The missing link

Link broker Dan Levitus shares his insight on what makes and breaks hospitality businesses entering the property game, and how to prepare for the best result.

For years, Australia’s housing market has been identified as a “seller’s market” and that trend is set to continue in our roasting industry according to Licensed Business Broker Dan Levitus.

“Any coffee roaster is winning at the moment,” says Dan of Link Business. “It’s the best time to sell a roastery. It’s a competitive buying environment and that drives the price up. Sellers have all the leverage.”

Roasting has been regarded as a growth industry for the past 20 years, but in the past five, Dan has seen a lot of “garage-type home roasters” pop up and grow until they reach their limits.

“Often, those roasters push 400 to 500 kilograms [of roasted coffee] or more per week, and get to the point where their equipment can’t handle any more volume,” Dan says. “At this stage, they question whether it’s economically viable to increase production and buy larger facilities and equipment. Roasters need to look at their financial position, the quality and volume of wholesale customers, the balance of the debtors and creditors, and many will consider selling.”

When businesses reach this level, Dan says companies become interested in acquiring the “smaller backyard roaster” because it’s a more economical way of growing their own customer base.

“It’s the same in the beer market. There are lots of backyard brewers who can’t achieve economies of scale. It’s far easier for larger brewers to step in and buy up the smaller guys,” he says.

That’s where Dan comes in. Link is one of the largest business brokerage in the Southern Hemisphere, giving customers access to a huge database of qualified business buyers all looking for the right investment opportunity, be it a franchise, specialty coffee shop, or roastery.

To help streamline the sale process, the qualified consultants at Link help to maintain a degree of ethics in transactions between the buyer and the seller.

“Buying a roastery is not like buying a house. It’s a transfer of assets. It takes time and investment,” Dan says. “It’s not about what you can touch or feel. It’s intangible. You can sell a home in 14 days but business sales are never quite so simple, and that’s why a broker is vital.”

Dan knows first-hand the emotional demands of buying and selling a business. He bought his first café in 2006, which he operated for seven years, then partnered with friends in a new business venture that didn’t go as quite as planned.

“I lost a lot of money from that experience, but it’s taught me how to flip that loss into success, and that’s the experience I want to share with customers going through a similar experience,” he says.

When it comes time to sell a business, the first question vendors ask Dan is: ‘How much do you charge?’ A reasonable question, but the more important one is: ‘Are we the right fit for one another?’

“My purpose is to help business owners maximise the value they receive on sale and to provide advice and strategy on how to add value. My aim is to create an environment where we have multiple buyers fighting over your business,” he says. “To do that, we need to be on the same page and the seller needs to have the right attitude. If they don’t care about the business, then neither will the buyer. I’ve seen people invest and loose out because they’re not prepared for what business transactions actually entail.”

Dan says most sellers come to Link when they’re ready to sell but their business is not. They first need to “groom” the business for sale.

To start, Dan says companies looking to sell need to address “value drivers”, anything that can be added to the property that will increase its worth to the buyer. It could be the lease or looking at the owner and manager’s role in the business, and what efficiencies could be gained.

“It’s important to assess not just the financial credibility, but the transferability of the business to someone else,” he says. “Most hospitality venues I come across are owner-operated. In the case of fine dining restaurants that are chef-owned, sometimes it’s the chef’s reputation that makes a restaurant so valuable, so that value needs to be taken into account. It is impossible to transfer that level of reputation when the chef is no longer with the business. The same goes for a star barista.”

Dan says the classic approach most brokers take to promote a business is turnover. However, it’s more important to consider the operating costs, and be able to demonstrate these reasonably in a sales process.

“The mindset of a purchaser can be ruined by one tiny misleading factor,” he says. “Essentially, you have to sell your business twice in today’s selling environment – once to a buyer and then all over again to their accountant who will use the Australian Tax Office to benchmark expenses.

When there is an interested party in the purchase of a business – once an offer is received subject to due diligence – the current owner should expect to provide a list of assets both tangible and intangible, disclosure of any liabilities that need to be accounted for, details of the lease and licenses, staff details such as pay rates and time with the business, and at least two years of financial information.

For manufacturing businesses, Dan says details of product margins, supplier and customer contracts, equipment service schedules, and Occupational Health and Safety policies are most commonly asked for by the prospective buyer.

To hear more about how Dan can help your business, visit linkbusiness.com.au

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