Advice for Buying a Restaurant and Selling a Restaurant

Record Transaction Levels Reported in Business Sales - Restaurants Lead the Way!

Posted by Robin Gagnon on Jul 28, 2017 5:01:49 PM

The latest report from BizBuySell shows that the count of business sales continues on pace to set records for restaurants sold and businesses sold this year.  Their data shows 2,534 closed transactions occurred in the first half of the year a 31% increase over the same time last year. Twenty-two percent of those transactions were restaurants.  If that pace continues, 2017 will easily surpass 2016 which was in itself, a record breaking year. 

Once again, restaurants led the way according to this national industry report.  Sales of restaurants experienced major growth in the second quarter.  The national statistics that track these transactions found a 34% increase over last year in number of units and the median sales price jumped from $165,000 to $195,000.  The data also found restaurants being sold were experiencing growth in revenue.  The median sales of those restaurants closing in second quarter was ahead of last year by 7 percent.  That meant year-over-year sales went from an average of $504,500 last year to $540,000 this year.  They also noted a small increase in cash flow of 2% pushing average cash flow on restaurants sold to the $100,000 mark. 

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The reason for the increase in restaurant sales and business opportunities in general can be tracked to market variables the restaurant brokers recently wrote about.  These include unprecedented small business confidence, the amount of quality lending resources in the market, record breaking stock market growth and the use of money that was parked in advance of the election.  While Washington remains caught up in politics as usual and movement is at a stalemate, business buyers and business owners are seeing the impact of loosening regulation, easier lending and better economic conditions.  For that reason, they are pulling the trigger on what is now the second quarter of phenomenal growth in restaurant sales.

The nation cannot be painted with a broad brush however as selling prices by region vary widely.  The most expensive market in the United States based on selling prices is (no surprise!), the New York metro area.  The list of the top five most expensive markets (in order) were New York, Philadelphia, Denver, Atlanta and Chicago.

All business opportunities for sale are not equal.  The recent report shows a difference in the valuation or cash flow multiple between franchises and independents.  Restaurants and all business opportunities for sale are typically priced at a multiple of their existing cash flow.  The latest data shows that the cash flow multiple for franchises was better than all other transactions.  The average cash flow multiple for franchises was 2.44, compared to 2.34 for all transactions.  Those with a trademark name on the door also reported higher revenues compared to the median of all businesses.  For closed deals, median franchise revenue was $609,966 compared to $490,000 for all businesses. According to the BizBuySell report, "This data suggests that despite royalties, established franchises for sale offer additional revenue and marketing benefits, at sale prices comparable to non-franchises." 

The restaurant broker’s internal results also show an amazing year in the works.  President of We Sell Restaurants Eric Gagnon said of the current trend, “We recently hosted the We Sell Restaurants franchisees and reported on the state of the industry.  Our findings and the BizBuySell report align as we see continued strong growth and a record breaking year in terms of transactions.”

The data from today’s report issued from BizBuySell is compiled in the BizBuySell.com Insight Report issued on a quarterly basis.  The report tracks changes in closed transaction rates, valuation multiples and other economic indicators for the small business transaction market.  The full report can be found online at this link

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Topics: buying a restaurant, selling a restaurant