We at Penthouse Advisors Prioritize in Building Strong, Long-Term, Relationships with Business Owners, Business Investors, Property Owners and Buyers.
Our Protocol is to Disclose everything Discovered by and between the parties
RESTAURANT SALES, ACQUISITIONS, AND LEASING
COMMERCIAL PROPERTY FOR LEASE
RENT NEGOTIATORS
ALCOHOL LICENSING
HEALTH DEPARTMENT PERMITTING
PENTHOUSE ADVISORS INC., ADDITIONALLY LISTS HOMES AND CONDOS FOR SALE.
BUSINESS & HOUSE VALUATIONS
PROPERTY INSPECTIONS & REPAIR
INSIGHT
SECURITY DEPOSIT: A Property Owner will typically keep the Sellers existing security deposit provided when initiating a lease for a restaurant space.
- EXAMPLE: The new restaurant owner (the buyer) will typically reimburse the Seller for the amount of the security deposit paid to the Property Owner. This transaction is usually outlined in the settlement statement during the sale.
- EXAMPLE: This arrangement avoids the Property Owner having to refund the deposit to the Seller and then collect a new deposit from the Buyer, streamlining the process, according to Penthouse Advisors INC.
ASSIGNMENT OF LEASE: When the Seller has significant time remaining on the Lease an assignment of lease is drafted when Selling or Buying a Restaurant, Business or Asset Sale. With an assignment, the lease is transferred to the Buyer, and the Seller remains on the lease as a guarantor. It is good if the Seller is financing a portion of the sale price because this will enable the Seller to take the business back if the Buyer defaults. Real bad if the Buyer defaults on the lease, whereby the Seller is held liable for the past due back rent.
FINANCING A PORTION OF THE SALES PRICE: We start off by negotiating some form of seller financing, which is called a “Seller Note.” When Seller Financing, the Seller receives a down payment (usually 50%) and monthly payments until the Buyer pays in full.
EXAMPLE: If the purchase price is $450,000 and the seller is willing to finance 50% of the purchase price, the buyer puts down $225,000 and makes monthly payments on the remainder until the remaining balance of the seller’s note is paid in full. Most sellers offer terms ranging from three to seven years.
- MAINTAINING WORKING CAPITAL: Require that the Buyer meet certain specifications or financial benchmarks after closing, such as maintaining a minimum amount of working capital or inventory.
- OPEN BOOKS: Request access to financial statements and Monthly POS, during the term of the loan. This should enable the Seller to spot and help correct problems early on.
- LEASE: Remain on the lease during the duration of the note, as stated above.
- LOWER TAXES: The Seller doesn’t pay taxes until they receive the the final payment balance zero.
- NON-NEGOTIABLE NOTE: Be sure that the note is structured so it is “non-negotiable.”
- KEY-HIGHER SELLING PRICE: Businesses that include seller financing sell for 20% to 30% more than businesses that sell for all cash.
- FAST SALE: Businesses offered with Seller Financing are easier to sell than a business offered for all cash.
AMORTIZATION: BUYING AND OR SELLING A RESTAURANT BUSINESS: Amortization refers to paying off debt, in installments, through a fixed repayment schedule. Or, amortization is the process of paying off a loan over a period of time.
EXAMPLE: Let’s say the Buyer purchases a business for $10,000,000 and has a down payment of $7,000,000. If the Buyer takes out a loan for the remaining $3,000,000, which the Buyer will repay monthly, plus interest, the Buyer will be required to pay the interest on the loan plus a fixed amount of principal. If the Buyer is paying off this loan in equal installments over the life of the loan, your debt is amortized. A majority of the Buyers monthly payment at the beginning of your loan goes to interest, with the remainder going toward the principal.
The farther along the Buyer is in paying off the debt, the more of the payment goes toward the principal. In our example above, if the debt is amortized over ten years, the Buyers monthly payments for the $3,000,000 loan would be approximately $33,000 per month. Most of this would go toward interest initially, but toward the end of the amortization period, most of the $33,000 is going toward principal, resulting in the debt being paid off in the planned time of ten years.
