When a restaurant is not showing any income or is losing money, an owner can decide to sell all of the assets instead of the business itself. This is called an asset sale. An asset sale will include all of the physical assets of the restaurant including the leasehold improvements, furniture, fixtures, equipment, leases, licenses. A discounted asset sale can also be called a liquidation sale.
What is the Difference Between a Restaurant Asset Sale and a Business Sale?
A restaurant can be sold as a business sale: real estate or property lease and leasehold improvements, entertainment or liquor licenses (subject to state regulations), restaurant name, franchise rights, branding, online assets, website, social medial accounts, review sites accounts, furniture, fixtures and equipment, contracts, equipment leases, menu and receipts, owner training, goodwill, customer list, customer loyalty, name recognition, time in business. Asset sale: real estate or property lease and leasehold improvements, entertainment or liquor licenses (subject to state regulations),
The difference between a restaurant asset sale and the sale of the business is an important difference to understand – both for buyers and sellers. The asset sale does not include the sale of the actual business or going concern. Everything associated with the business name and reputation will still belong to the seller.
A buyer of a restaurant asset sale would not be able to use the business name, franchising, and branding. The business’ goodwill including the customer list, customer loyalty, and name recognition would be lost.
If these items have tangible value, more than likely, the restaurant owner would pursue the sale of the restaurant as a going concern or operating business. A business sale is generally worth more than an asset sale.
Why Would a Restaurant Owner Agree to an Asset Sale?
First, let’s state what may not be so obvious – not all asset sales are because of restaurant failure. At times the owner is suffering from burn out. In this case, it could be a simple matter of better customer service, better accounting practices, more qualified staff, or a change in cuisine could reverse a downward spiral.
In other occasions, the business may not have any problems at all. Because of a sudden change of circumstances, the owner may need to rapidly sell the business. A restaurant asset sale will sell much quicker than the higher priced business sale.
In some instances, however, the business does not have a positive cash flow and has not had one for several years. In this case, there is virtually no business value and an asset sale is the only viable option.
Why Would a Buyer Purchase only the Restaurant Assets?
There are many buyers that would prefer the direct purchase of a restaurant’s assets rather than the business opportunity. Let’s look at some of the reasons why buyers are interested in restaurant liquidation sales.
Its Cheaper than Starting a New Restaurant
Building a restaurant from the ground up is a very expensive proposition. First, the new owner needs to find the ideal location. Once a location is secured, either through purchase or lease, then they will have to put in a considerable sum into tenant improvements.
An asset sale gives a buyer the opportunity to secure an existing location with all the tenant improvements being in place. While the existing business was not as profitable as anticipated, that does not mean that it is in a poor location. It could have been poor management or an unpopular menu, but the location could be spot on.
Additionally, a restaurant asset sale allows the buyer to purchase everything that is needed to run a business – even down to the forks and spoons. Because all of the furniture, fixtures and equipment are sold at their current depreciated value, a restaurant asset purchase will cost considerably less than purchasing all of the items new.
It Saves Time and Energy
Getting a new restaurant up and running is very time intensive. The work starts well before the grand opening. Buying an existing restaurant’s assets, leases, and contracts can save hundreds of hours of work and greatly reduce start-up stress.
Special Considerations in a Restaurant Asset Sale
The key to completing a successful liquidation sale of a restaurant’s assets is to put everything down in writing. Because the sale includes less than what meets the eye, it is imperative that the seller and their restaurant broker clearly state what is and what is not part of the sale.
Asset Sale Disclaimer Form
Some business brokers have restaurant buyers sign an Asset Sale Disclaimer as part of the purchase agreement disclosure addendums. The disclaimer defines what is included in the sale. It should contain a statement similar to “You are purchasing this business in its present physical condition “As Is” with no warranties implied or given.” The buyer should review and acknowledge receipt of the disclaimer by signing.
Transfer All Contracts, Licenses and Permits
There will no doubt be contracts that are associated with the original business name that will need to be transferred to the purchaser. This would include assigning the lease and any other equipment leases. Agreements and contracts with suppliers should be transferred. If state regulations allow, the seller will be able to sell their entertainment or liquor license. In many states, these licenses can have considerable value.
Before you decide to sell your business, ask yourself if you are selling only the assets or also the business name, reputation, and goodwill. If you need a quick sale or the business has not and is not currently profitable, an asset sale is a very good option. Just remember that an asset sale will only include the building, either the sale of the title or transfer of the lease; the furniture, fixtures and equipment, and any transferable licenses, contracts or equipment leases.