News & Tech Tips

“Quick-Sale” Considerations When Selling a Restaurant

bberry on November 5, 2013

The decision to sell a business is one of the most important decisions a business owner will ever have to make and for many franchisees it is an unknown area. Having invested a considerable amount of time and effort in building the business, its sale probably holds the key to a comfortable and secure future.

To minimize pressure and maximize the value of your business, it’s best to start planning for the sale well in advance of the time you actually decide to exit the business. But sometimes that’s not possible.

Here are a few items to consider if you have decided to do a “quick” sale of one of your restaurants.

  • Make sure you fully understand how much money you will be walking away with after completing the sale. The prospective buyer may buy the restaurant for the price you are asking, but how much of the money do you get to keep?
    • You need to consider how much “tax basis” you have in the assets you are selling
    • You need to consider how much “tax gain” you will have by selling the restaurant
    • You need to consider the amount of payoff of the loans you have on the restaurant
    • You also need to consider whether the bank will be charging you a breakage fee due to paying off the loan early
  • There may be opportunities on your P&L Opportunity Report, but keep in mind that a prospective buyer will have to spend time and money to convert these opportunities into cash flow. Just because an opportunity is there does not mean the prospective buyer is going to pay you for it.  If the cost control problem was that easy to fix, you would have already done it!!
  • Consider the cost and timing of future reinvestment into the property. This can have a major impact on your selling price if there is a rebuild or MRP on the horizon. The sooner the major reinvestment occurs, the more impact it will have on your selling price.

If you have questions about any of these suggestions or would like additional information, contact Bruce Berry, director, who works closely with franchise restaurant owner/operators. In the spring/summer issue of this newsletter, we provided suggestions for long-term planning for a sale, in the article Factors to Consider in Selling a Restaurant.

Five Keys to Successful Next-Generation Store Transitions

bberry on May 15, 2013

Most restaurant groups have excellent programs for transitioning restaurants to the next generation of owner/operators. While the company provides guidance, there is still much to consider and to plan for in order to execute a successful transition.

  1. Be proactive and allow sufficient time for planning.  Don’t wait until you are ready to retire to make a transition plan. The next generation owner/operator in your family needs to be eligible for growth and rewrite. The brand may limit the number of restaurants he or she is able to acquire. Make sure you plan well in advance to ensure complete transfer of restaurants to the next generation.
  1. Consider rolling the next generation owner/operator into the parent’s organization.  This arrangement will allow growth and rewrite to be determined at the organization level and may assist next-generation operators with growing their business.
  1. It is okay to sell your next-generation owner/operator a restaurant at a discount.  Keep in mind that the discount is considered a gift, enabling you to take advantage of the current gifting laws that may allow tax-free transfers of ownership to the next generation.
  1. Conduct family meetings on a regular basis to discuss your transition plans and succession planning. Open communication is critical to a successful next generation plan.
  1. Seek advice from your attorney, accountant and financial adviser. Use your TAG Team (Trusted Adviser Group) in order to fully realize the benefits of the next-generation transition for both the parents and the new owner/operators.

If you are considering making a transition to a next-generation owner/operator and would like to explore ways to make the transition go smoothly, contact Bruce Berry, Director. Bruce works closely with restaurant franchise owner/operators.

Factors to Consider in Selling a Restaurant

bberry on May 15, 2013

Selling a restaurant is a serious undertaking. As a hardworking owner/operator, the decision to sell your business is your opportunity to cash in on all of the time, money, effort and improvements you’ve put into the restaurant over the years. Selling a restaurant is your final payday for that location, so make it count!

Long-term planning is key to any successful business sale. The more you prepare, the more successful the outcome is likely to be. While every transfer of business is unique, owner/operators should consider these items in planning for a sale:

  • Review your P&L Opportunity Report. There is no better way to increase the selling price of your restaurant than to run an optimal P&L. If you can better manage the restaurant costs, you will add to the restaurant’s cash flow. A prospective buyer is going to purchase your restaurant based on the future cash flows of the restaurant. The higher the cash flow, the higher the selling price. You should also get the cost controls in place and have P&L reports that support this position for at least one to two years. Taking these steps will give you a better opportunity to realize a higher selling price.
  • How many years do you have remaining on your franchise term? If it is less than 10 years, a corporation may give the prospective buyer a new 20-year franchise term.  If it is more than 10 years, the prospective buyer usually takes over your remaining franchise term. A term of 20 years would typically offer more security to the prospective buyer than a term of closer to 10 years and could result in a higher selling price.  So time your sale accordingly.
  • Money is cheap right now and the brand is strong. You should have no shortage of prospective buyers. There is also a long list of banks that make loans to franchisees at near record-low interest rates.  So when you combine the low cost of borrowing money, the availability of banks willing to make loans, and the number of strong operators looking for growth opportunities, you have the recipe for maximizing your selling price.

In our next newsletter, learn about considerations for making a “quick sale,” when your planning horizon is limited.

If you have questions about any of these suggestions or would like additional information, contact Bruce Berry, Director. Bruce works closely with franchise restaurant owner/operators.

Review ATRA for Possible Tax-Saving Opportunities

bberry on May 15, 2013

It’s been about six months since Congress passed the American Taxpayer Relief Act (ATRA) of 2012. The legislation prevented many of the tax hikes that were scheduled to go into effect in 2013 and retained a number of tax breaks that were scheduled to expire. On the negative side, individual income tax rates rose with the top rate increasing from 35 percent to 39.6 percent.

While much focus was given to ATRA at the start of the year, it’s probably a good time to review some of the bill’s provisions and determine if there are still opportunities for you and your business:

  • Section 179 Expense Deduction – Section 179 Expense was increased to $500,000 for both 2012 and 2013 (2012 was previously scheduled to be $139,000, and 2013 was only $25,000)
  • Bonus Depreciation – Bonus Depreciation was extended through December 31, 2013. This will allow the business to depreciate 50 percent of the asset cost in 2013 for equipment, fixtures, furniture, signage and land improvements.
  • Luxury Auto Depreciation – $11,160 is now allowed for first-year depreciation for luxury autos placed in service in 2013.
  • Restaurant Improvements Depreciation – The 15-year write-off for “qualified restaurant” improvements was reinstated and extended through December 31, 2013.
  • WOTC – The Work Opportunity Tax Credit was extended through December 31, 2013.  The maximum credit is generally $6,000, but can be as high as $12,000, $14,000, or $24,000 for qualified veterans depending on service connected disability, amount of time unemployed and when the period of unemployment occurred.
  • Enhanced Deduction for Food-Inventory Donation – This deduction was reinstated and extended through December 31, 2013. The donation must be wholesome and be for the ill or needy. An owner/operator can get 150 percent of their basis in the donation as a charitable contribution.
  • Empowerment Zone – If your restaurant is located in a Federal Empowerment Zone, you can potentially qualify for a tax credit. The tax credit was extended through December 31, 2013.

If you have questions about any of these provisions or would like additional information, contact Patrick McClary, Director/Tax Department, or Bruce Berry, Director/Accounting Department.

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