Are you considering buying a restaurant but feeling a little confused by the numbers? Here’s one way to take the mystery out of restaurant finance and make it simple to understand. Use the exclusive tool designed by our restaurant brokers known as the Business Analysis Tool©. The Business Analysis Tool lists all the key metrics for buying a restaurant and then compares those to the one you’re interested in purchasing.
Here’s some of what you learn from this document:
A profitable restaurant typically generates a 28%-35% food cost. Coupled with labor costs, these expenses consume 50-75% of total sales. Food cost also reflects an operation's food quality, value provided to the customer, and management skill level. High food costs in a restaurant available for sale signals an opportunity for correction and greater profit dollars delivered to a strong operator. It can also signal a restaurant owner that is not reporting his cash sales since costs are hitting the profit and loss statement without corresponding sales being registered.
Physical location is very important to the restaurant owner. The length and value of the lease and its cost as a percent to total sales is a key indicator. Evaluation of a property should also include some subjective consideration of the lease and location. In general, lease expense should be no more than 10% of sales “all in.” That means total occupancy, including CAMS, taxes and insurance.
A profitable restaurant typically generates a 25% or lower labor costs. This is also indicative of overall management control of expenses. You also have to dig into the detail. High labor might mean the owner is paying himself a healthy salary or it could mean he’s sloppy in handling the scheduling.
Want to receive a sample Business Analysis Tool? Inquire with one of our restaurant brokers on one of our restaurant for sale listings and sign the confidentiality agreement. The BAT will be provided to you upon request. Any restaurant broker offering restaurants for sale should have a professional presentation that includes key financial points and industry comparisons.