If you’re thinking about selling your restaurant business, getting a professional evaluation is a great place to start. With an accurate picture of its market value, you can build an informed listing strategy to capture the best return possible.
In this blog post, we’ll look at some of the core variables that influence a restaurant’s market value.
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What Influences a Restaurant’s Value?
There’s no one size fits all formula for accurately determining a restaurant’s market value. That’s because no two businesses are exactly the same under a microscope.
However, there are general factors that can influence a restaurant’s desirability in the eyes of buyers. Let’s take a look at a few.
Profitability
One of the main influencers in a restaurant’s potential value is profitability. The better your restaurant is doing financially, the more buyers could be willing to pay for it.
In any case, serious buyers will want access to your restaurant’s financial records before they commit. This includes things like balance sheets, cash flow statements, projections, and even utility bills.
Your agent or broker can help you prepare all the necessary documents before you sell.
Does a Restaurant Need to be Profitable to be Sold?
Revenue can impact a restaurant’s market value, but only to an extent. If your business is barely breaking even or losing money, you can still accomplish a great sale. You’ll just need to be more strategic in how you approach the market.
Looking for more advice on selling your restaurant? Explore these other blog posts:
- Selling Your Restaurant, What Happens After the Deal Closes?
- How to Sell a Business Quickly
- Selling a Franchise: Advice For Franchisees
Reputation
Another relevant factor is history and reputation. Well-established restaurants come with proven business models and loyal customer bases, all variables that impact desirability and, in turn, market value.
The same idea applies to franchise restaurants. If you’re selling an individual franchise location, the strength and popularity of the brand will directly influence its value.
Curious about which franchises are in high demand?
Explore the top franchise restaurant brands in Canada.
Location
From attracting customers to real estate costs, location is a major variable in a restaurant’s success. This is something that today’s buyers are well aware of. As a result, your restaurant’s location will directly impact what it’s worth.
The Lease
Another major factor in your restaurant’s value is your lease. Key aspects of your lease agreement, such as rental costs and timeline, will impact what the buyer is inheriting.
For example, if you’re locked into a favourable rental rate with several years left on the lease agreement, your restaurant will likely be more enticing to potential buyers. On the other hand, if you’re paying above-market rent, buyers may have concerns about operating costs.
If your lease is ending soon, it’s better to take action sooner rather than later. Waiting too long to list could negatively impact what you’re able to accomplish from your sale.
Liquor Licenses
Your restaurant’s value can also change based on whether or not you have a liquor license. Buyers will appreciate the ability to transfer into an active liquor license rather than applying on their own.
Systems and Set Up
Buyers place a lot of stock on how your restaurant operates. A well-run, turnkey restaurant with efficient operational systems and practices in place will be more valuable than a business with an informal or chaotic approach to processes and procedures.
Turnkey operations are another reason why franchise restaurants are so desirable. With key structures and systems already in place, buyers don’t have to worry about reshaping the business model.
Want to know more about working with a business broker? Explore these related readings from our blog!
- Working With a Business Broker: The Basics
- Why You Should Sell Your Restaurant With a Business Broker
- What’s the Difference Between Residential and Commercial Real Estate Transactions?
Assets & Equipment
Let’s talk about tangibles. Your restaurant’s worth will also depend on the physical assets included in the purchase. This includes things like kitchen supplies, appliances, dining room furnishings, delivery vehicles, office equipment, and more.
It’s a good idea to make a detailed list of every item you plan to include in your sale. On top of making the transaction more efficient, providing as much information as possible helps buyers appreciate the true value of your business.
Property Details
Whether you own it or rent it, the physical property your restaurant occupies will also impact value. Features like age, condition, size, and layout are all important to buyers and will influence what they’re willing to pay.
If your restaurant sale includes real estate, a wide range of other variables like property taxes, tenant usage, and zoning will come into play too.
Every Detail in Context
When it comes to valuation, it’s not just about a restaurant’s physical features or revenue reports. Every last detail requires context. What adds value to one restaurant could detract from another’s. These nuances point to the importance of working with an experienced restaurant specialist when selling.
Ready to sell your restaurant? Carve Real Estate can help! Reach us at ryan@carverealestate.com or call 416-618-0054.
