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ORLA Main Ingredient

Oregon’s Premiere Foodservice and Beverage Industry Magazine

Succession and Sale Planning

Some things in life are impossible to anticipate. Wayne Poole, the second generation owner of Pig N’ Pancake, was thrust into that bigger role running the family business when his father Bob was involved in a serious auto accident in the 1980s. Back then, the younger Poole didn’t have the benefit of gradually learning the business by following a well-thought-out succession plan. By the time Bob was able to return to the business, Wayne had learned many lessons the hard way.

Thirty-one years later, Poole is applying his experience to prepare the next generation, son Zach, to lead the Seaside-based restaurant chain. Getting the transition right, so the legacy continues to thrive is very important to Wayne, who would like to give traditional retirement a try at some point. “It’s not just a business,” he reflects. “It’s a big part of your family and your whole life. It’s a heritage and something that you’ve got stewardship of. I want to see it be successful well into the future, and that won’t happen if you don’t plan for it.”

Restaurateurs toying with the idea of selling their operations at some juncture need to think ahead. Developing and actually executing a plan to ease out of the restaurant business can be a challenge for busy owners like Ken Denfeld, president of Pacific Pizza Co. Denfeld guesses that he first started thinking about his exit strategy nearly a decade ago. “The biggest reason is that succession planning takes a lot of time to execute is you’ve got to make some really tough decisions!” he shares. “There are three different avenues that you have: (1) family members who are qualified and interested, (2) employees, (3) someone on the outside.” He adds that the third buy-in option could also include someone that is interested in investing in an ongoing business.

About five years ago, Denfeld decided to field test option (2), selling 49 percent of one of his five pizza restaurants to its General Manager. “He and I had a very good working relationship, and he wanted some ownership,” he says of his Omaha, Nebraska-based business partner. “I visit there 3-4 times a year and help him with administrative, accounting and payroll stuff. I take the lead on the purchase of equipment, maintenance contracts and things of that nature. He basically hires, fires, trains and ensures good management of the location.”

Denfeld is considering selling the rest of his restaurants someday, but he is taking his time coming to a decision. “You have to ask yourself, ‘Am I the type of person who wants to go out cold turkey and not have anything to do?’” he explains, adding, “…especially for someone who has been running their own business their whole life. Maybe they want to have more of a gradual succession. This is where employees, if they’re qualified to handle it, purchase the business from you while you’re still participating in it. You have someone who is motivated to run it as well as they possibly can because they have ownership. Their future is at stake more so than just a management person.”

Christian Joly, who owns and operates Caper’s Café in Portland, says he depends on help from his talented wife and sons to run the family business. That could provide a nice segue for the Jolys to ride off into their sunset years, but that plan is in a holding pattern while the family opens a new location at the Portland International Airport. The long-time restaurateur says the top priority in a situation like his is making sure the next generation really wants the business before pressing the fast-forward button. “The restaurant business is very hard, very consuming with very small margins,” he notes. “It has to be in your blood or it’s not going to work out.”

The family patriarch sees plenty of promise in his sons, but adds, “At this point, we’re not completely there yet. I’m first generation, and the second generation is slowly taking over. It would have been nice to retire ten years ago, but that wasn’t going to happen.” In the meantime, the future leadership team continues to learn the ropes.

If and when it seems like the right time to sell or turn the business over to family, Joly plans on seeking professional legal and financial advice. “Do it correctly,” he warns. “If not, it’s going to come back and bite you on the butt.”

Greg Duff, chair of Portland’s Garvey Schubert Barer’s hospitality practice, takes it a step further. Duff recommends meeting with a lawyer before you start the succession planning process. “One of the questions we will often ask many of our hospitality clients, whether it be a restaurateur or a hotelier, is what is their ultimate exit strategy, because there are decisions that they can be making while fully involved and engaged in operating the business that can have a real effect on what happens when they go to sell,” he reports.

Duff points out that the process becomes much more complicated when an owner is thinking about selling multiple businesses or multiple locations. “Our experience has been, with each new location, the restaurateur may have partnered with or taken investment dollars from different individuals or different groups of individuals,” he says. “With every decision that you may want to make that effects all of them, it requires an incredible amount of coordination with all of those interested parties. How you structure a deal can either create opportunities or create liabilities going forward, and that is the role that people often view lawyers serving.”

Advisors can also help develop a roadmap. “Having something down on paper that you then can revisit periodically is a good thing,” according to Duff. That can be especially important when family members are involved in those plans. “It's always a good idea to have those kinds of plans in writing because if you don't, it inevitably leads to family discord, dispute and worse when a person passes. There are many good examples in the celebrity world, where people with complicated estates haven't taken the time to put their objectives and desires in writing. Then you're left to the court system and/or the applicable laws which may or may not reflect at all what somebody wants to have happen. Always encourage people to avoid doing that if they can sit down and think about those things ahead of time. continue →

“Whether you call it a plan or some sort of a process that you are re-evaluating from time-to-time, I think you need to spend quite a bit of time on it.” If you don’t, it may cost you dearly down the road. “People are often of the opinion that they would rather save the money initially, handle things themselves and only call on the advisors at some point in the future when they absolutely have to,” witnesses Duff. “The problem is by doing that, they are unable to take advantage of opportunities in which to either maximize the value of their assets to better reflect their goals and objectives or to minimize the downside. A lot of those strategies and ideas that someone might put in place to handle those things, you can't do it all at the last minute.” Waiting for expert advice could lead to other issues that need to be untangled before a sale can proceed. “You may find yourself spending three times the amount of time in my office working with me to sort things out than if you had come in initially,” he adds. And the potential financial impacts can stretch well beyond a lawyer’s billable hours.

