The 2025 Essentials for a Buyer and Seller to Evaluate the Purchase or Sale of a Food and Beverage Business

Irrespective of the challenges of the food and beverage industry there are still many opportunities for success in the industry. 

Those experienced food and beverage operators who are well capitalized who have a unique concept that has good price value coupled with a strong location with reasonable lease terms can be successful. 

These same principles apply to experienced food and beverage operators who purchase an already established profitable business too.

Please see below the key points that a buyer and seller need to know for purchasing or selling food and beverage businesses. Restaurant Realty is always available to assist with your questions.

For Buyers

1) Examine the sales trend of the business the past 3 years you are considering purchasing. In some cases, you will see a drop in sales in 2024 from 2023 due to the decline of consumers disposable income in most markets. If you see this to be the case you may want to evaluate the purchase as an asset sale whereby you put your own new concept into the location if the location is strong.

2) Study the area to determine what new head on competition may be entering the market. Choose a location that is built out to minimize your chances of new competition coming in the area which could cannibalize your sales.

3) Study the demographics of the location to determine if consumer’s disposable income will match the type of menu pricing and selection you intend to present. Determine the availability of the labor market for the location you are considering. In some locations throughout the state there could be a shortage of labor.

4) Make sure you use a Bulk Sales Escrow to facilitate the sale as there is successorship tax liability to the buyer in California. Successorship tax liability is applicable for any taxes the seller owes for state sales tax (CDTFA), franchise tax (FTB) and employment tax (EDD). By using a Bulk Sales Escrow, the buyer will get tax clearances from the above agencies.

5) Negotiate a favorable lease. Make sure you have minimally a 5-year base term with a 5-year option so you have enough time to amortize your investment and get a return on your investment. To make sure you are not paying over market rent and the terms and conditions are reasonable it is a good idea to use a restaurant broker that can advise you regarding the terms and conditions. An attorney can advise you on the legal aspects of the lease.

6) Understanding how to complete the due diligence process in the purchasing stage by review of financial books and records, physical inspections, lease review, transfer of licenses, franchise approval if applicable, financing, etc. is essential. This will help to make sure you are paying the appropriate price for the business. It is beneficial to work with a professional restaurant broker to make sure the business is priced properly.

For Sellers

1) If you plan to retire after the sale and are counting on the sales proceeds to make up the major portion of your retirement funds, make sure you have your accountant study the after-tax sales proceeds before putting your business on the market.

2) If your sales transaction includes a lease assignment and you have personally guaranteed the lease make sure your personal guarantee is removed at the time of the sale or shortly thereafter. This needs to be done because in California the sellers lease liability in a lease assignment continues unless the lease has expired or there is a clause in the lease whereby the sellers lease liability terminates at a certain point.

3) If you have accumulated tax losses in past years and your business ownership is a legal entity such as a corporation or limited liability company do not terminate the entity after the sale until you can use up the tax loss carry forward to offset your future tax liabilities.

4) If you are providing seller financing make sure the buyer is financially strong and owns real estate with substantial equity in it. If the buyer defaults on your loan and you must take legal action against him you will have a stronger chance of recovering your damages.

5) Work with a professional restaurant broker to make sure you are pricing the business correctly and not either underpricing or greatly overpricing the business. There always needs to be a little leeway in the pricing so you have room to negotiate if necessary.

6) Be aware that 2025 like 2024 may continue to be a buyers’ market. This is largely due to operators profit margins being reduced the past years because of increased operating costs. The rise has become greater than the operator’s ability to raise menu prices due to the drop of consumers disposable income.

If you would like to discuss any of the above items or any other questions you have regarding buying or selling food and beverage businesses, please contact Steve Zimmerman at 888-995-9701 or steve@restaurantrealty.com

Now celebrating our 29th year, Restaurant Realty Company® has a successful track record helping over 3,200 clients in completing over $1,000,000,000 (billion) in Business and Real Estate transactions including the following: Selling/leasing over 1,600 restaurant, bar and/or nightclub businesses, Selling over 75 related commercial buildings,  Leasing over 3 Million square feet of commercial space and Completing over 7,500 valuations. The majority of our staff have either owned and/or managed restaurants. Our deep experience as operators means we understand your business from the inside out. Restaurant Realty has closed escrow and/or leased 400+ Deals since 2020.