Third Quarter 2005 Volume 7, Issue 3

How To Deal With The Most Common Problems That Come Up During A Sale - How To Insure a Closed Escrow

There are many problems which can occur during the sales process and having closed over 400 escrows Restaurant Realty has experienced many of these problems. This discussion is to prepare the seller on how to take a proactive approach in dealing with some of the most common problems that occur during the sales process to help obtain the maximum price for their business as well as to assure a closed escrow. The most common challenges that occur during the sales process are as follows: 1) problems with the lease and the landlord, 2) incomplete business financial statements, 3) deferred maintenance and 4) health department violations.

1. Problems With The Lease and The Landlord – This is the most common problem that contributes to a failed escrow. The best way to handle this problem is to deal with it up front. It is best to speak with your landlord early in the game either before you list the business for sale or immediately after you list the business for sale. This way the landlord feels he is part of the sales process from the get go and you can assure the landlord that you are only going to present buyer/tenants to him that are operationally and financially qualified. Additionally you can find out from the landlord what the terms of the new lease are going to be and you can negotiate with him up front what you perceive to be competitive lease terms for the buyer. There are situations where the landlord will not negotiate reasonable terms and conditions which will make it prohibitive to sell the business. If you are the seller it is best to know up front where the landlord is coming from so you do not waste time on a sale which can’t occur. If your landlord won’t negotiate a reasonable lease with your buyer you can then implement creative ways to make the best use of your remaining lease term .
    

2. Incomplete Business Financial Statements – If you are selling a business that is making money and the buyer is buying the business largely due to the cash flow you have to provide complete and timely financial statements including the immediate past three years tax returns and year end income and expense statements and the current years sales tax returns and year-to-date income and expense statement. Don’t put your business up for sale until you have gathered all these items as you may have only one chance to capture a buyer’s attention. Even if you are selling a business with unreported sales or a business that is not profitable or marginally profitable it is still important to have accurate income and expense information for the buyer.
   
    

3. Deferred Maintenances – First impressions are lasting impressions. It is important that your business shows well when you put it on the market. Make sure all pieces of equipment are in good working order and if you have equipment in need of repair either fix it or remove it from the premises. Make sure all your plumbing, electrical and heating, air conditioning and ventilation systems are in good working order. Cleanliness is a key element in a buyer’s impression of what they are purchasing so make sure your entire facility is clean including the dining room, back of the house and restroom areas.
   
    

4. Health Department Violations - It is the seller’s responsibility to pass a change of ownership health department inspection prior to the close of escrow. This inspection has a higher standard than a routine health department inspection and a seller should have this inspection completed by the time the business goes on the market. This allows time to take action to satisfy any heath department corrective issues. If the seller is unable financially or chooses not to bring his business up to standard regarding maintenance and health department issues the seller should be prepared to adjust the business price accordingly.

Restaurant Realty recommends the seller to complete the above mentioned items to realize both a closed escrow and obtaining the maximum price for their business.