Restaurant Value Drivers: Increasing The Value of Your Restaurant Business
Restaurant Value Drivers are elements of a business that make it more desirable to prospective buyer, and therefore, more valuable. A restaurant valuation is similar to other business valuations. However, the restaurant industry has its own unique factors. Many restaurants have the common drivers of quality, hospitality and consistency.
Increasing the value drivers of a restaurant will increase the value of the restaurant for a business sale. The following restaurant value drivers are elements that most restauranteurs can influence in the years and months preceding a business sale in order to maximize the business value.
Restaurant Value Drivers
1. Restaurant Value Drivers: Location, Location and Location
It is likely that you have heard the expression, “location, location, and location” as the key ingredients to a successful business. While there are many other important factors, you can’t compromise on the importance of location.
High traffic, high demand prime location with booming businesses in the area can be a significant asset. Access, parking, signage and accessibility are all important. However, a great location is not the only key to success.
2. Restaurant Value Drivers: Excellent Lease Terms
In addition to location, the lease terms, including assignment provisions, relationship with market rent, rent percentage of gross revenue, remaining term, escalation clauses and solid renewal options, are crucial to the restaurant’s value. The more valuable the lease terms, the greater the value.
For financing purposes, you’ll need lease terms that match the duration of the loan period. So if your loan period is 7 years, then the lease duration must be at least 7 years. This can be accomplished with the underlying lease as well as options to renew.
3. Restaurant Value Drivers: No Equipment Age or Condition Issues
Are you able to create a plan for reviving your venue? Are you planning and budgeting for the replacement of tables or the addition of a patio awning? The perceived value of your facility and equipment will increase if it is in good condition.
Buyers will also consider whether additional capital will be required to improve the equipment or facility. This will affect the final price.
4. Restaurant Value Drivers: Revenue & Earnings Stability
A restaurant valuation is greatly affected by the accuracy, completeness, and ability to verify financial records. Restaurants that have a year-over-year increase in revenues and earnings will be valued more than those with a decrease. The actual price will be determined by historical profitability. The seller is responsible for proving the true financial benefits of the business by providing accurate financial records.
5. Restaurant Value Drivers: Hours of Operation That Maximize Income
Gross revenue and earnings are important but it is easy to forget the hours and days the establishment has been open to reach those numbers. A busy restaurant in a business area that is able to make money during bank hours will be worth more than one that is open for longer hours, more days and does the same amount.
6. Restaurant Value Drivers: Conversion Potential
Is the restaurant possible to convert into another type of restaurant that is not in competition with restaurants located in the same area or within the same demographic? Do you have the proper permits? Even if the establishment isn’t profitable, buyers might consider buying it.
7. Restaurant Value Drivers: Food & Labor Margins Within Industry Standards
Restaurant business owners must consider labor and food costs. The type of restaurant you choose, whether it is full-service, fast food or if there are a lot of liquor sales, will affect the cost of these items. As a percentage of gross revenues, costs should not exceed acceptable industry margins.
8. Restaurant Value Drivers: Very Clean & Well Maintained Premises
When selling a restaurant, it is important to make a good first impression. Potential buyers will feel confident that they are making an investment in a well-maintained establishment. Sloppy restaurants, on the contrary, signal that there are more serious issues beneath the surface.
9. Restaurant Value Drivers: Stable Employees
Organizational stability is important. High turnover can impact the business’s value and hinder its success. Develop staff training programs and get their feedback. To ensure staff retention, you should consider promoting highly motivated and efficient employees. Bonus programs for managers and other key staff should be tied to company performance and profit.
Customer service and employee attitude go hand in hand and will be noticed. Positive and upbeat employees are a sign that the restaurant has a good track record. However, cranky or disgruntled staff can indicate a problem. Keep in mind that the new owners will likely want to keep most of the current staff. However, it is important that problem employees are replaced before the restaurant goes public.
10. Restaurant Value Drivers: Excellent Reputation & Goodwill
One of the first things that a prospective buyer will do when considering your restaurant for sale is check out your online presence. A good looking website, lots of favorable reviews and robust social media will immediately make an positive first impression which will increase the desirability of your business for sale. It is important to have a web presence that makes your name known to people searching the internet.
It is almost certain that potential buyers will ask around and search the internet for information. Yelp and other similar sites are widely used these days. It is a great place to find out about a restaurant’s reputation. Respond to negative reviews on the internet as soon as possible.
Recognition or awards that are not standard for the industry will give you an edge over the rest and increase your perceived value in the market.
11. Licenses
Check that the restaurant meets all health codes. Also, ensure that all licenses and permits are up-to-date. This could cause problems that could jeopardize a sale. The liquor license will allow a restaurant to serve dinner. This license will increase sales and attract customers. It is important to not overlook the value of a liquor license. It is expensive to get permits, licenses and pay fees. This has increased the cost of opening a restaurant. Even if the establishment isn’t profitable, buyers may consider buying it.
12. Potential for Growth
Can the concept be franchised? Is it possible to add a delivery or catering service? Can an outdoor space be added? Do you have the potential to create an advertising campaign or increase your email or text marketing efforts to attract customers? It is crucial to develop a solid growth plan in order to attract aggressive buyers.
13. Motivation of the Seller/Reason for the Sale
This is a common question buyers ask about any type of business, including restaurants. Remember that no one wants a business they don’t believe in. A buyer will want to know that you are enthusiastic about your business’ future and that there is a reason you need to sell. This question is most likely to be asked face-to-face. Be prepared to explain why. It could be a big difference to give a concise, honest answer.
Contact The Restaurant Brokers at Mission Peak Brokers
Interested in selling your restaurant, bar, cafe or nightclub? Contact our Restaurant Brokers to We have extensive restaurant business sales experience.
Our restaurant brokers will value your business and manage the full spectrum of brokering your restaurant business sale to a successful outcome. We can also provide financing services, such as securing SBA financing, and handle commercial real estate associated with the sale.
