Business Valuation Blog | Understanding Buying / Selling a Company

What's different when you're valuing a restaurant?

Posted by Business Valuation Specialists LLC on May 31, 2018 1:25:03 PM

A business valuation can be a complicated process, but even when you understand the entire process, there is a wide range of differences depending on the particular industry your business falls into. This is especially true when valuing a restaurant, which can have many differences in even very similar enterprises. Here's a quick look at how restaurant valuation is different than other types of businesses.


What's different when you're valuing a restaurant?

Restaurants have a wide range of different factors that can impact its value. Is it a diner, a fine-dining establishment or a themed eatery? Where is it located and what kind of clientele does it draw? Have you developed a strong following because of a specific type of cuisine, fresh approach or community outreach? All these factors can impact your restaurant's value.

Most restaurants have an assortment of fairly standard pieces: tables, chairs, dishes, trays, ovens, stovetops, refrigerators, chopping blocks, sinks and decor. Though the quality and number of these items will vary based on the size of the business and the type of cuisine being served there, the value of this equipment is pretty close to even across the board. Where restaurants really tend to have different values is when community goodwill and average income are brought into account.

A small mom and pop diner may serve a couple dozen groups over the course of the day, not turning over a great profit but not having much in terms of expenses either. A specialty restaurant featuring locally-produced foods and specialty fare in a vacation area may have constant wait times during the tourist season, but just a few customers a day during the rest of the year. A high-end fine cuisine restaurant may draw plenty of attention with their specialty chef, but may lose income and business when that chef leaves the business for other opportunities.

Does your restaurant always support whatever youth sports, academic group or arts organization needs help at the time? That sponsorship often leads to additional income from family members of students or arts patrons which would otherwise be unavailable. Is it popular because Sal has been slinging top-notch burgers for the past 20 years and customers have come to expect that familiarity from the cook? If so, changing owners may cause a drop in business as customers realize that their familiar friend is no longer running the show.

These types of added business can be hard to value, but are an essential part of the business' bottom line. This is one of the many reasons a restaurant owner should always use a certified business valuation specialist when trying to determine the value of their business. A certified appraiser has the knowledge and experience to properly value a restaurant business, with all of its unique facets and factors that can impact its value. They know how to determine the value of goodwill and community support, as well as value of every specific facet of your restaurant's assets and income.

By understanding the process of valuing a restaurant, you can gain a better grasp of how different decisions you make can impact your business' bottom line. Take time to carefully go over your valuation report, and make sure to ask about any calculations you're not certain about so that you can get every possible dollar of profit and productivity out of your equity.

Topics: valuing a restaurant