Negotiating a Sale
It’s time to begin negotiating a sale.
In the previous section, you screened potential buyers, invited qualified buyers to visit your restaurant, and walked them through the property.
This next section guides you through the process of negotiating a sale to a buyer who is seriously interested. In this section, you will:
- Prepare for a common negotiation tactic that buyers use
- Learn a valuable tactic for achieving your desired price
- Acquire all necessary documents that begin formalizing your sale
- Open escrow
How to Handle Lowball Offers Negotiating a Sale
Rule #1: Don’t take negotiations personally.
There is a good chance you will receive some lowball offers and possibly some negative remarks about your restaurant to justify the buyer’s low offer.
Price is only one of the deal terms you will need to agree on with the buyer.
Depending on your situation, a short escrow and being released from your lease obligation may be more important than price.
If you are having trouble achieving your price you may consider providing financing for part of the sale to achieve a higher price.
For example, if you want $125,000 and the buyer only has $100,000 available, you can offer to provide a loan of $25,000.00 to be paid over 12 or 24 months.
In this situation, you will want a lien on the equipment, and there is still a risk that the buyer could default before you are paid in full.
But if you collect payments for 12 months, you will still make more money than accepting the buyer’s current offer of $100,000.00. In addition, you will have a lien on the assets.
Preparing the Offer
If you are working directly with a buyer there is a good chance they will not have a Purchase Agreement.
You can advise the buyer that you will prepare a formal agreement upon receipt of the basic deal terms.
You can request that the buyer send an overview of terms.
This should include price, length of escrow, and any other terms required.
Once you receive the terms you can prepare a Letter of Intent (LOI) or a formal Purchase Agreement.
A Letter of Intent is typically a non-binding agreement used to summarize the basic deal terms to be incorporated into a Purchase Agreement.
A Purchase Agreement is typically a binding document and used as the basis to prepare escrow instructions in states that use escrow.
If you have questions about the purchase agreement, you can retain an attorney or professional to advise you or help prepare the paperwork.
Terms Included in Offer Include:
- Purchase Price
- Initial Deposit
- Increased Deposit
- Terms of financing if applicable
- Date Escrow will close
- Contingencies of Sale
- Name of an escrow company
- How costs of escrow will be paid
- Description of assets included in the sale
- Inventory ( if applicable)
The Seller should prepare two originals for signature by both Buyer and Seller.
It is customary to collect a deposit check from the Buyer in an amount equal to 10% of the purchase price.
The check should be made payable to the escrow company if escrow will be used.
Proof of Funds
Prior to opening escrow, verify that the buyer has enough funds available to complete the sale.
Determine if you will require the buyer to remove some contingencies prior to opening escrow.
If you have completed the steps above you now have an accepted LOI or Purchase Agreement, have verified the Buyer’s funds and you are ready to open escrow.
Time to open escrow. Part 5:What is Escrow.
My husband has come across a closed restaurant in Fairfax, Virginia that’s up for sale. Cost of the restaurant is $18,000.
However, the owner is asking for a check of $7,500 just to view the restaurant. Owner says deposit is going to be returned if my husband decides not to go ahead with the sale after viewing.
Is taking a check from a potential buyer the norm in the restaurant business? This is something new for us as we have viewed a few restaurants earlier and everyone we’ve met so far is happy to walk us through their restaurant whether closed or not.
Any advise is appreciated.
Duncan Lance says
I do like that you recommend hiring an attorney to help with the paperwork. After all, when you’re selling a restaurant there is a lot to take into consideration. For example, you will want to make sure stuff like the deposits and escrows are all correct.