Succession planning should start as early as feasible, according to Bruce Lange, CFO at My Accounting Team, serving Oregon with offices in Portland and Eugene. “In all honesty from the day you open your doors for business, you should have a long-term plan in mind. I would advise at least a year. The average restaurant takes four months to sell, but the reality can be much longer, particularly in rural areas.”

Lange suggests starting the process by getting your books in order. “One of the most important factors when considering a sale is solid financial health,” he maintains. “Having a good bookkeeper/accountant who knows the restaurant industry financial statements and metrics is imperative. Good quality books are a little like staging your home for a sale. If you want top dollar, you want the buyer to see your house presented in the best possible light. That means if a buyer looks in a closet, it should look organized. In that same vein, we recommend good quality financial records so a buyer can drill down into the numbers.”

Today’s buyers open their wallets for consistency rather than rosy projections and promises, according to Lange. “They do not want to see wild swings in income, either year-over-year or month-to-month,” he says. “You need clean books going back a few years, and that doesn’t mean tax returns. Tax returns show what the tax man wants to see. Your books should show what you want to see as an owner. If your restaurant has a great history of generating profits, you want to show that without muddying the waters with something like a big tax write off last year. Good accounting will help minimize all the fluctuations by spreading costs appropriately. The devil is in the details, and unfortunately many bookkeepers are ill equipped or trained improperly to handle this, so, make sure yours is top notch.”

There are other reasons to consider bringing in outside help when planning your next move. “In the restaurant business, it’s very difficult to determine the value of your business,” remarks Joly. “No one seems to have the exact formula. Is it done by volume? Is it done by profitability? Is it done by future possibilities or projections? There are so many question marks. It’s got to be put together correctly!”

Although there are a number of ways to calculate a sales price, Lange suggests a few things to keep in mind as you run the numbers with financial advisors. “Ignoring unique circumstances, there’s typically a range of multiples of Owner’s Benefit when determining the correct price for a sale,” he allows. “This is simply the profit of the establishment, excluding what the owner takes out. This can be a wide variety of costs, not just the owner’s salary. We typically show Owner’s Benefit when we present our customers’ books. So, an owner can keep an eye on what a prospective buyer would value.

“I’m usually reluctant to quote simple ratios, because the range is so wide, but a typical range is two to four times annual Owner’s Benefit. Smaller establishments will tend to be at the lower end because buyers assume they are buying a job, which demands a lower multiple. Higher multiples go when the buyer is purchasing a managed business, rather than something where they will be involved in the day-to-day running.”

Qualifying potential buyers is every bit as important as establishing a sales price that they might be willing to stomach. Joly recommends asking, “Are the successors, the people wanting to buy in, are they well financed? Where is the money coming from? Do they have the proper experience? Do they have the correct demeanor? There is a huge amount of pressure on owning a restaurant, especially in this day and age with all of the federal, state, county and city regulations. You not only need to be somebody who knows cooking, but managing the laws, etc.”

“When a buyer isn’t able to successfully operate the business after the sale, owners are often forced to return. “We see that a lot in this industry,” notes Joly. “The former owners will carry the contract, and then 12 months afterwards, they end up having to take it back. You’ve got to make sure that your people, whether it’s family or otherwise, are qualified and up to the task.”

Even when a restaurateur finds an ideal suitor to take over his business, there still may be hurdles to overcome before he can cross the finish line. “Debt, taxes and outside investors can all complicate the closing process,” explains Lange. “If any liabilities are expected to transfer upon sale, they can definitely complicate the closing process.”

Other blind spots loom in the shadows. “Whenever I consider something like this, I always try to take a look at it and say, ‘Where are the biggest liabilities with any operation like this?’” says Duff. “For a restaurateur, those tend to be either in the leases and commitments you may have made to your landlord, employees, or investors.

“The question is ‘What are the material agreements or contracts that create potential liability, and the lease is always number one. Then you have employee obligations. You as the employer have certain things that you can't necessarily pass off to the next person. That creates challenges too.” Finally, Duff reminds clients not to forget their investors and what commitments they may have made at the time the investment occurred.

All of the helpful advice adds to the mountain of important considerations facing owner-operators as they revisit their exit strategies. Proper planning is not an overnight exercise. “Learn as much as you can about what other people have done right or wrong,” suggests Denfeld. “I always kept my ear to the ground. The more you can look about the process, the better you will be at doing it.”

Succession planning and selling pull on the heart strings of anyone who has learned to love a business that they helped build. “You need to sit down and figure out your goals,” recommends Wayne Poole. “Where are you at, and how are you going to get there within a reasonable time period. But for me, it’s just trying to figure out ‘What do I even want to do as far as retirement?’ It’s not that easy to figure out; at least it hasn’t been for me.”

Just carving out time to plan can prove a real challenge. “What’s the one thing you can’t stop and you never have enough of?” interjects Zach. “Time!” The clock is ticking for the Pooles, but they are making progress.

“At the end of the day, it really is a partnership, and there is always give and take,” shares Zach. “Nothing ever goes quite along the lines of a plan. But with an organization as large as we are now, it is helpful to have a plan and to have a clear message for all of our team members. It’s important for us to convey a consistent message and be a source of steadiness for all of our employees. Then people are really pulling on all of the oars for you, and everything is headed in the right direction.” Successfully navigating a change in ownership all starts at the top, and these industry leaders all understand the valuable role succession planning plays in ultimately reaching the promised land. | Kirk Richardson


Kirk Richardson is a food and travel writer based in Corvallis, Oregon. In addition to his regular feature articles in ORLA's Main Ingredient and Lodging News magazines, Kirk is writing Craft Beer Country: In Search of the Best in the West (Summer 2017) and authors a craft beer book blog at



Now is a Good Time to Revisit Your Exit Strategy