Advice for Buying a Restaurant and Selling a Restaurant

A Restaurant Buyer or Seller’s Guide to Valuation by the Restaurant Brokers

Posted by Robin Gagnon on Apr 25, 2017 9:01:33 AM

While everyone has some idea how much they want to pay or price a restaurant for sale, the truth is, selling a restaurant is a math problem with a right and wrong answer

What is the methodology for restaurant valuation?  For lenders and sophisticated restaurant brokers familiar with the process it’s the Income Valuation Method.  This is the most favorable and trusted method used to value restaurants for sale.  In today’s lending environment, this is how we establish value and secure financing on a business.  A restaurant for sale with solid profits that fits the SBA criteria to both satisfy the buyer’s lifestyle needs and satisfy the debt payments with a 25% cushion will qualify for lending.    

 For that reason, the Income Valuation Method provides the most acceptable method of valuation for banks, lenders and individuals in assessing how much to pay for a restaurant.  In a situation where a restaurant buyer is paying cash, this helps to reduce fear of the transaction as the business has a proven track record. 

calculator-988017_960_720.jpgA restaurant for sale with strong books and records, assessed under the Income Valuation Method has the highest number of potential buyers and hence commands the highest possible price.  An expert  restaurant broker can go through the Profit and Loss statement along with tax returns to find the Seller’s Discretionary Earnings (SDE) or owner benefit that is customarily accepted by lenders to value the business.   This includes net income PLUS reasonable and customary add-backs.

Add Backs are the benefits realized by a seller today that go away when he or she leaves the business. For example, owner’s 1099 or W2 earnings are calculated as Add Backs.  Any personal expenses such as a cell phone or auto expense for the benefit of the seller are also “added-back” to the bottom line to calculate the earnings.

What is not allowable for “add-back” purposes are efficiencies a new owner could potentially achieve that the current operator hasn’t.  It should factor in your decision to buy but should not be calculated in the pricing of any    restaurant for sale.  The entire purpose of the add backs is to calculate owner benefit and ultimately pricing of the business.  If you can identify strategies to be more successful in the future than the current owner, that benefit belongs to you as a buyer, not to the seller in the pricing of the business. 

Once the Seller’s Discretionary Earnings is appropriately determined, then it becomes the basis for a “multiple” for pricing    restaurants for sale. Every buyer wants the answer to the question, “What’s the multiple for restaurant pricing?” and the response rarely satisfies anyone.  In general, restaurants for sale can be offered and sold somewhere between 2.5 and 3 times times earnings, with market factors adjusting this up or down.  For purposes of this article, we are limiting our discussion to single restaurant units.  Multi-unit sales (anything above two, especially franchise) changes the multiple significantly and requires a whole different analysis and pricing model.

“How much to pay for a restaurant for sale? ” can be affected by any of the following variables including:  strength of books and records, saturation of concepts in the marketplace, seasonality, location,   comparable Sales Information or “comps,”  franchise or  independent offering, geography and competition. 

Strong restaurant brokers that know the market and should be able to share exactly where a restaurant is priced based on the multiple and why.   Ask some questions of your broker to be certain they fully understand restaurant pricing.  If you’re not satisfied with the response, find an expert restaurant broker to help you buy a restaurant.

Our restaurant for sale listings are all valued using the same methodology and can be found at this link.

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Topics: buying a restaurant, selling a restaurant

Restaurant Brokers Expanding Coast to Coast - Attendees at We Sell Restaurants University

Posted by Robin Gagnon on Mar 23, 2017 8:30:46 AM

We Sell Restaurants is expanding coast to coast with a new class of training candidates enrolled in We Sell Restaurants University. 

Rob Morrison.jpgWe Sell Restaurants Ft Lauderdale is welcoming Rob Morrison to their team. A former U.S. Marine, Robert is currently a Board Member of the Broward County Veterans Association of Real Estate Professionals (VAREP), a non-profit organization dedicated to increasing economic opportunities for active-military and veteran communities.  

Rob studied Communication at the University of Miami and had a long, successful career as an award-winning journalist in New York City. Upon relocation to South Florida Rob entered the real estate business. Rob’s experience in commercial real estate has aided his clients greatly.  He will be completing We Sell Restaurants University next week and will begin work with Ken Eisenband, the franchise partner for this office.  E

Chris Morrison.jpgColorado Franchise Partner, John Jordan is also expanding his group.  His newest Restaurant Broker is Chris Gordon.  Chris has over two decades of experience in the restaurant industry and has proven himself to be an adept leader and skilled businessman.  A resident in the Denver South Metro area, some of his highlights through the years include working at The Fillmore Auditorium, Breckenridge Brewery, and most recently the Tailgate Tavern and Grill as General Manager. 

