How Much Is Your Restaurant WORTH?
Although it's a challenging time to be selling a business in most markets, profitable restaurants that are generating a healthy cash flow are still in demand. After having read my last blog posted on 25th Aug, you are now aware that your most important customer is your potential buyer for your business. Even though you may not be ready to sell, having an understanding about how the sales process works and how restaurants are valued could put you at an advantage when it is time.
One way when valuing a restaurant that is a "going concern" (one that is profitable), the first step is to calculate the annual "Adjusted Cash Flow." "Adjusted Cash Flow" is annual Net Income plus the following: + Working owner's salary & payroll taxes + Owner's perks (and personal expenses paid by the business) + Depreciation & amortization + Loan payments (principal & interest) + Non-recurring expenses (like legal fees for a one-time lawsuit) The Adjusted Cash Flow would then be multiplied by a factor of 1 to 3 to arrive at an initial sales value. For example, a restaurant with an annual Adjusted Cash Flow of RM300,000 would usually have a sales value of somewhere between RM300,000 to RM900,000.
Cafe' / Bistro: Restaurant:
Determining the appropriate multiple depends on several factors. One is the operational complexity of the restaurant. For example, restaurants with a fairly limited menu using common, straightforward preparation procedures such as a breakfast/lunch operations would sell at a higher multiple than a high end restaurant featuring intricate recipes or preparation steps. There are several other factors that can influence the multiple such as lease terms, overall condition of building and equipment and what kind of shape a restaurant's books and records are in. Selling your restaurant or business may someday offer you the opportunity for the biggest payday of your career. It might be wise to educate yourself well in advance of that day about what's involved and what you can do now to position yourself for a successful sale when that time comes.
