restaurant brokers

How much is my restaurant worth now after Covid-19? 

While restaurants struggle to reopen and get back to business, others apply for the Paycheck Protection Program (PPP) to help with expenses. Sad to say but some restaurants will not open at all. Projections regarding permanent restaurant closures are expected to be as high as 33% in California according to Costar Marketing Analytics. Restaurant business sales have sharply declined during the pandemic but now that Phase 3 is reopening restaurants and bars throughout the state, business sales for restaurants and bars will start picking up again. Deal-making is likely to be cautious until we overcome the second wave of the coronavirus. Nonetheless, we have learned quite a bit about how eateries need to function during this pandemic. Our initial anxiety has given way to troubleshooting and problem-solving providing hospitality entrepreneurs with fresh opportunities.

California Business Brokers

How will Covid-19 affect Restaurant Valuations?

As business sale activity picks up again, many restaurant owners who want to sell are asking what impact coronavirus will have on the value of their restaurant. Immediate sales may have an impact but it should be relatively small. Though it may have seemed longer, it has only been 3 months since restaurants have been temporarily closed.

Sellers that are financially strapped or need to sell due to health or retirement reasons may need to accept less than they had anticipated for the value of their restaurant in order to facilitate a quick sale. Why? Not only has the pandemic injected uncertainty into the restaurant industry but the market has now shifted to a buyer’s market.

Buyers will be putting a premium on those restaurants that continued to operate during the pandemic and who are best positioned to rebound upon the economy opening up again. Those restaurants that were struggling to begin with will have a much harder time of being sold unless they have highly favorable lease terms and desirable assets.

Restaurants are valued based on Seller’s Discretionary Earnings (SDE) or Asset Value. SDE is used where the restaurant is profitable and essentially applies a multiple of earnings to the business adjusted cashflow. Asset value is used when the business is not profitable or when the value of the assets exceed the value of profitability. Asset value is based on the fair market value of the business’ lease, furniture, fixture and equipment. Due to COVID-19, some restaurants that were valued as profitable will now be sold based on an asset valuation.

EATS Restaurant Brokers

Restaurant valuations are based on 2019 sales numbers and 2020 sales projections. Banks will require quarterly 2020 profit and loss statements for bank lending approval. Based on national sales reports, most restaurant owners have seen a 70%-80% sales loss in March-April. Yet, given that the pandemic is a temporary aberration, lenders may ignore the first two quarters of 2020 in their decision to fund hospitality business sales. Of greater significance to buyers and lenders are how sales will increase moving forward much more than previous profit and loss statements.

For restaurant buyers, there are and will be abundant business opportunities that are profitable and for asset sale opportunities. Leveraging a seller’s restaurant build out, favorable lease, equipment, branding, etc. will provide hospitality entrepreneurs with the pathway to making their restaurant dreams come true for pennies on the dollar.

So When Is A Good Time To Sell My Restaurant?

Likely the answer is the same as it was pre-pandemic.

Ironically, the best time to sell your restaurant is when you don’t want to sell. When your restaurant is performing at its peak financially is when you want to sell because the business is now at i’s most profitable and, therefore, most desirable. Generally, buyers and lenders want to see the past three years of consistent growth and profitability from the operations of your business. So if your restaurant was doing great before the pandemic hit and you were able to adapt, the despite the impact to revenue and net profit, your restaurant should be sellable now.

If your restaurant was struggling pre-pandemic or you were experiencing declining sales, declining profits, you let your business languish due to personal issues or burnout, then you will need to consider selling your restaurant for asset value or regroup your efforts through exit planning to sell several years out.

Our Recommendations Regarding Selling Your Restaurant Now

  • Negotiate. Negotiate. Negotiate.
  • If you have to sell as soon as possible due to health or retirement, be flexible with your pricing. It’s a buyer’s market now and holding out for the highest price possible is unrealistic.
  • Re-evaluate your list price if your restaurant sale is not getting much activity after being on the market a couple of months.
  • If possible, get your restaurant pre-approved for an SBA Loan.
  • Offer attractive seller financing to a financially qualified buyer
  • Hire experienced restaurant brokers, like Mission Peak Brokers, to sell your restaurant.

Our Recommendations Regarding Delaying The Sale of Your Restaurant

  • Get a business valuation now to see where you are starting from as a benchmark.
  • Consider hiring professionals such as an exit planner or business coach to determine what you need to do to revitalize your business and steadily increase sales & profits.
  • Create a 3- to 5- year plan and determine what improvements you can make each year to increase your return-on-investment.
  • Make cosmetic improvements, repairs as needed.
  • Massively increase your online assets and social media marketing to drive growth, brand recognition and revenue.
  • Assure that your restaurant will be pre-approved for an SBA Loan.
  • Hire experienced restaurant brokers, like Mission Peak Brokers, to sell your restaurant.

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