Six Ways to Check the Value of Your Restaurant Investment

This article follows on from:
Buying Your Restaurant – The Biggest Decision You Will Make
and
Buying a Restaurant - Key Market Questions

Once you have a better understanding of the market, you should now focus on the building and ‘the deal’.

1. Base the value of the business on trading profits and not the number of seats in the restaurant. Whatever you think you can add to the revenue should not be included in the price. This is your risk and your premium.
2. Separate the revenue generated by food and beverage and the sale of other services. Do the proportions of revenue indicate under-performance in one area or another?

3. The purchase price should be between 4 and 8 times profit, except in exceptional circumstances, nd excluding any living accommodation.

4. Purchase price should be .75 to 2 times annual revenue.

5. Total loans should be less than 70% of the purchase price – and preferably be much less!

6. Is the property freehold or leasehold. Determine how future rents will be fixed – will you end up paying more due to your own investment? And at the end of the lease will you have anything to retain – such as a second income from a business you can develop through the restaurant operation – an outside catering business, a catering consultancy etc.?

At this point I wish you every success with the transaction and future operation of your restaurant.

During the last 14 years we have worked with many operators in many different markets, areas and countries.