restaurant value

How buyers see the value of your restaurant

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By Greg Kells

When you’re thinking about selling your restaurant, it’s important to remember that there are many different types of potential buyers for your property, each with their own perceived value drivers and different criteria.

The value they see in buying your restaurant depends very much on the plans they have for the restaurant. To understand how you can make, and maximize, your sale, let’s take a look at some of the plans buyers have and how they perceive the related value or risk.

New construction

Some buyers insist on owning the property and are really looking for a suitable location to build. They want visibility, traffic, appropriate demographics within the area they will draw from, ease of access and egress, ample space for the structure and parking, appropriate zoning, synergistic draws in the area, water and sewage services, labour availability, and limited direct competition. While some of these buyers will purchase to renovate, many prefer to build from scratch. Construction cost is an issue. Most of these purchases are by chains or franchisors.

Conversions

restaurant value

Many restaurants are sold to buyers who will renovate the space to support their concept. They typically want the “bones” in place and most of the above-mentioned value drivers. The size of the restaurant needs to be suitable as well as parking sufficient to support their concept. Some of the equipment — ventilation, hoods, plumbing, refrigeration, etc. — may be important. The lease is critically important. Past revenue is not indicative of projected revenue as the concept and marketing of the new operation will be very different from previous operations. Many of these buyers are franchise operators

Renovations

Often the buyer is purchasing what is there with the intent of renovating to support their concept. The renos may include painting, replacing counters, furniture, signage, decorating, etc. If so, the state of the equipment is important as are the lease terms. If the concept is similar to that of the previous operator, the past revenue will be an important indicator of the local market.

Minor improvements

A purchaser intending to operate something similar to the previous operator but with menu changes and some updating of the facilities will be concerned with kitchen design, state of the equipment, seating and layout, staff quality and retention, historic financials, lease terms, condition of the fit-ups, licensing, washrooms, accessibility, available suppliers, point-of-sale systems, lighting, security and sound systems, and a suitable training and transition program. Operations manuals, staff training programs, existing signage and marketing collateral will also be important—so, too, the experience and knowledge of the previous operator so the new owners do not waste time and money repeating things that have already been tried. The lease, competition, and previous financial performance are important. Purchasers are mostly individual operators.

Steady state

Most restaurant sales are made to individual purchasers who want to tweak the concept and menu but operate the restaurant in a manner similar to its current operator. While they may have ideas to improve marketing or reduce costs they will be very concerned with the current performance as a prime indicator of future performance. This applies to most franchise resales and the majority of independent restaurant sales. They will want to assess future capital expenditure requirements, marketing programs, staffing, licensing and all aspects of the current operation including the lease.

As you can see, the less the business will change, the more important past financial performance is to the purchaser. In recasting the financials, business brokers present a purchaser with the true benefits of ownership. The recasting may add unreported revenue and remove discretionary expenses and perks and one-time expenses. It may also add in necessary capital expenditures going forward. The more recasting that is necessary, the higher the perceived risk in the eyes of the purchaser and, given that the prices paid increase with perceived value, proper packaging and marketing of the purchase opportunity is critical to maximizing a seller’s return. The more a purchaser plans to maintain of the current operation, the higher the perceived value. The better the opportunity is presented, the higher the price achieved. How business brokers package the opportunity is also critical to a purchaser’s ability to finance their acquisition.

Make sure buyers see the opportunity in buying your restaurant – a good business broker sees the value regardless of what state your restaurant is in and will find the appropriate buyer and maximize your return.


About the author:

Greg Kells is President of Sunbelt Business Brokers, Canada’s largest business brokerage. With offices across the country, Sunbelt helps restaurant and foodservice business owners to maximize their selling price, reduce taxes, reduce risk and take the hassle out of selling. To contact Sunbelt Business Brokers call 1-800-905-3557 or go to SunbeltCanada.com to download Insider Tips On Selling a Business In Canada.

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