Lesson 9: Exit Strategy
Every journey comes to an end eventually. Whether you’ve run your restaurant for a year or 30 years, there will be a time when you will want to retire, sell or close your doors. This lesson will walk you through the different options when “closing time” finally rolls around.
Exit Strategy
Options (continued)
Selling the business to someone you know
Suppose your business still has some zing in it, but you’re personally out of gas. In that case, you can consider selling your restaurant to a friend, customer, family member, business partner or manager looking for their next investment. To ensure the deal goes smoothly, you want to engage the services of an attorney to guide you before, during and after the sale to minimize risk and any unpleasant surprises.
Pros
- The buyer knows your business and you, so less due diligence is required.
- The buyer who has a similar vision will preserve much of the business you built.
- The transfer can be gradual, allowing you to continue to receive income while the buyer learns the business, making payments rather than cashing you out all at once.
Cons
- You may be less objective about the terms of the sale, let your guard down and leave money on the table.
- If you sell to a friend or relative, the relationship may be put at risk if some conditions or risks weren’t disclosed at the time of sale, such as back taxes or a pending lawsuit.
Return to Main Office
Courses
Introduction
1. Cottage Food Basics
2. The Business Plan
3. Pricing
4. Marketing
5. Food Booths
6. Food Trucks
7. Pop-Ups
8. Brick & Mortar
9. Exit Strategy
Selling on the open market
A restaurant can be a very attractive prospect to an entrepreneur who doesn’t want to start from scratch. This is a good option if you have a restaurant in a good location, a unique value proposition or a popular chef who would be willing to stay on.
Pros
- If your restaurant is in reasonably good financial shape, it will likely attract quality, qualified buyers.
- The business’ goodwill can be part of the company’s valuation since the buyer will derive value from the existing relationships and brand goodwill.
- You can offer to stay on in a consultant role for a period of time as part of the sale.
Cons
- It can be a long process to find the right buyer in the open market.
- Putting a valuation on your business can be complicated, and you may not get the sale price you were hoping for.
Selling to another restauranteur
This is a fairly common practice, especially if you have a prime location. Yes, selling your restaurant to a one-time competitor can be hard, but your competitor may be willing to pay more to reduce their competition. You will want to hire an attorney to spell out all the terms to protect your interests.
Pros
- Your competitor may be willing to pay a higher price for your company than you could get on the open market.
Cons
- The sale may create a culture and systems clash between the two businesses.
- Some or many of your employees may be laid off or reassigned to new roles they don’t like.
Selling to employees (ESOP)
If your restaurant has become a local institution or has a lot of community goodwill, an Employee Stock Ownership Plan (ESOP) can be an excellent exit strategy. Your employees helped you build your business and will serve as trusted custodians of it going forward. They want the restaurant to thrive and grow as much as you do.
ESOPs are typically created through a pension plan that 1) invests most of the employee’s pension money into the company, and 2) workers may borrow against future corporate earnings to purchase additional stock. Money or stock the business contributes to take the plan is tax-deductible.
They can, of course, invest their own money or raise funds from the community through a crowdfunding drive.
Pros
- ESOPs stabilize local economies because ownership stays in the community.
- The transfer of ownership allows the owner to cash out when they retire, knowing the company is in good hands and that all their hard work will go on.
- Employee-owned companies are less likely to lay off workers in economic downturns.
- Employees accumulate wealth through their shares. As such, they have a vested interest in the company’s profitability and growth.
Cons
- Set up can be complex and expensive, so you’ll need to bring in an ESOP specialist to navigate the transfer of ownership.
- Only corporations can form an ESOP.
If your restaurant is small (fewer than 25 employees), profitable and debt-free, you may also consider a worker-owned cooperative where you sell the business to a group of interested employees through a traditional sale. You could also sell it to a single, such as your head chef or a member of your management team.