- Your pizza restaurant will be valued based on the prior year’s financial performance, so you’ll need at least two years of financials and, ideally, a positive gross-revenue growth trend.
- If you have a sale price you believe you “should” get for your business, ask yourself: Would I pay that amount to have to do all the work I currently do to make my level of net income?
By Bryan Vitagliano, Strategic Business Brokers Group
Selling a pizzeria can be a complicated process because of the emotional attachment the owner feels for their business. Often treating their restaurant like an extension of themselves, owners generally look to sell to a party capable of continuing to operate the business at the same level they did. Not only is the owner looking to capitalize on the successful business they built, but also take care of the employees and customers by transitioning the business to someone who will care for them in the same way.
I have helped countless entrepreneurs and restaurateurs sell their businesses, so here are a few tips to position your pizzeria to sell at its highest price.
When Is It Time to Sell?
The process of positioning your restaurant for sale can never start too early. However, regardless of when the process begins, your business will be valued based on the prior year’s financial performance. So, if the goal is to maximize the payout on the sale, then you will want at least two years of financials and, ideally, a positive gross-revenue growth trend. This will make your restaurant more appealing to potential buyers and, simply put, a pizzeria that makes money is easier to sell than one that does not.
Selling a restaurant is a full-time job. Between marketing the business with a level of confidentiality and vetting the financial position of the buyers, there is not much time to spend actively running your pizzeria. As an owner, the last thing you would want is for your business to suffer because your time has shifted to selling the business rather than running it.
Contacting a professional business broker to provide an opinion of value and guidance will serve you well, as your focus can be the continued success of the business while your agent works to bring in qualified buyers for its purchase.
It is rare to find an owner who can objectively price their business, especially since they are not actively selling different types of pizzerias regularly and it’s difficult to remove one’s emotions from the valuation. Like all economics, the market sets the price at which the business will sell, and there are a number of variables that either add value to or reduce value from your business.
A helpful exercise involves putting yourself in the position of a prospective buyer. Ask yourself the tough questions and look objectively at your role as the owner, number of hours you put in the business a week, duties and responsibilities, and the net income. If you have a sale price you believe you “should” get for your business, ask yourself: Would I pay that amount to have to do all the work I currently do to make my level of net income?
For example, if you wanted $250,000 for your pizza shop and you consistently made $80,000 a year working 40+ hours a week, ask yourself: Would I pay $250,000 to buy myself a job that pays $80,000 a year? This is the first question any buyer will ask themselves when presented with the asking price and cashflow amount of a business on the market.
Working with your broker, you will gain a better understanding of the market and how potential buyers approach a purchase—thus helping to put all the pieces in place to increase the appeal of your business for acquisition.
Determining Sale Price
As mentioned briefly above, the value of your pizza shop depends on several variables. These include, but are not limited to, financials, the owner’s role and number of hours a week spent in the business, organizational structure, presence or absence of management or key employee(s), quality of the financial bookkeeping, level of cashflow, and how the business is trending year over year.
Ideally, financials should consist of the last three years of income statements and balance sheets along with corresponding tax returns. A profitable pizzeria is valued based on the seller’s discretionary earnings. These earnings are the pretax and pre-interest profits before non-cash expenses, one-time investments and any non-related income expenses. The higher the discretionary earnings amount, the greater the multiple of that number the market will bear, thus, allowing you to sell for a higher price.
Maintain Your Equipment
You should maintain high quality standards throughout the period you are actively trying to sell your pizzeria. No one wants to purchase a pizza shop they would not eat in themselves. A clean restaurant gives the impression that you care about the business, and this attention to detail will also strengthen the buyer’s belief in the accuracy of your financial representations.
A buyer will also be hesitant to spend top dollar to purchase a business that requires immediate repairs to the equipment. Either replace the equipment or be prepared to be asked to adjust the sales price following due diligence. I am not advising that you spend money to upgrade your restaurant with the sole purpose of getting a better price—something that is common in residential real estate. Just maintain your equipment, and keep both the front and back of the house clean.
Maintain a Strong Online Presence
Smart buyers will do their due diligence in researching your business. They can easily see the public’s perception of your pizza shop through online reviews. Maintaining a good reputation while obtaining new five-star reviews is important. Good reviews go a long way in solidifying the goodwill associated with your pizza shop.
Bolster your positive reviews while driving down any old negative reviews. You drive down negative reviews by asking happy customers to post positive reviews. Pizzerias with negative reviews are often unappealing to buyers, since a majority of what they are purchasing is the goodwill of the business.
Familiarize yourself with common complaints, such as cold food or slow service and fix those issues before a potential buyer sees them. Being familiar with the complaints will help you be prepared to answer questions relating to these complaints from prospective buyers.
Respond politely to negative reviews about your pizza shop. This shows you take an interest in all aspects of the customer experience. Improving these issues today will help your chances of selling your pizzeria for the highest value in the future.
These situations are perfect examples of why planning an exit is so important. A two-year gap since your last negative reviews will make it easier to sell your pizza shop.
Selling your pizzeria can be a complex and personal process. But hiring a reputable broker—and developing a plan together to position your pizzeria in the best possible light—will put more money in your pocket.
Bryan Vitagliano is the leading restaurant broker at Strategic Business Brokers Group, a brokerage firm in Scottsdale, Arizona. Collectively, they have helped dozens of restaurant owners sell their business.