How much is my restaurant worth and How do I sell? These are the Answers

Posted by Robin Gagnon on Mar 14, 2010 1:10:00 PM
An expert restaurant broker shares the secrets of how to value your restaurant for sale to maximize the sales price.

Pricing a restaurant for sale requires skills, knowledge, experience and a financial background from an expert restaurant broker.  That being said, most sellers always believe their business is worth more than it actually is.  They aren’t familiar with the methods of valuation and essentially decide on a price based on what they have in the business.  This approach (based on assets) actually nets them the least.  A qualified broker can come into your business, work with you through your profit and loss statements and tell you what your business should be priced at and what he’s seeing in the market place for similar businesses.  If you are doing business “off the books” he can tell you how to transition your business sales and income onto the books to prepare your Atlanta restaurant to sell.  He or she will be able to give you a realistic portrait of what you can expect to net.  If a restaurant broker comes into your business and says, “What do you want for it?” and accepts that as the selling price – run, don’t walk, away from that broker as they are as inexperienced as you in pricing.

Here’s what an expert restaurant broker will need for your valuation.  If they don’t ask for your lease, tax returns, and profit and loss statement, don’t waste your time.  A broker that doesn’t focus on the financial picture doesn’t have the knowledge or experience to sell your Atlanta restaurant. 

Sit with the restaurant broker and the financial data and see if he or she is able to tell you what your business is worth and most importantly, why.  He should go through your profit and loss statement and ask questions that tie to reasonable and customary add backs such as:

  • What do you pay yourself?  Is that 1099 or W-2 income?  Where is it shown on your P&L?  What about compensation for other family members?
  • Who is the expense for health insurance on your P&L covering.  Do you pay for yourself or your family out of the business?  How much?
  • What about Auto Expense?  Is that a delivery vehicle on your books or is your wife's Lexus lease covered out of the operations of the restaurant?
  • What about Cell Phone Expense?  Is that something that would go forward if a new owner took over?  If not, it’s an add-back.
  • Is there anything that’s a one-time expense that is extraordinary or non-recurring on the books in any of these years?  Examples might be hurricane damage repairs or unusual accounting fees for a one time IRS audit. 
  • Are there any purchases through the business that have documented receipts for items that directly benefit you?  Examples might be personal computers purchased for your wife and two college kids included in the expense that won’t transfer in the sale or $20,000 in food costs for the talk of the town reception you hosted for your oldest daughter’s wedding last year that’s in food costs.
  • Do you have copies of your depreciation and amortization schedules?  A knowledgeable broker uses these for reasonable and customary add backs.
  • Is the Travel and Entertainment listed on your P&L trips you and your family took and charged to the business?
  • What about the donations on the P&L?  Are they something the new owner would have to go forward with?
  • Do you have any income not substantiated on the P&L that is made directly to you and your wife, i.e. Lottery account, cigarettes and game machines, and jukebox?  Do you have receipts or check copies that can track and substantiate this income?

By carefully examining your profit and loss statements and armed with the answers to these questions, a strong restaurant  broker should be able to establish maximum pricing on your restaurant for sale that can be substantiated to a buyer.  If he simply lists at the price you want, be prepared to see real damage to your restaurant for sale.  It will sit on the market for too long and lose the opportunity to present the best picture to buyers.  There’s a finite number of buyers in the marketplace looking for restaurants for sale that are also qualified to buy.  You have once chance to make a first impression with those in the market to buy a restaurant.  Price is key.  List with someone with the financial and business skills to price your restaurant for sale right the first time.

Topics: Selling a Restaurant

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