when is buying an existing pizzaria @ 3.5x cash flow ok?

I have read previous threads and am a little stumped. I am looking into a pizzaria that has been in operation for 60 years. the last owner has owned for 21 years. His cash flow is 110K/year.
sales average 800k for the past three plus years.
it is a takeout and delivery only, as far as I know it is independent
rent is $2154 on 1600 sq feet, lease is up in february
utilities average 1500/mo.
owner is 68 years old/ only open for dinner 4-2am daily.
Tons of opportunity for growth. lunch/advertisement etc.
I should be getting more detailed financials the next day or so
Thank you for any advise, Steve

Make sure lease can be renewed. Nothing worse that buying a place then finding out you are homeless.

Just a note… Cash flow normally refers to total amount of money deposited into business account in the year. In theory that should equal your total sales. I hope the owner isn’t looking for $2.8 million!! I think you mean 3.5 times net or retained profit of $110,000 ($385,000) . Depending on a lot of other factors, equipment etc etc, that might not be a bad price. Just my opinion.

Look at his age… he’s trying to retire. Also, if you can’t extend the lease, the business is almost worthless. $385k for an existing restaurant with no real assets other than “goodwill” seems way over the top TO ME. I wouldn’t pay that, but I’m cheap and such.

110K on 800 sales is pretty lame performance which can be improved. If there is a good lease with a number of years on it, or better yet, you can get a new 10 year lease, this sounds like a good deal to me.

No, it’s not. Cash flow is Net Income + Non Cash Expenses (such as depreciation and amortization) + Income Tax (if not an S Corp). This is usually referred to as EBITDA in accounting. Maybe this is where so much confusion comes from about valuing a business. Cash flow is not in anyway equal to your total sales.

Ok, I stand corrected. I’ll have to point this out to my banker as he refers to my total annual sales as my “cash flow” as well! Maybe I shouldn’t…lol

Owner’s discretionary cash flow is what I would use for value. For example, if the owner is paying for his car, cell phone and some travel which they can show is not needed to operate the business I would add those back in for valuation. A well prepared seller will have stopped paying for these things through the business though.