stages in selling your freehold or leasehold restaurant (which has similarities to the stages of selling a house) is compiling as much information as possible that prospective buyers are likely to ask for as part of the selling process.
Some people might want to purchase the property with the intent of no longer running it as a restaurant, and instead redeveloping it for use as some other type of business, or even as a residential property depending on the type of building and its location. Others could be looking to buy the property so that they can then fulfil their dreams of operating their own restaurant.
If a potential buyer is interested in your restaurant with the intent of operating it as the same type of business once they own the property, one of their primary concerns will be whether the venue is able to turn a profit as discussed in this Guardian article.
Financial information that you should have ready to show potential buyers includes how many diners your restaurant manages to attract each year, which days and times are busy and quiet, your revenue and net profit, business charges that you have to pay, and more. Having all of this information prepared to immediately respond to questions from buyers can make the selling process much smoother. The longer that a buyer has to wait to get details like this from you, the greater the risk of them losing interest in your property or buying a different restaurant.
Some buyers will also want to know whether your restaurant already has planning permission for redevelopment, which can include an extension or even converting the property to another commercial or even residential use. Planning permission is a lengthy and often expensive process, and if you already have this approval in place when trying to sell a restaurant, it can make the property more enticing to buyers – particular investors looking to make physical changes to the building, whether as a new restaurant or another type of business.
Pros and cons with trying to sell a restaurant
Whether you are trying to sell a restaurant for the first time, or have past experience with managing to find a buyer for this type of business, you might experience certain pros and cons with the process, depending on your unique property. A useful website to take a look through when selling is Restaurant Industry News.
Factors that could make it easier to sell your restaurant include:
- Popular location: If your restaurant is located in a busy city centre with lots of regular, daily foot traffic or in an otherwise high-demand area, you’re more likely to generate interest in your restaurant as would-be owners may find it easy to find customers.
- Staff are available: Restaurants require many employees including waiters, cooks, cleaners and more. A property that is located in an area with a large number of potential staff could be more attractive to buyers than one with more limited options.
- Operating costs are low: Running a restaurant is a business with income from diners and expenses from buying stock and paying salaries and utilities. If the rates for all these costs are lower than other locations, buyers might be interested in your restaurant.
And factors that might increase the difficulty of selling a restaurant could be:
- Undesirable location: Just as being located in a popular area with plenty of foot traffic can help with selling a restaurant, a poor location in a remote or other undesirable location can also make a sale harder because customers could be hard to attract.
- High operating costs: One reason why many restaurants fail is that they have very high operating costs, such as excessive power bills or the cost of obtaining ingredients is greater than in other areas, and this can be a factor that deters potential buyers.
- Unusual or damaged property: Another reason why people may be less interested in purchasing your restaurant is if it has some structural damage or the property is an unusual design, as this can often deter some buyers from wanting certain properties.
Preparing your restaurant for sale
Getting your restaurant ready for sale means more than preparing the financial information about revenue, business charges and the like that some buyers will want to see if they have the intent of purchasing your property and continuing to operate it as a restaurant.
Preparing the property also means assessing its current physical condition and deciding whether you have the ability or desire to fix any potential problems that you find before selling.
It’s possible that your restaurant might have some significant structural issues, which could include leaks, a damaged roof, damp, subsidence or many other physical flaws. These problems can cause prospective buyers to view your restaurant less favourably, and they might lower the price they’ll offer by the amount that they anticipate it will cost them to repair the issues as the next owner.
One way that you can tackle this scenario is to invest in fixing whatever the problem might be, such as installing a new roof or fixing any widespread damp issues. By removing the problem, buyers may then look more favourably on your restaurant and increase their offer values.
However, spending the time, money and effort on such work, which can often require many weeks and resources, is not something that every restaurant owner will be able to do before trying to find a buyer for their property. And there’s no obligation on you to fix such issues. Indeed, you can still get a competitive and quick offer for your restaurant "as is" without fixing any problems, if you sell to a quick property buyer like LDN Properties. These businesses are known for making fair and fast offers to buy properties no matter what condition they are in.
If you haven’t got the ability to correct any structural problems with your restaurant before selling because of a lack of time or funds necessary for pursuing the repairs, or alternatively if you simply do not want to do this work, you should still consider taking some no-cost or low-cost and minimal effort steps that can help to get more buyers potentially interested.
For the interior of your restaurant, make sure that the dining room and other areas look as uncluttered as possible and are kept tidy, because this wall make the overall space seem larger and more attractive to prospective buyers. Keep the kitchen in good condition, because the hygiene of a restaurant will be a crucial factor for someone wanting to run such a business.
For the exterior of your restaurant, fix any chipped paint, replace any cracked glass in the windows or doors, and if your property has a front yard or other green space then you should mow this and remove any weeds so that it looks as good as it can. First impressions count with properties, and a badly maintained restaurant could get fewer offers than one in good shape.
Will you pay Capital Gains Tax when selling a restaurant?
A key financial consideration as part of the process of selling your restaurant is assessing your potential liability for paying Capital Gains Tax on the sale proceeds as discussed in The Express. This is a tax that the UK government charges on the profit, also called gain, that you might make when selling an asset, which is a broad term that covers valuable tangible items such as buildings or cars.