BUYER DEFAULTS: When a Seller is financing a portion of the sale, the Seller should think and act like a bank and fully qualify the Buyer financially, 3 Bank Statements from the same account showing liquidity (preventing in out cash transfers) and background checks, before committing to the Buyer.
EXAMPLE:
- Bank Accounts Showing Liquidity as stated.
- Credit report.
- Work related Resume.
- Selecting a Buyer that will succeed from an operational standpoint.
- No down payments below 30% of the agreed purchase price.
- A strong promissory note should be drafted with clauses that directly address non-payment and late payments.
- A Uniform Commercial Code (UCC) lien should also be filed on the business, preventing the buyer from selling the business and or the assets during the term of the note.
- If the buyer is an individual, negotiating to collateralize the Buyer’s personal assets in addition to the assets of the business.
- The buyer must maintain working capital, monthly or quarterly financial statements are to be audited by the Seller.
INTEREST RATES: Interest rates charged on promissory notes are 6% to 8%, but the rate can depend on the amount of risk involved. Other factors include Buyer’s credit score, experience, financial position, and amount of the down payment.
SELLERS DECISION: The Seller’s decision regarding how much to finance must make sense from a cash-flow standpoint. There are several Business profits referring to a Company’s Financial gain after subtracting various expenses from its revenue (the gross monthly sales). It can be broken down into different categories, each revealing different aspects of the business’s profitability.
EXAMPLE: Lets take The business “Operating profit” listed below, if the “Operating profit” is $100,000 per month, then a note of $70,000 per month won’t make sense. The Operating Profit from the business must cover the amount of the note and also pay the Buyer’s personal expenses. If it can’t, then the deal won’t work.
TYPES OF BUSINESS PROFIT:
- Gross profit: This is calculated by subtracting the cost of goods sold (COGS) from a business’s revenue. COGS includes expenses directly related to producing or acquiring the goods sold, such as raw materials and labor. Gross profit reveals how efficiently a business manages its production and resource use.
- Operating profit: Operating profit takes gross profit a step further by subtracting operating expenses. These expenses include wages, rent, utilities, and marketing costs – all the costs associated with running the day-to-day operations of the business. Operating profit provides insights into the profitability of a company’s core operations.
- Net profit: The bottom line. Net profit, also known as net income or net earnings, represents the final profit a business achieves after all expenses have been deducted from its revenue. This includes not only the cost of goods sold and operating expenses but also non-operating expenses such as interest and taxes. Net profit is often referred to as the “bottom line” because it represents the ultimate financial gain, or loss, after all costs are accounted for.
RETAIN A THIRD PARTY LOAN PROCESSOR: A loan processor handles all aspects of collecting, crediting, and disbursing monthly loan payments. As a neutral third party, they simplify the day-to-day management and process of managing loan payments. Using a third party to administer the payments simplifies recordkeeping.
SELLER REMAINS ON THE LEASE: Seller must remain on the lease during the entire period of the note. The Average length of a note is Five years, but it varies from three to seven years. Average down payment is usually 50%, but it varies from 30% to 80%.
BUYER DEFAULT: If the buyer defaults, you will need to take the business back and repossess the lease. Alternatively, the Seller negotiates to take back the lease if the buyer defaults without the Seller remaining on the lease. In this scenario the Seller would not remain on the lease; however, the Seller would retain the ability to take back the lease only in the event of a default by the buyer. Again, this will be addressed by Penthouse Advisors INC.
SELL THE NOTE: Ensure the note can be transferred or assigned to a third party. The Seller can often sell the note at a heavy discount after it has matured for six to 12 months. There are many investors who purchase these notes, which effectively cashes out the Seller.
BUYER BACKGROUND CHECK: An investigation of the Buyer’s public records should be performed to identify any undisclosed arrest records, bankruptcies, corporate records, court records, criminal records, deeds, or divorce filings.
FILING A UCC: A uniform commercial code (UCC) lien is filed on the assets of the business. A UCC lien, specifically, is the public record of this security interest, typically filed as a UCC -1 with the Secretary of State’s office. This filing notifies other potential lenders and creditors that the borrower’s assets are already pledged as collateral. This filing gives the lender a “first-position lien” meaning they have the first claim to the collateral in case of default. This filing gives the lender a “first-position lien” meaning they have the first claim to the collateral in case of default.