Restaurants that have a year-over-year increase in revenues and earnings will be valued more than those with a decrease. The actual price will be determined by historical profitability. The seller is responsible for proving the true financial benefits of the business by providing accurate financial records.

Gross revenue and earnings are important but it is easy to forget the hours and days the establishment has been open to reach those numbers. A busy restaurant in a business area that is able to make money during bank hours will be worth more than one that is open for longer hours, more days and does the same amount.

Is the restaurant possible to convert into another type of restaurant that is not in competition with restaurants located in the same area or within the same demographic?

Do you have the proper permits? Restaurant business owners must consider labor and food costs. The type of restaurant you choose, whether it is full-service, fast food or if there are a lot of liquor sales, will affect the cost of these items.

As a percentage of gross revenues, costs should not exceed acceptable industry margins. When selling a restaurant, it is important to make a good first impression. Potential buyers will feel confident that they are making an investment in a well-maintained establishment.

Sloppy restaurants, on the contrary, signal that there are more serious issues beneath the surface. Organizational stability is important. Develop staff training programs and get their feedback. To ensure staff retention, you should consider promoting highly motivated and efficient employees.

Bonus programs for managers and other key staff should be tied to company performance and profit. Customer service and employee attitude go hand in hand and will be noticed. Positive and upbeat employees are a sign that the restaurant has a good track record.

However, cranky or disgruntled staff can indicate a problem. Keep in mind that the new owners will likely want to keep most of the current staff. However, it is important that problem employees are replaced before the restaurant goes public.

One of the first things that a prospective buyer will do when considering your restaurant for sale is check out your online presence.

A good looking website, lots of favorable reviews and robust social media will immediately make an positive first impression which will increase the desirability of your business for sale. It is important to have a web presence that makes your name known to people searching the internet.

It is almost certain that potential buyers will ask around and search the internet for information. Yelp and other similar sites are widely used these days. Respond to negative reviews on the internet as soon as possible. Recognition or awards that are not standard for the industry will give you an edge over the rest and increase your perceived value in the market.

Check that the restaurant meets all health codes. Also, ensure that all licenses and permits are up-to-date. This could cause problems that could jeopardize a sale. The liquor license will allow a restaurant to serve dinner.

But given a choice between people and technology, consumers continue to crave human hospitality in their culinary experiences. Restaurants are hiring: The industry workforce is projected to grow by , jobs, for total industry employment of Consumers are value conscious: Nearly half of consumers are taking a wait-and see stance when it comes to spending.

Operators who offer a solid value proposition for dining out can nudge customers out of their holding pattern. Consumers love restaurants: 9 in 10 adults say they enjoy going to restaurants. The State of the Restaurant Industry report is the authoritative source for industry sales projections and trends.

There are several different methods of determining the value of a business. Calculating the value by two or more methods will give you an idea of fair market value for the business.

Obtain the income statement from the seller or work with an accountant to create one. If you are the buyer, verify all information before the actual sale takes place. Estimate the value of the business assets. Include the value of the business property, equipment, supplies and inventory.

This number does not take into account the value of intangibles, such as a prime location or goodwill. It also does not consider the return on the investment, but it does serve as a good starting estimate.

Robin Gagnon of We Sell Restaurants breaks down how to value a restaurant business in layman's terms, including valuation basics and other Use this free calculator to calculate the key restaurant metrics needed to understand the health and success of your business Discover what valuation multiples for a restaurant look like. This includes REV, EBITDA, and SDE multiples for restaurants

Video

Value dining sales - Valuations Based on Sales or Revenue. Restauranteurs aim to sell their establishments for % of their yearly revenue or gross sales Robin Gagnon of We Sell Restaurants breaks down how to value a restaurant business in layman's terms, including valuation basics and other Use this free calculator to calculate the key restaurant metrics needed to understand the health and success of your business Discover what valuation multiples for a restaurant look like. This includes REV, EBITDA, and SDE multiples for restaurants

Operators are relying more on technology to meet challenges, to reduce labor, cut costs and boost business, applying tech solutions to marketing, recruiting, accounting, inventory management and more. But given a choice between people and technology, consumers continue to crave human hospitality in their culinary experiences.

