What Are Multiples and Should I Use them To Decide What My Business is Worth?

This past week I have been told about what a business should be valued at because there was a multiple for that type of business, another broker told me they had a “proprietary” system, and yet another told me comparables are for homes. Anytime you hear proprietary pricing system, multiples or similar verbiage, just run. There is not that simple of a way to evaluate a business.

What are multiples?

Before a business goes up for sale, a value needs to be placed on the business, and this estimate of value becomes the asking price. Prices for businesses can be determined by a number of methods, one of those methods is the use of multiples. These multiples are basically a summary of the market trends of businesses in a specific sector made into a number. Those who value businesses in a particular industry will look at what businesses actually sold for, and create a multiple that is an average of the sold price of many businesses in that sector weighed against what the businesses earned.

For example, manufacturing is worth the multiple 3 times earnings.

Seems fairly simple, right? That’s the problem. Using multiples is a shortcut that can be very detrimental to your potential business sale.

Why?

Businesses are complex. Evaluating what the business is worth should be is just as complex. The value needs to be based on factors like number of clients, profit and loss statements, values of equipment, number of employees, contracts, comparable businesses that have recently sold, and so on.

So, should you use multiples to determine what your business is worth?

The short answer is no. While a multiple might give you a ball-park figure that you can use as a starting point, it should in no way drive your final asking price. Multiples ignore important details that affect the value of a business. They can mislead a business seller into believing that their business is worth far more of far less than it actually is. You probably couldn’t make your entire business model fit on the back of a cocktail napkin; similarly the oversimplification that comes in the form of multiples will only be a disservice to your business.

Have you used a multiple to determine a value for your business? Are you wondering if it is accurate? Leave us a comment or question here, and we can assist you in determining what your business is actually worth.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

When you have decided that it is time to put your restaurant up for sale, there are a few steps you will need to complete before you list your restaurant on the market.

The first step is to hire a business broker who is experienced in the restaurant market. You will want a broker who has restaurant industry contacts, lists of potential restaurant buyers who are waiting for the right kind of place to come up for sale, and an already established marketing technique specific to restaurant sales.

The second step involves some work on your end. You will need to gather all of the information your broker and any potential buyer will need to see. As you are deciding what information to include and what you shouldn’t include, think of the kinds of questions that you would ask if you were a buyer. Why are they asking this price for the restaurant, and based in what I’ve been given do I agree that it is a fair price? How much does this restaurant earn and what are the operating costs? The package that you and your broker will assemble will need some essential parts. Include the last three years of tax returns, profit and loss statements for those three years, a copy of the lease agreement, and a list of the furnishings and equipment.

What will happen next is your broker will take all of the information you’ve assembled and create a package to present to prospective buyers. Included in this step will be deciding on a listing price, so after your broker has a chance to look at the numbers you will discuss what the business is worth on the market. This step can be difficult for some restaurant owners, as you have put your heart and soul into your establishment, but the decision of listing price really needs to be made without emotion. Your restaurant is only going to sell for what a buyer is willing to pay for it. Your broker will use what your financials show as well as what comparable restaurants have sold for in determining a fair asking price. It is important to listen to what your broker has to say because if your price is too high, your restaurant will stay on the market indefinitely.

The last step will be the listing of your restaurant on the market. If you have priced your restaurant fairly and have a nice package put together, you will be on a good path to getting your restaurant sold.

Are you a restaurant owner who is ready to sell, but needs to know what to get together for a listing and marketing package? Leave us a comment or question here, and we will be happy to assist you with your restaurant package.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Are you ready to sell your restaurant? You may have put your blood, sweat, and tears into every part of your establishment, but when the time comes to sell you can’t be emotional about the price. When your listing first hits the market, it needs to be priced fairly or it will stay on the market forever.

Why?

When new listings first appear on the business market scene, there will be a lot of activity. Lots of calls will come in. Lots of non-disclosure agreements will likely get signed and prospective buyers will be coming through the door. Just like in home sales, the newer the listing, the more excitement it draws. If your price is way too high, all of the potential buyers brought in by the new listing will be driven away, probably for good.

What to do instead?

Get yourself a good business broker who has experience and knowledge in the restaurants-for-sale market and together come to an agreement on pricing. In some cases, the price a broker will suggest will be higher than you were thinking you could get, in some cases the suggested asking price will be lower.

This is a place where you should ask lots of questions and genuinely listen to the answers. Why does your broker think that this is an appropriate price? What have other similar restaurants sold for? What aspects of your financials and the establishment itself are causing a difference in opinion between you and your broker on price?

If you wind up with a restaurant broker who will let you list your restaurant for whatever you want- be wary. As most sellers want the maximum price they assume they can get, it happens all too often that restaurants come on the market priced incredibly high. If your books don’t justify the price, if the place needs a lot of work, if a large competitor just moved in next door- you are going to need to justify the price you are asking for to every potential buyer. The way to make the whole process work more smoothly is to list your restaurant at a reasonable price the first time.

Are you a restaurant owner who thinks perhaps the price on your restaurant is what’s keeping away the buyers? Leave us a comment or question here, and we look forward to assisting you.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 1-Using a Real Estate Agent? Click here.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 2-Selling Your Restaurant on Your Own? Click here.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Are you ready to sell your restaurant? Sure, the commission that a business broker will take might seem like a lot on the surface, but going it alone can end in real disaster.

Why?

This strategy often backfires because of one simple thing. You are a restaurateur. You are great at running your establishment, at serving customers delicious food and at keeping a happy staff. What you are not is good at selling businesses. First of all, it can take an average of 9 months to a year to sell your restaurant once it’s listed on the market. Does a successful restaurant owner really have the extra time to spend working on the ins and outs of a business for sale, dealing with all of the legal and red-tape issues that will arise, as well as fork over the expense to do all of the necessary marketing? The answer is probably not.

Is a business broker really worth the commission?

Yes, absolutely. Think of what the broker will be doing for you during the business sale transaction not as an added expense, but as a list of responsibilities and expenses that you don’t have to do.

A business broker who has knowledge and experience in the restaurant market will first of all be able to give you an accurate and objective evaluation of the asking price for your establishment. As an owner, you are emotionally attached to the restaurant you’ve created and grown, but the reality of the market is that your restaurant is only going to sell for what someone is willing to pay for it. A good broker knows the market, knows what comparable restaurants have actually gone for, and probably most importantly knows what buyers are looking for. A good broker will also be able to advise you about any changes, fixes, or adjustments (be they cosmetic touch ups and cleaning or how to organize your financial information to make it easy for a prospective buyer to understand) that will help your restaurant sell.

Another major aspect that a broker brings to the table is confidentiality. You definitely don’t want your competition, your staff, your vendors, or your customers to know the restaurant is for sale. A vendor might blab to the competitor down the street, your staff could jump ship and take all of their loyal regulars with them. A business broker brings prospective buyers who are serious about potentially buying your restaurant and who have signed all of the appropriate non-disclosure agreements prior to learning which specific restaurant is for sale. This not only keeps out time-wasting buyers who don’t have the ability to buy your establishment, but also allows for a control of information that you would not be able to achieve yourself.

Your broker will also be able to get your restaurant out there to anyone who is looking without disclosing that it is actually your business for sale. Your business will be marketed on the web, to other business brokers and their clients, and to the list of buyers that your broker already has. Any broker who is experienced in the restaurant game will have a list of folks who are looking specifically for restaurants, so the resources of the broker will be invaluable because they can bring such specific buyers to the table.

Ask your broker how many restaurants they have sold. How many restaurants have they sold in the last year? If you don’t like their answers, then perhaps it is time to seek the services of a more qualified restaurant broker.

Are you a restaurant owner who has tried to go it alone without much success? Are you curious about what an experienced restaurant broker could bring to the table for you? Leave us a comment or question here, and we look forward to assisting you.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 1-Using a Real Estate Agent? Click here.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 3-Pricing Your Restaurant Too High? Click here.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Are you ready to sell your restaurant? You might have a great real estate agent that helped you acquire your home, but allowing that agent to help you sell your business could be a huge mistake.

Why?

Real estate agents assist with the buying and selling of homes, and most are good at what they do. The buying and selling of businesses is a whole different animal. The professionals who assist in these types of transactions are called business brokers. What a business broker does is fundamentally different from what a real estate agent does.

How?

When you sell a home, exposure of the home to the largest volume of possible buyers is the key. You stick a sign in the yard and list the house on the MLS (Multiple Listing Service). Anyone who might be interested can find out that the house is for sale and where the house is.

Businesses and business sale transactions are different because they need one thing more than any other- they need confidentiality. An existing restaurant could be faced with all kinds of issues if the world knows that it is for sale. What would happen to your staff if they found out about the sale? When confidentiality is breached, bartenders and waitresses with a loyal following will leave, and take all of those regulars with them.

Business brokers understand how to successfully market and show your business to buyers without breaching confidentiality. Real estate agents might try to treat your restaurant like a house, giving out the address to potential buyers and listing it on the MLS. This would be a big mistake. When a restaurant is for sale, you don’t want carload after carload of real estate agents and “buyers” popping in or doing a quick drive by to check out the place. By using a qualified broker you can be sure that the potential buyers who are looking at your restaurant are serious buyers who have signed the necessary non-disclosure agreements.

A business broker who is experienced in the buying and selling of restaurants also has better business transaction resources than a real estate agent would. Real estate agents don’t have access to the same kinds of contact lists that a business broker does- lists of prospective restaurant buyers who are ready, willing, and able to buy a restaurant like yours.

The moral?

Use a qualified business broker who has experience in restaurant transactions. Your restaurant will be able to maintain confidentiality, and you will have access to the right kinds of buyers.

Are you a restaurant owner looking to list your business for sale? Do you have questions about why you should use a business broker instead of a real estate agent for your business sale? Leave us a comment or question here, we will be happy to answer your questions.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 2-Selling Your Restaurant on Your Own? Click here.

Want to read Selling a Restaurant: Mistakes You Don’t Want to Make, Part 3-Pricing Your Restaurant Too High? Click here.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com