Case in point - SellingRestaurants was approached by a Seller whose restaurant was just appraised by another restaurant brokers at $250,000. In fact the same broker brought a full price offer to the Seller. The Seller thought the restaurant was worth more and called SellingRestaurants to perform a valuation analysis.

One of our agents spent the time to listen to the Seller and perform a detailed and thorough analysis of the tax returns and income statements. The other restaurant broker had found about $90,000 of owner discretionary cash flow while our analysis revealed closer to $120,000 of owner discretionary cash flow. SellingRestaurants valued the restaurant at $330,000, or $80,000 higher than the other restaurant broker. The store sold in a matter of weeks at $330,000.

In another case, a buyer purchased a couple yogurt shops and was told each shops nets $10,000 a month. The price for each store was $150,000.  Common sense would tell one that if a business nets $120,000 a year on books, that the price should be higher, right?  The buyer purchased the stores without seeking a professional broker for $300,000.  As it turned out the stores were doing about $15,000 gross per month, which by definition made it impossible to net $10,000 a month per store.  Needless to say, the buyer is not happy. 

These are typical examples of how our expertise can make the difference for you and save you a lot of money.

VALUE METHOD

There is several value methods used to determine the price of a restaurant. First, there is the income valuation technique. This is the most favorable and trusted method used to value a restaurant by nearly all buyers. If the restaurant has solid profit history, it is likely a buyer can purchase the restaurant with 20% down and obtain an SBA loan. This significantly increases the number of potential buyers for a restaurant and; hence commands the highest possible price. A SellingRestaurants agent will take the time to dig into the tax returns and fined the entire hidden owner's discretionary cash flow that most brokers will over look. Restaurants with good tax returns will command a multiple of about 2.5 times owner's discretionary cash flow depending on the condition of the restaurant, location, lease, revenue growth, earning growth and the economy.

A professional broker can help you value the business.

ALWAYS GET TAX RETURNS IF THE BUSINESS IS SELLING FOR A PREMIUM...NEVER SETTLE FOR LESS!

GROSS SALES PERCENTAGE METHOD

Second, the annual gross sales valuation method, although not relied upon by most buyers, uses a percentage of annual gross sales to determine the value. The percentage used depends on the lease, location, condition of restaurant, whether it is a franchise or not, and validity of the annual revenue number. The better these traits, the higher the percentage commanded. Restaurants with poor records and in poor shape will only command perhaps 15-20% of the gross sales. One with a good lease, location and verifiable numbers could command up to 40% of gross sales and some franchises such as Subway could command 65-90%.

REPLACEMENT COST METHOD

Finally, the replacement cost method assumes a buyer pays the seller a large premium over the income value and annual gross revenue techniques in order to benefit from the existing investment in the restaurant facility, the lease and the location of the restaurant. In other words, a buyer will pay for the right to avoid spending hundreds of thousands and even possibly a million+ dollars and to avoid all the city regulations and delays in building a new restaurant. These are rare cases and don't happen very often. Perhaps 5% of our sales account for these type of sales.

Call a SellingRestaurants agent nearest you. Meet the Brokers, click here

Download Supporting Documents Valuation Questionnaire & Document Checklist