What’s a Restaurant Worth?

Views: 56 Comments: 0 0 Post Date: February 9, 2021

There are over one million restaurants in America. Over 50% of them are owned by baby boomers.  An average boomer is 66 years old. The average retirement age in America is 63.

You see the problem here? Let’s see what a restaurant is worth…

Is running a restaurant like how they show in the movies? Think Robert De Niro from Casino walk around and greeting guests. Oh,  wait. No way even close! Owning and running a restaurant is like a never-ending marathon that goes on seven days a week. I know. I used to own one.

There are three things that are changing the restaurant industry as we speak…

What's a Restaurant Worth?

Rule of thumb

Tell me if you’ve heard any of these before.

  • Your food costs should be 28-32% of total food sales.
  • 60% of the floor space should be reserved for seating.
  • You should only keep 5-7 days’ worth of product in the restaurant.
  • These are more guidelines than rules that you can use to maximize your restaurant’s profits.

Valuing a restaurant varies based on whether the restaurant is full-service, a bar, or a more simplistic establishment like an ice cream shop or café. As your revenue increases, the revenue multiplier decreases, ranging drastically from 0.15x – 0.4x for a full-service restaurant and 0.25x – 0.5x for a small shop.

If you’re working with a franchise, add 0.1-0.15x to these multipliers. Why? Franchises are the autopilot piece, helping with suppliers, hiring staff, and with proper operation and management systems.

There are FOUR other FACTORS that affect the multiplier: 

  1. Customer loyalty. How many of your customers return? 20%? 50%? A good indicator that you have a stable base is 60% repeat customers while still receiving new opportunities daily. Work on making your current customers raving fans and your business will only grow faster.
  2. The lease. The building lease can be 20-40% of your revenue and is the biggest expense for most businesses. Ideally, you should negotiate the lease or set up a proper POS and convert the terms into revenue sharing. That way your landlord is a partner in your success.
  3. Online presence. It is crucial to managing your online footprint. Google reviews, Yelp, and TripAdvisor are integrated with food delivery services like Grubhub, Uber Eats, and DoorDash. Remember, home delivery customers also give reviews.
  4. Presentation. There are many restaurants with great food. The restaurants that know how to package and present their offerings in an enticing manner will win every time. This applies to both dine-in and delivery customers.

Mark Twain said, “Part of the secret of success in life is to eat what you like and let the food fight it out inside.”

Successful chefs and restaurateurs make food that they like and share it with customers. It’s so simple! Who knew life’s golden rule would show up here?

Restaurants are a noble business that brings people together and serves them food that nourishes their body and soul. Seriously, tell me – which business can top that?

Bharat Kanodia – Founder and Chief Appraiser 

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