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Patrick_Fruin

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Does anyone have experience in restaurant valuation? Are there any specific metrics that are used?

What about working with a broker? Any experience/advice?

Thanks!
 
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Bodegahwy is a business broker so he can give you more info in regards to working with a broker.

My only relevant experience here comes from selling one of my pizza businesses to another franchisee in the same company a little over year ago. I valued the business at about 3.1 times the owners benefit. This was a pretty profitable business and I would expect one not as profitable to be sold at a lower multiple. I sold the business with 100% owner financing but the owner was a pretty good friend that I trusted to make the payments. The loans were structured to be very front heavy to give new owner equity quickly and financing rate was higher than available elsewhere due to risk of 100% financing.
 
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Thanks for the info, Paul. If you don’t mind me asking, what do you consider to be a “pretty profitable business?” I would assume around 10-12% (which includes total owner compensation). If you had said “profitable” then I’d have guessed 13-15%. And if you said “very profitable” then I’d say closer to 20%.
 
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Check out this thread
http://thinktank.pmq.com/threads/how-to-value-a-restaurant.5530/#post-33653
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Rick -

Great thread! Thanks for the resource. Bodegahwy seems to be a wealth of info. If he’s reading this…a few follow up questions to his comments in the thread. Or if anyone else wants to chime in…
  1. Please elaborate on what you meant when you said the value of a business, in part, is determined by “barriers to competitors entry.”
  2. Considering you comments are from 2007-2008, before the economic crash, has anything changed…
    (a) in the valuation process?
    (b) in brokerage? Is FSBO a realistic option?
Thanks again, Rick. I appreciate the reference.
 
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Thanks for the info, Paul. If you don’t mind me asking, what do you consider to be a “pretty profitable business?” I would assume around 10-12% (which includes total owner compensation). If you had said “profitable” then I’d have guessed 13-15%. And if you said “very profitable” then I’d say closer to 20%.
Click to expand...
This particular business had profit right about 15% and would be considered high volume.
 
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  1. Please elaborate on what you meant when you said the value of a business, in part, is determined by “barriers to competitors entry.”
  2. Considering you comments are from 2007-2008, before the economic crash, has anything changed…
    (a) in the valuation process?
    (b) in brokerage? Is FSBO a realistic option?
Click to expand...
  1. There are many factors that can impact valuation. Barriers to entry in our business would mostly center around things like available locations and possibly staffing. If there are plenty of choices of locations and reasonable lease rates it will be easier and less expensive to open a store. This tends to decrease the value of going concerns. In contrast when finding a location is next to impossible and also expensive that tends to make existing businesses more attractive… but remember this is simply one factor among many.
  2. No. Valuation Process and brokerage are very much the same. So are valuation multiples. During the recession buyers were scarce which tended to depress prices but they have returned to the historic range.
FSBO is tough. Not impossible by any means but it will cost you money to market the business and it will cost you time to deal with the inquiries (of which about 95% are time wasters). Most sellers going the FSBO route make basic mistakes in pricing and selling process that a business broker (NOT a realtor!) will help you avoid.

The exception is if you have a buyer such as a manager etc who is interested. Even then a good broker will consult with you for a much reduced fee to help the sale go through smoothly and ensure that all the details are addressed. I actually do this pretty often on an hourly fee basis.
 
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