At Sofranko Advisory Group we often see businesses when they are failing. There are a number of operators that are in trouble for whatever the reason may be. There are also a number of buyers that are interested in buying these failing businesses. The buyers that tend to focus on this type of business opportunity are experienced operators with a successful track record of operating profitable restaurant, bar and/or night club businesses. The major benefits these buyers seek in this type of turnaround are as follows:
Negotiating More Favorable Lease Terms with the Landlord
We see situations where owners/operators are no longer able to afford their rent payments, and are susceptible to being evicted from their location. Operators have nothing to sell if they no longer have physical possession of the premise. These pecuniary difficulties often times provide the buyer of a troubled business the occasion to renegotiate a more advantageous lease terms and conditions, as the landlord is more sensitive to the needs of the buyer. Ultimately the landlord wants the buyer to succeed, so as to assure himself that he’ll be paid timely without any hassles. Unambiguously the new operator can negotiate lower rents, some free rent and in some cases have the landlord make a financial contribution to the new buyer for remodeling. Also the landlord is motivated to work with the new buyer of a troubled business as he doesn’t want to incur attorney’s fees, loss of rent as well as to have to pay a leasing commission if the space goes dark.
Negotiating a Good Deal with the Seller
The buyer will in many cases be able to purchase the business more reasonably for well below the replacement cost. A seller in a troubled business is motivated to sell the business quickly and will frequently cut the sales price far below the asking price. There have been situations where buyers pay very little cash and have the seller carry back the balance of the purchase price in the form of a seller carry back note paid over several years with no interest or at a very low interest rate. There are also situations where the seller would rather get an all cash price and not carry a seller carry back note in which case the seller will discount the price even further to get all cash. In some cases the seller will include at no extra cost to the buyer the alcohol inventory or other saleable inventory such as food, paper products or cleaning supplies to help sweeten the deal for the buyer. There have been some situations where there is little or no cash paid to the seller and the buyer merely assumes the sellers debt which may include the buyer assuming the sellers accounts payables and/or assuming the buyers equipment lease, etc.
If you are an experienced operator and are looking for an opportunity to turn a seller’s failing business into an opportunity for yourself, please contact us as we have currently have many of these opportunities available.