Chris entered the restaurant industry as a dishwasher when he was 15 years old, and worked his way up through the ranks to managing a multimillion dollar restaurant when he was just 19.  He has been a busboy, host, and cook, server, bar back, bartender, banquet captain as well as a corporate trainer.  He has served in leadership roles as both a Manager and General Manager for multiple operators.  Chris has worked on the Las Vegas Strip for celebrity chef Rick Moonen at Mandalay Bay and Del Frisco's Double Eagle Steakhouse.

As the General Manager for Tailgate Tavern he helped increase sales by over 50% the first year.  “We achieved this by completely redesigning the bar to function more efficiently, reducing the cost of raw materials, and creating incentives for the customers to spend more money.”

Scott Ruby.jpgAlso attending We Sell Restaurants University is the newest Franchise Partner, Scott Ruby.  Scott has expereince in both the front and back of the house along with first-hand knowledge of day to day operations and restaurant culture. Scott’s Food and Beverage industry experience evolved during his years in specialty restaurant management and as a Food and Beverage Director in Las Vegas, Nevada.
 
Scott’s experiences in the Vegas food and beverage mecca included the opportunity to be a key player on the grand opening team at the House of Blues, Mandalay Bay property, manage the House of Blues restaurant and in later years, he was recruited by Station Casinos.  In his tenure with Station Casinos as a Food and Beverage Director he was fortunate again to see expansion in opening both Sunset Station and Green Valley Ranch.  
 
In recent years Scott’s professional experience has been focused on operations, sales and marketing.   Having worked with the BNSF Railway, a fortune 100 company he served to grow and develop their market share.  Scott was honored to be chosen as employee of the year with this company thanks to his commitment to customer service and company culture.

The full class graduates on March 31 and will begin work in their markets immediately.  
 

 

Topics: buying a restaurant, selling a restaurant

Roly Poly Franchise Store SOLD in 60 Days by The Restaurant Brokers

Posted by Robin Gagnon on Mar 20, 2017 3:22:50 PM

The Restaurant Brokers at We Sell Restaurants announce the sale of the Roly Poly Fast Casual franchise in Cumming Georgia.

Roly Poly franchises offer an extensive menu with great taste photo 2.jpg and superior nutrition! Restaurant broker Robin Gagnon described the store as "Small enough that you will matter and big enough that you get volume buying power, strong systems and superior support."  The Award winning concept was designated a Hot Concept by Nation’s Restaurant News.

Entreprenuer and Restaurant Buyer Janet Jacks snapped up the location in under 60 days leading to a record fast closing.  Buyer Janet Jacks has owned several different businesses but like the opportunity to have a business that would be close to home. Located in the busy Atlanta metro area a short drive to work is always a benefit!

The very short time on the market was perfect for the company's founders and the operators of this corporate store that said, "Robin and We Sell Restaurants sold our location in Cumming in less than 60 days from start to finish.  We previously had the business listed with another broker for more than six months with no activity or communication from the agent.  We definitely recommend their services.”

The Roly Poly brand is a favorite of customers that are seeking a restaurant franchise for sale but don’t want the late hours, lots of employees, frying and complications.  This one is a lifestyle brand.  Certified Restaurant Broker Robin Gagnon represented the buyer and seller in this transaction.

Gagnon said of the location, "This was a great store in a vibrant neighborhood and growing community."  The demographics for the area show a total daytime population within a five mile radius of 132,196.  Average household income is six figures plus at $127,815. 
 
This particular location was a a stable and established store that's had a great customer base since 2014!  The reviews from the customers are incredible.  Restuarant buyers often seek established  franchise restaurants for sale because they give the purchasers the benefit of joining a brand that is already established.  The franchise brand expertise and support can guide new owners through the daily operation. Top that with your personal knowledge, your drive and your ideas and you get the perfect mix to run a successful restaurant.

Check out our current listings at wesellrestaurants.com.  More information on buying a restaurant can be found at this link where buyers can download our free book on buying a franchise restaurant.   The free report includes:  

  • How to find the best Franchise Resale deals
  • How Much to Pay for Franchises
  • Why an SBA loan is your Franchise Friend
  • Key Steps in the Franchise Resale Process
  • When to Apply with the Franchise & Why
  • Valuation Math for Franchises for Sale

 

 

Topics: buying a restaurant, selling a restaurant