How to Evaluate a
Restaurant for Sale
If you have looked through the classifieds
and at the restaurant advertisements
on the Internet, you most probably have seen that there
are more "restaurant for sale" advertisements
than any other type of business for sale ads.
Why is that?
One reason is that people always need to
eat and with a society based on luxury, coffee shops, pubs,
and restaurants are always in demand. It should, however,
also be noted that it also means a lot of competition and
the following play an important role in the success of restaurants,
pubs and coffee shops:
With almost 27% of restaurants failing within
the first year of operation, it is a risky business, but
if you have the needed background, experience in business
management, food and people handling, as well as the commitment
to put every available minute into the business, you have
Before you buy the first one that comes
along, you will need to know how to evaluate it. Business
brokers have the required knowledge to help you make the
right decision. It should be noted that the seller is the
broker's first client and this means that although the broker
has an obligation to ensure a fair deal for both, the broker's
loyalty will be with the seller - unless you sign a mandate
with the business broker to find an opportunity according
to your requirements. As such you as the buyer will pay
the commissions or the search and find fee of the broker
and not the seller.
Even when making use of a business broker
to find a business you still need to know how to evaluate
it. Below is your first pointer to help you get on the right
track in establishing the business value and thus ensure
that you don't pay more than it is worth, or even worse,
buy a sinking ship.
When the business is not profitable at present
or has been closed you will purchase the assets and not
goodwill and income or clientele. This means you will need
to look at the value of fittings and equipment, stock that
can be used and also keep depreciation in mind.
Multiple cash flow technique
This method is used when the business is
still in operation and claims to make a profit. The purchase
price will thus be calculated by getting a total for the
nett income, owner salary, equipment depreciated, as well
as the interest expenses.
As a rule of thumb, you can expect a value
or price of twice to three times that of the owner's benefit
total as calculated above for a full service business. If
it is a self service establishment, the value can be equaled
or twice that of the owner's total benefit figure.
Author - Isebell Gauche