Selling a café or any hospitality business is not like selling a business in (most) other industries. I am sure that I don’t need to spell out the main difference, the subject of the “C” word is probably a whole post on its own.
Whilst the cash side of things can add confusion and complication during the process, especially if you are trying to explain the situation to a newcomer to the industry there are ways to make it easier on yourself.
The Sale Process has three distinct stages that when followed correctly make life much easier, in this post we look at a few things to consider in Stage One – Planning
Stage One of Selling a Hospitality Business– Planning the Sale Properly – Ten Quick Tips
If you skip this stage then you can run the risk of coming across nasty surprises later on that can stall the sale, for example, problems with your lease or financial planning may mean that you end up with less from the sale than you expected.
I have had both of these things happen to me and trust me it can be pretty upsetting. When I sold my second shop I overlooked the fact that the sale triggered a capital gain. Basically, the government ended up doing nearly as well from the sale as me although it had been me slogging it out building the business up.
To make this even worse my accountant later told me that we could have avoided most if not all of the tax with proper planning – A very expensive lesson! That was about twenty-five years ago now and writing about it now is still upsetting me, don’t let this happen to you.
When you get the planning stage right you go into the sale knowing exactly what you need to sell for to move you on to the next stage of your life after clearing all of your liabilities.
It’s easy to overlook some of the fees involved in relation to the sale, things like the landlord’s legal fees, managing agent’s fees and so on.
Going into the sale with a clear plan makes sure that you are fully aware of everything that you are going to need to pay out and gives you the time to make sure you sell for the right price. Getting this stage right helps you to keep the sale on your terms.
Here Are Ten Key Things To Consider In The Planning Stage:
✅ Check your lease – Make sure that there is nothing in your lease that could slow the sale down.
Finding things like the DA usage not matching the permitted lease use, and differences between outgoings in the lease and the lease disclosure document can really slow things down at the later stages of the sale.
Savvy buyers will always focus on the lease early on so it’s a good idea to know the key points so that you can answer questions quickly and get the deal moving. Things like what level the annual increases are, and is there a market review in between terms? How much is the bond etc.
✅Make sure that you have a copy of your current DA and occupation certificate handy. These are almost always requested so it is far better to dig them out now rather than keeping a buyer waiting for them further down the track. Also, make sure that the permitted use on the lease matches what the DA allows.
✅ Speak with your solicitor – If you are not confident reading the lease then ask your solicitor. It’s a good idea to put them in the picture about your plans at this stage as well, we have a list of questions that we like to suggest our clients ask their solicitor.
✅Check the assignment clause in the lease, this will outline the terms and conditions about you coming off of the lease and the buyer going on. This clause will (usually) also outline that you are responsible for all of the associated costs of the assignment. We have a way of reducing this which we will cover in stage three (upcoming post) once the sales advice is given to the solicitors.
✅ Get your books up to date – If you are not already up to date with your numbers then this is a must, getting the price right (next stage – preparation) will depend a lot on the numbers so make sure they are right!
✅ Speak with your bookkeeper and accountant and let them know about your plans, get them to help you prepare all the financial info that buyers are likely to ask for.
✅ Once you have accurate date figures ask your accountant what they think the value of the business might be. Generally speaking, this figure is usually a long way off the actual market value so don’t stress too much if it’s not in line with what you are expecting.
The reason for doing this is to get an idea of how a buyer’s accountant might appraise the business, this gives you the chance to proactively push the value and overcome any potential objection before the buyer takes the figures to their accountant.
✅ Get on the front foot with your tax – Make sure that you know what any tax liabilities might be and get some advice on what the split between apportionment and goodwill should be when you sell.
Based on your business and personal tax situation your accountant will be able to give you advice on how best to split the sale price % wise. Knowing this upfront will allow you to get this into the contract of sale early on and potentially reduce that amount of negotiation around this point.
✅Check and double-check your outstanding liabilities when you sell. Make sure that your accountant gives you a clear idea of what you would need to pay out when you sell. Don’t overlook things like lease agreements and loans etc.
✅ Check your agreements – If you have equipment “on loan” like coffee machines, grinders, POS Systems, sparkling water systems etc are the agreements transferable or will you need to pay out a sum to break the contract?
I hope this gives you a bit more insight into some of the first things that you should be considering and doing when selling.
In the next post, I will cover the second stage – Preparation. Getting these two stages completed thoroughly will make a huge difference not only in the time that it takes to sell but also in the price that you can expect.
If you would like to learn more about preparing your cafe for sale then feel free to book in a call with us. On this 30 min call, we will cover the following with you:
- What the current market value of your cafe might be.
- The steps you need to take to prepare for the sale.
- What the market is like at the moment.
- How to make sure that your cafe stands the best possible chance of selling.
There is no charge for this call and there is no obligation. At the end of the call if we think that we can help you we will let you know about how we work and, if we don’t think we can help we will give you some advice about alternative options.
Either way, you will come off of the call with a much clearer idea about the potential value of your business and what you need to do next to achieve a sale.
Click on the link below to book a time that suits you best.
