For many bakery owners, the idea of selling is overwhelming and risky. The good news is the sales process does not have to be intimidating. By gaining an understanding of what to expect and working with a business broker who understands your industry, you can simplify the sales process. This guide from a business broker discusses the bakery industry, how to value your bakery, and the steps involved with the sales process.
About The Bakery Industry
The bakery industry has experienced an increase in competition in recent years from grocery store chains and other restaurants that provide bakery goods. However, a major industry bounce back is expected over the next five years as more people return to work and eat out more post-pandemic. The bakery industry numbers include:
- There was a -2.9% annual growth for the bakery industry from 2018 to 2023
- The bakery industry generates $10.9 billion in annual revenue
- The annual profit for the bakery industry is $807.6 million
- Experts predict a sizable increase in annual growth (3.6%) from 2023 to 2028
How Much is My Bakery Worth?
Your broker may first use rule of thumb data, also known as industry multiples or acquisition multiples. Before they do so, they must first determine your earnings before interest, taxes, depreciation, and amortization (EBITDA) and seller’s discretionary earnings (SDE). In some cases, net sales or gross profit is used as well. They will then use these financial figures along with the following rule of thumb data to determine a general (but non-specific) value of your bakery:
- Bakeries sold between 1.45 and 2.02 times the Seller’s Discretionary Earnings (SDE)
- Bakeries sold between 1.55 and 2.41 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Bakeries sold between 0.34 and 0.70 times the annual net sales
Keep in mind, although far too many brokers use rule of thumb data as absolute, it should only be regarded as a starting point. Adjustments should be applied as necessary to provide a more accurate depiction of your valuation. For instance, your valuation might be higher than the rule of thumb data suggests if you are in a populated location with relatively low competition or your bakery has gained local popularity and praise for an exceptional menu item.
How Can I Sell My Bakery?
Although it may seem intimidating at first, selling a bakery is not difficult as long as you work with a broker who understands the process and takes the process one step at a time. The five-stage process for selling a bakery is as follows:
- Due Diligence
Here is a more detailed explanation of the five-stage process bakeries can use to help ensure a successful sale for fair market value.
We have discussed the importance of a business valuation above. It is the first step to selling your bakery for fair market value. Your valuation may influence when you seek a buyer, your asking price, and your ability to negotiate effectively. More specifically, we recommend a market-based business valuation from an experienced business broker.
You should prepare before you sell. Otherwise, you could face major setbacks and create a higher risk of potential buyers backing out of their offer or letter of intent (LOI). During this second stage, you should prepare three years of tax returns, profit and loss statements, balance sheets, cash flow statements, a copy of your food service license (and other legal documents), lease information, and a copy of your insurance policy. Additional documents might be required depending on your specific circumstances.
The next step is to sell your bakery for fair market value, a trickier process than you might at first imagine. The sale of a bakery is complex because you must do so in a confidential manner. This means you are not using public methods. Instead, you (or your business broker) leverage private networks, databases, and connections to find buyers who may be interested. Experienced brokers are typically able to get your company’s sales memo in front of hundreds (if not thousands) of potential buyers. The broker also helps with negotiations, contingencies, and the crafting and signing of a letter of intent (LOI) from the buyer you choose.
#4: Due Diligence
Once you secure a buyer, they are allowed an opportunity to review your bakery’s financial, legal, and operational information. They may conduct a visit to your bakery and meet with key employees, along with reviewing your financial and legal documents.
Your attorney and broker can help you ensure a pleasant closing experience. This involves reviewing and signing the purchase agreement and confirming the payment has been sent to complete the transaction. Of course, you will also need to transfer the ownership of your bakery to the buyer. This usually involves updating licenses, insurances, and leases and providing full access (both online and in-store). Lastly, you will notify employees and customers that the sale is complete. In some cases, the buyer may continue to assist with the transition past this point as well.
Contact Our Fort Worth, TX Business Brokerage
Sigma Mergers and Acquisitions is a business brokerage based in the Fort Worth area that understands the sales process and works hard to deliver results for bakery owners with exit strategies. We have helped hundreds of businesses sell for fair market value or higher, and we would love to help you with your sale as well. If you have questions or concerns feel free to contact us and receive a free, no-obligation business valuation.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!