Episode 159 Recap: Navigating the Restaurant Business with Brad Ruth
In Episode 159, Brad Ruth shared invaluable insights on buying and selling restaurants. If you’re considering entering or exiting the restaurant business, this recap offers a concise overview of the key takeaways.
Business Valuation for Owners: A Closer Look
When contemplating the sale of a restaurant, understanding its worth is paramount. Brad delves into several methods to calculate this:
- Comparing sales to similar businesses sold over the past two decades.
- Analyzing sales statistics and metrics.
- Estimating the value of equipment in the establishment.
- Considering the EBITDA.
- Evaluating the Cash Flow or Seller’s Discretionary Earnings.
- Employing a 5-10 year amortization schedule when structuring the purchase.
Notably, Brad emphasized that post-acquisition, the business should generate a positive cash flow for the buyer.
Finding the Right Match
It’s not just about numbers. The compatibility between a business owner and a potential buyer is vital. Brad suggests targeted email campaigns to complementary businesses as an effective strategy to find well-matched buyers.
Furthermore, he taps into an expansive network, including:
- An email list boasting over 1,500 potential buyers and private equity groups on the lookout for business acquisitions.
- Promotion on numerous platforms, from LinkedIn to specialized sites like BizBuySell, GLBA Inc. Website, BusinessBroker.net, and BizNexus.com.
The Ideal Buyer: Characteristics and Expectations
According to Brad, the perfect buyer should possess:
- Sufficient liquid cash.
- A commendable credit rating, preferably over 700.
- Relevant industry experience.
Additionally, Brad’s network offers both lending and legal expertise. He grants access to seasoned M&A attorneys and also provides coaching to prepare business owners for meetings with potential buyers.
Tax Planning: Saving Big on Capital Gains
Tax implications can’t be ignored. Brad recommends collaborating with tax professionals who can effectively manage tax liabilities, potentially reducing taxes by a staggering 30-60%. One solution he highlights is the Deferred Sales Trust, a strategy to defer capital gains tax.
What Attracts Buyers?
What are potential buyers seeking? Brad lists:
- Established Standard Operating Procedures (SOPs).
- Clearly defined job roles.
- A scalable business model.
- Trending and branded entities.
- Demonstrated sales growth.
- Transparent financial records.
- Predictable revenue streams.
- A competent and seasoned workforce.
Zooming in on the Individual Investor
Brad paints a profile of a typical individual investor:
- Someone seeking a fresh start, possibly after a job loss.
- Willing to invest significant capital, often upwards of $100k.
- Likely to leverage family funds.
- Keen on SBA financing options.
- Typically making their debut in business ownership.
- Driven by a desire to chart their entrepreneurial journey.
Competitors as Potential Buyers
Brad also discussed competitors or those with a similar customer base as potential buyers. These entities often aim for growth through acquisitions, eyeing various sectors from HVAC and plumbing to online businesses and insurance.
The objective? Acquire customer lists, expand services, and leverage skilled labor. As for financing, they might opt for bank financing, owner financing, or an earn-out strategy, which might necessitate the original owner’s involvement for a year or two.
In conclusion, Episode 159 with Brad Ruth offers a treasure trove of information for those keen on the restaurant business’s buy-sell dynamics. Whether you’re contemplating an entry or exit, these insights could prove pivotal.Episode-159
Brad Ruth, CBI
GLBA Business Advisors brokered by eXp Commerical