Things That Can Go Wrong During A Sales Transaction
That Sellers Needs to Know: Part 1
There are several
reasons why a seller should use a specialized
restaurant broker to help sell their restaurant, bar
or night club. In addition to getting them the
highest price possible in the shortest amount of
time on a confidential basis, a good restaurant
broker will have the ability to possibly eliminate
potential problems during the sales transaction
process and get the deal closed.
The possible problems that can occur during the
sales transaction are broken down by the major
parties involved in the transaction. These include
buyer, seller, landlord, broker, governmental
agencies, and the escrow/title company. This is a
three-part article. This first part will discuss how
buyers’ actions can void the deal. The second and
third parts (that will appear in the next two
issues) will discuss how the seller, landlord,
broker, governmental agencies and escrow/title
company’s actions can void the deal.
How Buyer’s
Actions Can Void the Deal
1) Not being
able to raise the money.
One of the roles of a good restaurant broker
is to screen prospective buyers to make sure
they have the proper amount of money to purchase
the business. This is done by examining the
buyers’ financial statements including reviewing
their sources of cash (for example, current bank
statements, securities account statements, and
equity in the buyer’s properties). If a buyer
plans to get the cash from an equity line on
property, the broker looks carefully at the
appraised value of the buyer’s property and the
respective loan-to-value ratio to make sure the
buyer has enough equity to obtain the required
loan to obtain the cash for the transaction. If
the cash is coming from a third party investor
other than the buyer, the broker reviews the
same items indicated above from the investor.
2) The buyer gets cold feet.
After the buyer signs the purchase contract and
the offer is accepted, the buyer may have second
thoughts about moving forward on the
transaction. After the buyer completes the due
diligence process (which includes reviewing the
books and records, completing physical
inspections and getting approval from the
landlord for an assignment of the existing lease
or negotiating a new lease), the buyer may
develop reservations about moving forward. If
the business is a going concern business and the
buyer plans to continue the existing operation,
the buyer, after further consideration, may
conclude that that he or she is not capable of
maintaining the same business activity level as
the current owner. If the business is an assets
sale and the buyer has to change the menu and
concept and complete some remodeling, the buyer
may think that the original income and expense
projections are not achievable.
3) Family problems.
Restaurant, bar, and night club businesses
require long hours. In some cases, family
pressures regarding lifestyle priorities may get
in the way of the buyer’s ability to close the
transaction. Lifestyle priorities is the balance
chosen between time spent in the business and
time spent with the family, and the family may
not be supportive of the time requirement
necessary to run the business. Various family
problems may develop with the buyer or with
family members after the purchase contract is
executed. These may include a pending divorce,
health problems with the buyer or members of the
buyer’s family, or the necessity to relocate due
to personal family needs. Although many of these
issues can not be anticipated, the broker
reviews the buyers background to help get an
understanding of their chances for success in
the business.
4) Can’t qualify for necessary business
licenses.
There are various requirements for obtaining
certain licenses such as the ABC license
(alcohol license) whereby the applicant can’t
have any past felonies or DUIs (driving under
the influence citations). Checking these aspects
of the buyer’s history is part of our initial
screening process.
Restaurant Realty
Company, having completed over 500 transactions, has
experienced most of the situations above which has
given us the ability, in many cases, to eliminate or
minimize these problems and get the deals closed.
Jacek Rosicki
Agenda Restaurant Bar & Lounge
Jacek Rosicki came to this country from Poland
in 1979 and landed in Long Island, New York. He
started as a houseboy washing floors in a hotel and
then moved to Hartford, Connecticut where he worked
as a busboy in an Italian restaurant. He then
came to San Francisco and worked as a waiter at
Alexis, Ernie's and L'Etoille restaurants before
starting to work in the real estate loan business in
1984. He eventually opened his own mortgage company
which he had until 1989.
Jacek always wanted to get into the nightclub
business and in 1989 he opened his first nightclub
called Vortex in Palo Alto (a 10,000 square foot
venue which subsequently turned into the Edge and
then the Icon). Jacek also owned and operated the
following businesses in his career: Club Oasis
in San Jose from 1990-1996, Mothers Teen club in San
Jose from 1990-1992, Eleven Restaurant and Night
Club in San Francisco from 1992 to 1996 (which
Restaurant Realty sold), the B Hive night club in
San Jose from 1996-1997, Zoe in San Jose from
2003-2005 (a 12,000 square foot night club), and
Agenda Lounge, a 9,000 square foot restaurant with 3
nightclubs which Restaurant Realty Company recently
sold.
Jacek's continued success is a result of his
hands-on approach to running his businesses and his
handling of the promotional activity himself. We
wish Jacek continued success in all his future
endeavors.