You should consult with a financial professional about your possible tax liability when selling your restaurant, because there are certain steps that might reduce or eliminate your burden to pay Capital Gains Tax. And in the event where you either sell the restaurant at a loss compared to what you paid for it, or if you only break even on the sale, you will not have to pay this tax.
Choosing how to find a buyer for your restaurant
Whatever the reason behind your decision to sell your restaurant even if selling due to ill health, you’ll eventually have to settle on one of four methods for trying to locate a buyer for the property.
Your four main options are selling to a quick property buyer, selling via an estate agent, selling without any help or selling at a property auction. There are clear advantages associated with each of these choices, but some of the methods also have some distinct disadvantages, such as taking many months to find a buyer or including fees that will increase your selling costs.
Before making a selection, you should write down the most important factors driving the sale of your restaurant such as your ideal sale price, how long you can wait to find a buyer, whether you can accept paying commission in order to sell, and other key elements. Then you should bear all of these details in mind whilst you learn about the specifics of all four selling methods outlined below, and this should assist in finding the one that is best suited to your needs.
Selling to a quick property buyer
Quick property buyers are companies like LDN Properties, launched in 2003, that have the financial resources available to make immediate purchases of restaurants and many other commercial and residential properties no matter their age, condition, shape, size or type.
They don’t have to wait for many weeks or months to first get approval for a mortgage to cover the cost of purchasing a property, and this reduces the typical timeline for completing a sale to just a few short weeks, which includes exchanging contracts and paying the owner the proceeds. This is typically by far the speediest option for selling any type of property.
Honest quick buyers will also never charge you any commission when buying your restaurant, which helps to reduce your overall costs when selling. By contrast, you’ll pay fees when using an estate agent or auctioneer and these will be taken out of the sale proceeds right away.
And it also won’t matter if your restaurant is considered a “problem” property because of issues such as structural damage, because quick buyers have plenty of experience with making swift and competitive offers for all types of commercial and residential properties even with problems.
For example, LDN Properties has a long list of properties that it has bought or considered buying “as is” with issues other buyers would consider dealbreaking flaws, such as commercial properties with dry rot, nurseries, homes with subsidence, flats with high amounts of asbestos, vandalised houses, storm-damaged bed and breakfast properties, flats that have cladding, and many other situations.
Selling via an estate agent
A bonus of selling this way is that the estate agent takes care of all the work in advertising your property and trying to generate interest in it, including scheduling viewings where they let potential buyers tour the restaurant, and fielding any serious offers from buyers.
But this process can take quite a long time, and you should be prepared for it to take up to a year or longer before you get an offer that you’re able to get to exchange of contracts.
In addition, estate agents will make you pay commission if they find a buyer for your restaurant. The typical fee rate is between 1.15 percent and 1.40 percent of your property’s sale price, and this charge will be subtracted immediately from the sale proceeds, adding to your expenses.
Selling without any help
Another way to sell your restaurant is doing so without any assistance, which means you’ll be responsible for all the steps such as marketing the property, organising viewings, and hearing any offers from buyers. This will take a lot of time and can be very stressful, and it’s only recommended if you have successful sold a restaurant property before, or at least have an experienced family member or friend who might be willing to help you out at no cost.
You should be ready to wait for more than a full year before you get a serious offer from a buyer, which makes this option often one of the slowest ways to sell a property.
Indeed, not having to pay any commission to a third party is perhaps the only clear benefit of selling on your own. And any savings that you make this way could still be cancelled out with the costs involved in this method, such as paying to advertise your restaurant’s sale.
If your main goal is not having to pay any fees, then you can achieve this instead by selling to a quick buyer that promises not to charge you any commission. Not only will this reduce your costs, but a quick buyer should be able to complete the purchase within a few weeks.
Selling at a property auction
You might also be thinking about selling via an auction, where people will place bids of increasing prices on your restaurant, hopefully resulting in a good final sale price. However, you could get no bids, meaning the property doesn’t sell and you’ll have to start over with trying to find a buyer, which will likely add many months to the overall process.
This is not a speedy way to sell a restaurant, as you’ll have to wait for several weeks at least after you list your property sale and when the auction takes place. If you succeed in selling the restaurant at the auction, the winning high bidder will then usually have about 28 days to complete their legal paperwork and other steps required to finalise the purchase.
Some auctioneers might give the buyer more or less time to finish their tasks, and you should ask specific companies whether they might be willing to set a shorter deadline for the buyer.
It’s important to also know that auctioneers will charge commission for selling your restaurant. This fee will be immediately subtracted from the sale proceeds after the auction, which will be an added cost for the selling process.
You might also be able to negotiate with individual auctioneers on lowering their fees, or having the buyer be responsible for some of your costs, so always inquire about this possibility.
Top queries and answers about selling a restaurant
When you’re thinking of selling your restaurant, you may have some questions that need answering, ranging from the the repair works needed before selling through to selling after the restaurant has closed down. Here are some of the questions we’re asked about selling a restaurant:
