Business Buyers and Business Sellers: How to Estimate The Value Of a Restaurant

Whether you are someone who is looking to buy a restaurant or someone who is looking to sell one, a major consideration will be the price. How does a seller determine a listing price and how is a buyer to evaluate that price before making an offer? In many cases, the only information considered when estimating the value of a restaurant is the past three years of tax returns and a current P&L (Profit & Loss Statement). Unfortunately, these documents don’t have all of the information necessary to truly determine where the price of a restaurant should be.

Here are some better ways to estimate what a restaurant (or bar) is worth:


Using Multiples

In any given industry there is a numerical value placed on the average price businesses in that industry sold for compared to what the business earned (more on multiples here – “What are Multiples? How to Value a Business”). This is a commonly used system for determining the value of a restaurant, and is similar to using the price comparable businesses actually sold for as a determination of what a restaurant is worth. The problem here is multiples are easy to use because they are a gross oversimplification of a restaurant’s numbers. Restaurants are complex businesses, so to estimate value you need to look at more than just multiples, you need to look at Owner Benefit.


What is Owner Benefit?  

Owner Benefit is the amount you make as an owner and the amount a buyer can also expect to make if they purchase the business. Owner Benefit does not just mean the amount of money an owner took in terms of salary, it is a number determined by looking at all of the benefits an owner receives as the owner of the business, like health insurance and a business related vehicle, for example. By using the Owner Benefit and multiples/comparables you can find an estimate of what a particular restaurant is worth (see “How much is my business worth?” for more information).


Food Cost

One aspect of business financials that is unique to the restaurant industry is food cost, and whether you are a buyer or a seller you will need to know and understand this percentage. A very basic definition of food cost is the cost to the restaurant to produce a menu item divided by what the restaurant charges for that item.  A restaurant can live or die based solely on the food cost. Even if the food is amazing, the service is top-notch, and the location brings in huge numbers of patrons a restaurant with an out of control food cost will have a hard time turning a profit (How do you determine food cost? Read “Restaurant Accounting: Manage Your Food Cost”.). If you are a seller, you need to know and control your food cost to bring more value and profitability to your business. If you are a buyer, finding out the food cost of a particular restaurant will tell you a lot about how the business is run and what kind of profitability you can expect as the owner.

The restaurant industry is complex, so if you are in the market or buy or sell a restaurant you need to look at more than just the basic three years of tax returns and a P&L. By taking into account the multiples, the Owner Benefit, and the food costs you can come to a better understanding of what you are willing to sell or buy a restaurant for.

Are you a restaurant owner who has questions about your food costs or what your listing price should be? Are you a buyer who wants to know how to determine what an acceptable offer would be for a particular restaurant? Please leave us a question or comment here and we will be happy to help you.




Michael Monnot


My Kids Are My Staff: Considerations For Business Sellers With a Family-Run Business

Small business ownership is usually a family affair. In many cases, some or even all of the employees are made up of relatives of the ownership. This family business set up has its advantages, in that ownership knows and can trust the staff. Also, in cases where the family members either don’t take a paycheck or work only for tips, this can keep payroll costs down.


This may sound like a win-win situation, but no one stays the owner of a business indefinitely. For many family businesses, owners tend to be lackadaisical about their eventual departure because they assume that the next generation will just take over when mom and dad decide to retire. If this isn’t the actual future of your business, then you as an owner have some serious considerations to deal with.


What if the kids decide to take their own path?


It is not uncommon for children to choose a different career than their parents, so although your kids may be dedicated to the business now with you as the owner, it may not be the path they consider when looking long-term.


Sit down with your family and have a very serious discussion about your eventual departure as owner of the business. Ask your children if they really want to own the business themselves. Find out if their passion lies elsewhere.


What if an owner knows that their children are not going to be able to keep the business afloat when they are running it by themselves?


We see this situation from time to time where a very driven and detail-oriented owner hands the business over to their not so driven and terribly disorganized child in the hopes of some kind of retirement. What invariably happens in this situation is the now “retired” parent is forced to stay in a major role within the business in order to keep their other loyal employees in a job and keep all of their years of hard work from going down in flames.


If you feel that your child won’t be able to take on the responsibility, do everyone a favor and tell them upfront that they will not be inheriting the business. It might be better for the legacy of your hard work and for your children if you sell the business and then use some or all of the money to invest in another opportunity where they will have the passion and drive to succeed.


If you have a family business, it is a good idea to address these concerns long before the day you want to hand over the business to someone new. Some other issues you will need to address (like what your lack of payroll will do to the value of your business to buyers) can be found here in “Making the Kids Work For Free: Why the Family Business Looking to Sell Needs to Think Ahead”.


Are you the owner of a family business who is trying to decide what the future of your business should be? Do you have questions about what your options are? Please feel free to leave us a comment or question here, and we will be happy to help.

Michael Monnot


Get Your Business Ducks In A Row: Why Every Business Owner Needs To Be Ready To Sell

If you ask most small business owners, they will likely tell you that they have an exit strategy for their eventual departure as leader of their business. For many, this exit strategy may involve passing the family business down to the next generation, or perhaps they intend to sell their business when the time comes. What many small business owners don’t do is keep their business ready to sell.


Why would any business owner concern themselves with an eventuality that seems so far away?

The reason is life can be very unpredictable, and the time to sell might be far sooner than you think it will be. Having your business in ready-to-sell shape will avoid the panic we often see when an owner is suddenly forced to sell.


What are the reasons that an owner would be forced to sell?

The most common we see are family and personal issues. Divorce, a sudden illness for the owner or for a close member of the family, and a need to relocate for another member of the family are reasons that typically occur suddenly and can’t be pushed to the backburner in order to keep the business running. If you are a seller trying to contend with such personal upheaval, it will be difficult to focus on the pre-sale issues that you would have to contend with if your business is no where near ready for the market.


How can I get my business in ready-to-sell shape?

First and foremost, get your financial records in order. If you are like many small business owners, you may have a filing and record keeping system that makes sense to you, but that no other person could possibly decipher. You would need to have at least the past three years of tax returns and current P&L statements put together, but in reality all of your records need to be kept as orderly as you can so that a business broker and buyers can make heads or tails of your business when it hits the market.

Secondly, don’t let the aesthetic appearance of your business go, or let your business fall into a state of disrepair. Any buyer that comes in the door will be greatly affected by a first impression, so keep your business clean and in good shape.


While no one hopes that they will suddenly need to sell their business, it is a circumstance that happens all the time. By keeping your business in a ready-to-go state, you will be better prepared should the unexpected happen.


Are you a business owner who has questions about how to keep your business in ready-to-sell shape? Do you want to know what buyers look for in your industry? Please feel free to leave us a comment or question here and we will be happy to help you get your questions answered.




Michael Monnot


Create A Startup Or Buy Existing: Why Buying An Existing Business Is Right For You

We all know the stories of the truly great entrepreneurs who started with nothing and built a business empire from the ground up. Does this really happen? Sure, we know it does, but this scenario is hardly the norm. Depending on where you find your statistics, a very large percentage (sometimes 75% or more) of startup businesses fail before their 5th year.


Why does this happen? The business world is tough, and startups are expensive. Any brand new business is gambling on an unproven product, an unproven business model, unproven operating methods and an unproven location. Many budding entrepreneurs simply see starting a business as finding a space and letting the rest fall into place. What they fail to see is balancing the enormous expense of opening a new location (lease costs, build-outs, equipment, furnishings, inventory purchasing, permitting, licensing, etc.) and then saving enough capital to make it the six-month average that it takes a new (and successful) business to start turning a profit.


Should the scary world of startups keep you from becoming a business owner? Absolutely not!


One of the best ways to enter the world of entrepreneurship is to buy a business that has already passed the startup test. If the doors are still open and better yet if the business is a success, then the initial hurdles have already been jumped for you.


What if the reason I want to own my own business is because I want to create something that is uniquely mine? You can accomplish this easily by buying an existing business. Here’s how:


Let’s say you have a really great restaurant concept. Instead of building an entire restaurant infrastructure from scratch, you can buy an already proven location that is fully equipped, furnished, licensed, staffed and stocked. When you take over the restaurant (and after you are careful about decisions on changes, see The Over-Confident Buyer: Why You Should Take Baby Steps With Your New Business) you can begin to implement your own concept over time. You will save yourself the money and the headaches of starting from scratch.


If you still are not convinced that buying an existing business is for you, talk with an experienced and qualified business broker about the difference in expense for a startup versus an existing business in the industry you are considering. A broker will also be able to talk to you about the difficulties of obtaining a location, the necessary permits and licenses, etc.


If business ownership is something you would like to see in your future, then an existing business can be a great option. Want to see what’s currently out there? Try our search page to see what kinds of businesses are available and then talk to us about the businesses that interest you.

Are you still not sold on the idea of buying an existing business? Do you have questions about how the two options for business ownership compare? Ask us! Please feel free to leave a comment or question here, and we will be happy to help.




Michael Monnot


To Franchise Or Not To Franchise? A Business Buyer’s Question

You have decided to buy a business, that’s great news. Now you are trying to decide if the business you buy will be from a private owner or part of a franchise. Which type of business would be right for you? Let’s look at both sides.


To Franchise


If you buy an already existing franchise location, you inherit all of the benefits of a franchise without many of the downsides. You get a built-out location, the brand, an already trained staff and tried-and-true operating procedures. You typically won’t pay the same franchise fees that the original owner of the location did, instead you will pay a transfer fee.


Although the franchise fees may seem expensive, you need to remember that what you are buying with those fees is a brand and structure that you won’t have to come up with on your own. If you buy into a larger franchise, then you may not need as much focus on marketing as you would in a privately held business as customers with brand loyalty will seek you out.


Not To Franchise


If you want your business to go in it’s own direction, then a franchise is definitely not for you. You will not be able to change the name, the menu, etc. as you see fit.


If you want to start with a new franchise location, you will face the same issues any start-up would with the additional cost of buying into the franchise with franchise fees. You will need to pay for the location and the build-out, which will need to follow the guidelines of the franchise. You will have to train your own staff, and while you might be able to borrow some training help from the franchise itself, the staffing responsibilities will be all up to you.


If you do deviate from the franchise agreement, you risk having your franchise license suspended, which is not an issue you would ever have to contend with as a private business owner.


What To Do?


As with any business decision, there are risks that cannot be avoided. Owning a franchise can be a very profitable endeavor, but you will have to play by the franchise rules. The best thing to do if this a decision you are considering is talk to an experienced and qualified business broker about the good and bad of franchise ownership. They will be better able to guide you than the brokers and representatives of the franchise you are considering who are hardly objective in this situation.

Are you considering becoming a franchisee? Do you have questions about the process? Do you have questions about the good and the bad of franchise ownership? Ask us! Please feel free to leave us a comment or question here, and we will be happy to help you with buying a franchise.




Michael Monnot


I Want To Be My Own Boss! How Do I Start? Buying Your First Business

Are you tired of working for someone else? Are ready to take the entrepreneurial plunge?

Here are your first considerations when starting out on your own:


Should I buy or start a business?


Starting a business can be very tough, and a large percentage of start-up businesses don’t make it more than a few years. If this is your first foray into business ownership, it is usually a much better idea to purchase an existing business.


Why? In an existing business the business concept has proven itself to be effective because the business is still open. You will have the previous owner to show your the ropes when you first take over, and the physical space is already built out and functional. Systems of operation are already in place, all you have to do is learn how the business runs.


What kind of business is right for me?


This is where we always use the classic bar example. If you have always wanted to own your own bar, but have never worked in any aspect of the restaurant industry – then buying a bar will probably be a huge mistake. You need to choose a business where you already have some experience and expertise. Jumping into business ownership is difficult enough, you don’t want to add trying to learn an entirely new industry to the mix.


Think about work or education experiences you’ve had in your life that you enjoyed, or jobs you were very good at and try to find businesses that are in the same categories. Talk with your business broker about what industries you are considering, and they can help you narrow down your search.


How do I find a business for sale?


The best way to find businesses that might be right for you is to use the services of an experienced and knowledgeable business broker. They will know what is on the market, and will be able to find you businesses that fit your experience and budget.


Another way to scout potential businesses is to use an online business search like this one.


I found a business I want to buy, now what?


Tell your business broker that you have found a business that you are considering. They will contact the listing broker to get a non-disclosure agreement for you to sign. Once you have signed the non-disclosure, you will get to take a look at the business and some financial records to see if you would like to make an offer.


If you like what you see, you can make an offer. Once an offer gets accepted, you will enter a phase called due diligence where you will get a chance to look at everything – all financial records, contracts, etc. If you still want to buy the business, then negotiations will proceed based on what you found during due diligence. If you decide not to buy the business after due diligence, you don’t have to.


Buying a business is a big step. Make sure you choose a business that will be right for you. You also need to get help from a qualified business broker to make your transition to business ownership a positive one.


Are you thinking about buying a business, but you aren’t sure what kind of business would be right for you? Do you have more questions about the business buying process? Ask us! Please feel free to leave us a question or comment here and we will be happy to help you.

Michael Monnot


Michael Monnot


5111-E Ocean Blvd
Siesta Key, FL 34242

Michael Monnot


9040 Town Center Parkway
Lakewood Ranch, FL 34202


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