Restaurants are hiring: The industry workforce is projected to grow by , jobs, for total industry employment of Consumers are value conscious: Nearly half of consumers are taking a wait-and see stance when it comes to spending.

Operators who offer a solid value proposition for dining out can nudge customers out of their holding pattern. Consumers love restaurants: 9 in 10 adults say they enjoy going to restaurants. Conversely, if it receives a 2. Peak Business Valuation , business appraiser, works with many individuals looking to buy or sell a restaurant.

We are proficient in using valuation multiples to determine the fair market value of a restaurant. Keep in mind, every restaurant is unique. As such, the range of value can vary. Below, we discuss SDE, EBITDA, and REV multiples for a restaurant.

On average, restaurants transact at an SDE multiple of 2. See the calculation below. It transacts at a 2. SDE multiples are common when determining the fair market value of a restaurant.

By considering add-backs, valuation experts can determine the cash flow potential of the restaurant. Knowing the cash flow is vital when valuing a restaurant.

Restaurants transact at an average EBITDA multiple range of 2. An appraiser will apply this multiple to EBITDA to determine an implied value of the business.

The calculation is as follows. The appraiser determines a 3. Valuation experts at Peak may prefer EBITDA multiples since they help normalize differences. These ratios allow the business appraiser to compare your restaurant to similar businesses. Normalized ratios also provide an accurate projection of the future earnings an investor can expect from a restaurant.

According to our data, restaurants transact at a revenue multiple range of 0. A business appraiser at Peak can derive the implied value of a restaurant by multiplying its revenue by the market multiple. It then transacts at a 0. A REV multiple measures the total revenue generated by the restaurant.

Keep in mind, this multiple is less common when valuing a restaurant. Business appraisers generally rely on the cash flow multiples — SDE and EBITDA. However, valuation experts will use their expertise to determine which methods and multiples are best for your restaurant. Peak Business Valuation often uses market multiples for a restaurant to determine the fair market value of a restaurant.

There are various valuation methods and multiples that may apply to your restaurant. To understand which methods and multiples are most suitable for your restaurant, receive a business valuation. As part of a business valuation, Peak identifies the strengths and weaknesses of your restaurant. What Restaurants Sell For.

Sales Prices Based on Gross Income. How to Calculate using SDE. Comparing and Combining the Two Pricing Methods. The Bottom Line. Business Small Business. Trending Videos. Key Takeaways The cost of buying an existing restaurant can vary widely based on location and other factors. Some restaurant owners set their price based on the restaurant's annual sales revenue.

Another method is to multiply the seller's discretionary earnings SDE by a relevant multiple for the restaurant industry. If the two calculation methods arrive at different results, a likely fair price will be somewhere between them. Tip Knowing what other, similar restaurants in the area have sold for recently can be useful for comparison purposes.

What Does It Cost to Start a Restaurant From Scratch? Where Can You Get Money to Buy a Restaurant? How Does Seller Financing Work? Article Sources. Investopedia requires writers to use primary sources to support their work.

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Open a New Bank Account. Advertiser Disclosure ×. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Articles. Partner Links. Related Terms. What Is a Lease Option? Requirements, Benefits, and Example A lease option is an agreement that gives a renter the choice to purchase the rented property during or at the end of the rental period. What Is a Call Option and How to Use It With Example A call option is a contract that gives the option buyer the right to buy an underlying asset at a specified price within a specific time period.

Value Investing Definition, How It Works, Strategies, Risks Value investors like Warren Buffett select undervalued stocks trading at less than their intrinsic book value that have long-term potential. Listing Broker: Meaning, Responsibilities, Qualifications A listing broker or listing agent helps you list and sell your home.

Learn what a listing broker does and when you might need one.