George & Co's Business Of The Month: Restaurants

Restaurants and Bars Represent a Quarter of the Small Business Market

In the third quarter of 2015’s fiscal year (April – June), BizBuySell released their reports on buying and selling transactions for small businesses within the United States. This report show the steady trend in the small business sector showing preference to buyers and sellers of retail businesses, of which 50% were restaurants, bars, and other food service businesses. George & Co has been a part of this trend, and has helped buyers buy and seller sell cafes, restaurants, food shops, and bars all throughout Massachusetts and greater New England.

For those getting into the small business market, there are two major sectors that take up about 90% of all transactions: the service sector and the retail sector. These industries are stable due to constant demand, unlike manufacturing which usually has to be done on a larger scale to compete with overseas and online competition. Of this lion’s share of the small business market, there’s a reason restaurants and bars hold the biggest sway: they are indispensable part of Americans’ busy lives and relaxing weeknight and weekends. And buying such a business comes with its own perks.

Reasons Behind the Restaurant Boom

Restaurants make their way on and quickly off the market due to their status as a “turnkey business.” While buying a business avoids start-up troubles that end so many new companies, restaurant owners additional have the perk of usually having day-to-day operations handled by general managers and food consistently produced by chefs. Because the staff handles the daily operations, owner transition is often quick and unnoticed by customers. This quick transaction allows sellers to leave the picture quickly and buyers to quickly start generating a return on their investments.

Why are there so many Pizza Restaurants Available?

An interesting phenomenon is occurring within the pizza parlor industry. In New England, where so many Greek immigrants settled and opened pizza places that have been in the family for generations is finding itself in turmoil as so many 3rd and 4th generation siblings are graduating from college with degrees paid for by the hard work of their parents. These “successors” to the business have seen their parents toil for countless hours and are now less interested in a career in food when they have been trained in other careers. These established pizza and sub operations are being bought by a new wave of immigrants from Albania, Egypt, Pakistan, Syria, Lebanon, etc. While the hours are long, the menus are relatively simple and pizza remains one of the favorite foods of the American consumer thereby representing a sound investment.

Tips to Restaurant Buyers and Sellers

George & Co has over thirty years of experience in business brokerage and M&A. While all businesses face certain risks, there are several that are more likely to occur to restaurants and bars.

Avoid Unreported Income

Restaurants are one of the bastions of cash sales, with many restaurant and bar goers paying and tipping in cash. As an owner, it can be tempting to leave this income off the books and not report it during tax time. However, this can turn around to bite you when showing your total profit to a potential buyer. Without the proof of tax statements and accounts, it can be hard or impossible to prove your total revenue. As a buyer, remember it’s the responsibility of the seller to prove the worth of the company: ask them to prove their profits.

The Added Cost of Alcohol

In their full 2014 report, BizBuySell also details the median closing price for restaurants and related services. While the gap of sales prices between restaurants—$150,000—and other food service establishments—$125,000—was only $25,000, bars and restaurant & bars sold for $225,000, three times the difference. This represents both the assets dedicated to a full bar (licensing, inventory, staff, and room) as well as the large amount of revenue generated by serving alcohol. As a buyer or a seller, remember the additional costs of a bar before you settle on the price.

Want more tips? George & Company provide more in-depth tips to restaurant buyers in the 10 Things to Know Before Buying a Restaurant and its follow-up piece. If you’re a restaurant seller struggling to find a buyer, learn Why Your Competitor Might Make the Best Business Buyer.

Top 5 Businesses of the Month

Making up a quarter of all business transactions, this large market has a wide variety of food service businesses in types, location, and pricing. Below are the top 5 restaurants for sale at georgeandco.com.

1.      Classic New England Diner – Located in Central Mass., currently serves breakfast and lunch.

2.      Bar with Live Entertainment – Pub and martini bar, caters to mid-twenties clients.

3.      Restaurant and Bakery – Upscale New-York style bakery with great reputation.

4.      Waterfront Bar & Grill – Recent renovations, seasonal outdoor seating, and liquor license included.

5.      Worcester County Pizzeria – High visibility location with commercial landlord options.