Same question...sorta

[Kris]

Okay, so I totally need to beat a dead horse…again.

We are selling our building and equipment. NOT the business because our 1st location will stay open in a nearby town.

Our broker wanted a list of equipment and the value. Fine, we gave it but told her we don’t really want to list the value separate because I don’t want to get into the nickel and dime kind of sale. It is all or nothing. The building and the equipment. I don’t want a buyer to say…okay you value the equip. as $$$ and we think it is worth yyyy. Or we don’t want the ovens etc. It is a package. She agreed and said it was to just value the property.

She also asked us our gross sales when we listed to VALUE the property. We said fine and told her we only want it used to value the property and not to disclose it to buyers.

She wanted a P&L statement , we said no.

They keep asking for the P&L (via email) and referring to the gross sales and the equipment value as already in “the file”. She refers to the file she has and the list of things she needs in the file for prospective buyers. She mentions gross sales and equipment value and the P&L. I keep reminding her I don’t want these things disclosed.

Am I way off here? Should I just disclose it and get this over with. Is it reasonable for me not want to disclose this stuff. I guess in the end does it really matter if I disclose it or not?

I just want some input from those of you who have bought or are selling.

Kris

 

[Penelope]

Kris, I would feel the same way as you if I was selling a building and equipment of not wanting to disclose my P&L.

but if I were buying the building and equipment—I would want to know the costs associated with the building.

If you haven’t already, you will want to give the agent your utilities (gas, electric, phone, etc) bills, property taxes, Insurance, building maintenance and repair and any other costs that are directly related to that location.

as far as food, labor and advertising, it really shouldn’t matter to the potential new owners

 

[pizzachop]

Kris,

I can understand your position of not wanting to disclose any more financial info than you must, but from a buyer’s perspective, wouldn’t you want to know the viability of the location for another restaurant (assuming that is what they would utilize it for, especially considering the equipment comes with the deal)?

It seems to me that this would be a selling point (adding value to the sale) if you can show the profits produced by the location. I mean, why else would you purchase a a building and equipment than to do the same?

The equipment, fixtures, and building are really no more than inanimate objects without a prime mover with a solid plan and a whole lot of energy. A location is only valuable for its moneymaking potential. You cannot blame any buyer (and hence the broker) from desiring a little more information regarding the performance of your restaurant.

Frankly, a buyer would be crazy not to insist on that information (though you are fully within your rights to withhold it). The fact is, you’re getting out, and in their mind, the only reason you’d do that is if it were not profitable. (We know the real reason but the buyer may not be assured of that unless he/she sees some hard numbers.)

If you’re worried about competition, you can’t really prevent it anyway if you’re selling. But you’ll probably sell it for more and more quickly if you disclose the financials (assuming they show a decent profit.)

 

[bodegahwy]

Here are some other perspectives:

By selling the equipment with the building, you are saying that either you expect to sell to an operator that will go into the same business or that you just don’t want to deal with disposing of the stuff. As a buyer I would be interested in the equipment if I were going into the restaurant business, otherwise, I would just assume that I would dump the stuff to a broker and would discount the net of that process from total value when I looked at the deal. Whether the total asking price was combined or separate, I would do it the same way.

Buyers often ask for the pricing rational. Brokers need to be prepared to give it.

Building and equipment are fundamentaly separate. There are several good reasons to do it the way your brokers is asking you to:
a. Tax law requires it.
b. The equipment will be sold on a bill of sale where the building will transfer with a deed.
c. The buyer will want value assigned to the equipment so it can be written off. The equipment can be expensed or depreciated depending on other circumstances, but either way the tax benefit is a LOT better than it is on the building where the depreciation is 39.5 years.
d. The building value is tied to its ability to generate income and to other recent sales in the area. The equipment IS extra. Contrary to your thoughts, separating them will, in all probability, increase the value rather than the opposite as you suggest.

You can still have a total value that you want, but real estate sales ARE negotiations. You can budge or not budge as you want but most folks want some give and take. You can list with a total combined price, but any good buyer is going to want them broken apart in the contact at least for the tax reasons mentioned above.

Not to be a pain, but what is the big deal about disclosing the numbers for a business you are closing down? How exactly does it impact you AT ALL?

At a minimum, disclosing total sales helps a buyer determine whether the location will produce the cash flow needed to support the occupancy costs.

Don’t get your shorts in a bunch about “the file”. The broker wants to be ready to answer buyer’s questions with information that will support the value you are asking for.

My suggestions:

Push the building value as high as you can for an asking price, but one that is supported on the property alone.

Find out what a broker will give you for the equipment and ask 2-3X that much.

Add the numbers together for the listing price if it makes you more comfortable but be prepared to discuss it when it comes to how the numbers are used in the contract and at closing. You can still negotiate just a total if you prefer to, but you most likely will end up discussing them separately and for good reasons.

At a minimum, disclose total sales. (I really don’t see what the downside is) If the numbers do not support value, you can instruct the broker to say that “management issues are the cause of the sale, not the location.”

I hope that helps,

Bodegahwy,
Pizza store owner AND licensed real estate broker (business broker)

 

[pizzachop]

Okay, I retract my input. (I didn’t read your post thoroughly enough.)

If you’ve already given gross sales and you’re not selling the “business” , you’ve obviously given enough. Utilities, taxes and insurance would be expected, but a P & L does seem a bit much.

 

[Kris]

We have decided to give any information off our P&L we think the buyer would want to know in relation to the building and equipment. Things like insurance, utilities, repairs etc. If a buyer MAKES an offer and still has a need for my salary, advertisement budget, payroll, food cost we can revisit it then.

I truly appreciate the replies. This is all new to me and I normally feel educated on things I am involved in, this is one I am finding I am not.

We still have not shown our place, no offers or anything so why this information is sooooooooo important right now is a bit odd to me.

Kris

 

[bodegahwy]

Staging information as you are planning is a good way to go. Your listing broker can manage the process that way. My own approach is generally like this:

1. Public information: What is for sale? and What is the asking price? In this case, the building and a list of included equipment. Other basic facts like the age and condition of the property and items for sale, the property taxes, square footage, utility services available etc
2. After qualifying the potential buyer for serious interest and the financial ability to consumate a deal of the size in question: Gross revenue, rough approximation of sellers discretionary cash flow. Rent information on a building, details about property associations etc.
3. If there is serious interest at this point and AFTER getting buyer’s financials and a signed non-disclosure agreement: Full financials with business details.
4. With an offer on the table supported by earnest money: Pretty much anything the buyer wants to see. Tax returns limited to the first two pages and the “other expense” summary. I do NOT provide depreciation or amortization tables or balance sheets. Those are not neccessary for a buyer to understand the opportunity and they are specific to the owner and the choices they made over time.