Owning a restaurant is a passionate endeavor, but understanding its worth is crucial, whether you're planning a long-term legacy or exploring exit options. This guide delves into the world of restaurant valuation, offering insights for both buyers and sellers.
When to Estimate The Value of Your Restaurant
Selling Your Restaurant: Retirement, career shifts, or economic challenges may necessitate selling your beloved business. Knowing your restaurant's value ensures a fair deal.
Equity Partnerships: Sharing ownership can bring fresh capital and expertise. A proper valuation helps attract the right partner and define equitable terms.
Unexpected Offers: Investors or developers might approach you with enticing proposals. Understanding your restaurant's worth empowers you to negotiate confidently.
Buying a Restaurant: Investing in a restaurant requires informed decisions. A precise valuation helps you assess potential returns and avoid overpaying.
Securing Loans: Struggling restaurants can seek financial assistance. Banks often require valuations before approving loans.
How To Value Your Restaurant
Multiples Approach for Functioning Restaurants
This is the easiest way to value your restaurant’s value. Just find out the Restaurant’s Valuation according to SDE, and the Valuation according to Revenue Valuation - the range you come across e.g. 90,000 - 300,000 is the value of your restaurant.
Method 1: Seller's Discretionary Earnings (SDE)
Dive into your financial statements to find your restaurant's SDE, which is like your yearly net income with an added sprinkle of the owner's salary. Think of it as the income a new owner could expect to make.
Consult your accountant or commercial real estate agent to discover the current industry multiplier for SDE in your type of restaurant. This multiplier acts as a gauge, comparing your SDE to similar businesses.
Multiply your SDE by the industry multiplier. Voila! You've got a ballpark estimate of your restaurant's value based on its earning potential.
The Formula
The Restaurant’s Estimated Value = SDE of Restaurant x Industry Benchmark Valuation SDE Multiplier
Restaurant SDE: $200,000
Benchmark Valuation SDE multiplier: 1.5
$200,000 x 1.5 = $300,000
Example:
Restaurant SDE: $200,000
Industry SDE Multiplier: 1.5
Estimated Value: $200,000 x 1.5 = $300,000
Method 2: Revenue Multiplier
Gather your annual revenue figures. This is your restaurant's gross income before expenses.
Similar to SDE, your restaurant type has a unique industry multiplier for revenue. Again, consult your accountant or commercial real estate agent for the current number.
Take your revenue and multiply it by the industry multiplier. This gives you an estimated value based on your restaurant's income generation.
The Formula
The Restaurant’s Estimated Value = Restaurant Revenue x Industry Benchmark Revenue Valuation Multiplier
Example:
Restaurant Revenue: $300,000
Industry Revenue Multiplier: 0.30
Estimated Value: $300,000 x 0.30 = $90,000
Asset Valuation for Struggling Restaurants
When revenue is insufficient, the business itself may hold little value. This method focuses on tangible assets like equipment, furniture, and inventory. The total asset value minus liabilities gives the estimated selling price.
Beyond the Numbers: Secret Spices for Flavorful Value
But a restaurant is more than just numbers! Your story matters too. Here's how we add flavor to your valuation:
Location, Location, Location: Bustling downtown corner or hidden gem? Location isn't just street cred, it impacts foot traffic and your revenue potential.
Concept and Niche: Mouthwatering barbecue or innovative fusion fare? A trendy concept with a loyal audience adds value like a secret family spice to your dish.
Brand and Reputation: Loyal customers and glowing online reviews? A strong brand name is like a Michelin star, shining brightly on your valuation.
Equipment and Assets: Top-notch ovens, spacious patio, or trendy food truck? Quality equipment and inviting features are like delicious garnishes.
Growth Potential: Ready to blossom into a multi-location empire or nearing the end of its culinary chapter? Future possibilities are the secret sauce in your value.
The TUREX Advantage: A Feast of Expertise and Transparency
Unlike others, TUREX isn't just about formulas – we're a bustling marketplace of seasoned restaurateurs. Buyers and sellers directly engage, share insights, and leverage each other's expertise. It's like a collaborative kitchen, where knowledge simmers and fair deals rise to the top.