When it comes to TV entertainment for business brokers there are precious few shows that people like me can really sink our teeth into. I watch ABC’s Shark Tank for the same reasons most people do, namely to laugh at the ridiculous valuations and live vicariously through the sharks’ snarky comments. The History Channel’s Pawn Stars has some universal lessons about buying and selling things with sentimental value, while American Pickers does the same for win-win negotiation.
So, imagine my excitement when the Food Network debuted its latest reality show, Buy This Restaurant, last night. Host Keith Simpson — a veteran of the restaurant industry who is now one of the country’s top restaurant brokers — helps buyers find the perfect restaurant to call their own. The show uses the same format as HGTV’s popular House Hunters, where buyers are shown three properties and asked to pick one. Some have existing businesses in them, while others are empty commercial space.
I’ve written about the restaurant business before, and actually owned my own retail food service business for three years. As both a business broker and a former food-service business owner, here are a few initial thoughts on the first two episodes of Buy This Restaurant (BTR):
The Good
I’m a big proponent of buying an existing business rather than starting one from scratch. The show touches on the benefits of having an established customer base and brand in place, as well as the decreased risk associated with buying an existing business.
In a general sense, BTR advocates the need for having an expert help you with the business buying process. There was one existing business that made it clear they were selling under strict confidentiality, and another where the seller explained her reason for selling after nine years — both scenarios you are likely to encounter when buying a business.
The Bad
My main complaint about the show is that it is says nothing about how businesses are valued. Main Street businesses are typically valued based on a multiple of cash flow. Here is information on what restaurants have sold for in the past 12 months from PeerComps, a database of comparable transactions gathered from national, regional and local SBA lenders:
The show never mentions anything about cash flow in the context of either the asking price, or the buyer’s need to purchase a business they can make a living out of; the main financial goal seems to be staying within their budget.
Business brokers don’t typically help buyers redesign the interior space of the business they purchase, give advice on improvements to the operations, offer suggestions for additional revenue streams, and make claims about future performance (“you’re going to double this business”). Mr. Simpson seems to be playing the role of both real estate broker and business consultant — not what I consider typical behavior for a business broker.
The Dangerous
The hair stood up on the back of my neck on two occasions, both having to do with the human emotion factor. The first was when a buyer explains that her impetus for buying a restaurant was her husband’s recent death. She describes her idea of the perfect American cafe, and how it will be a place where people can gather together and enjoy the beauty of each day. Oh, did I mention that she and her sister/partner have no prior restaurant experience, unless you count the lemonade stand they had as kids? Oy.
The primary reason for buying any business should be that it makes good financial sense for you, your family, your investors, and any other stakeholders involved. Period.
The other hair-raising moment was when Mr. Simpson offered the following advice prior to giving the same buyers 24 hours to make their decision as to which property they wanted: “They need to throw the numbers out the window and go with their heart.”
“Did he just say that?!” my husband exclaimed from the sofa.
I realize that the show needs to capture people’s hearts in order to get and keep viewers, but emotions tend to be anathema to the process of buying, selling or even starting a business. In my experience, emotion is the precursor to poor decision making, which is then followed by missed opportunities and/or financial loss. Buying or selling a business requires a cool head, and the discipline to keep emotions at bay as much as humanly possible.
Upshot
BTR is less about buying a business, and more about finding a location for a restaurant start-up. It also makes buying a business look too much like buying a house.
Did you see the show? What are your thoughts? What business shows do you watch?
I didn’t see the show but will definitely check it out now.
This is great advice from your review: “The primary reason for buying any business should be that it makes good financial sense for you, your family, your investors, and any other stakeholders involved. Period.”
Great article Barbara, you captured many of my thoughts. These show seemed much more like a Real Estate show or a consultant than a business broker. He walked on the edge by proclaiming a boost and sales, estimated costs for build outs, and many other statements. Brokers are trained not to walk down those roads. You can list growth opportunities but associating dollars to it is dangerous. . . I will give the show another try but I had a hard time watching both episodes. I enjoy the profit much more.
That’s reality TV for you… not suited at all for buying and selling businesses! Thanks for the great post!
I missed the show, but the feedback I’m reading from our colleagues and your review seems pretty spot on.
In addition to your comments about the “dangerous,” the pressure to make a firm decision within hours, not days, is the result of TV hype and not reality. Of course, as business brokers, we’d love to get all of our contracts in place so quickly and would love even more for such fast closings. We’d all be rich even in this recovering market. However, that is not reality. Buyers and sellers are families in the end, making family decisions, and that process can take time. We’re all human, right?
Barbara,
I share your sentiments exactly. He seems to be more of a business consultant/commercial real estate broker than a typical “business broker”.
At the end of it all it’s all about the ratings. If the food network was to depict the real life process of trying start or buy a business no one would watch.
Kyle
This show doesn’t teach anyone anything about the actual process of buying a business. And, like all the reality TV shows I’ve ever seen, it sure can give you unrealistic expectations. Drama can result in high ratings, but like most of what the entertainment machine produces, it results in an unrealistic world view of the viewers.
Barbara, right on spot. In my 26 years of selling more restaurants in Florida than any other broker, I find the show to be for pure entertainment value, and not real life. Its all about the numbers, the location, and the ability of the new owner to make it work.