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What's Your Restaurant Worth?

By Sandy Horwitz

5 Critical Criteria for Restaurants to Meet:

  1. Location Busy location, high traffic, booming business in the area and mid to high-income population.
  2. Occupancy (rent, property taxes and insurance on property and contents) Should not exceed 10% of gross revenues.
  3. Conversion Potential Can the restaurant be converted into another concept that will not compete with other restaurants within the same particular center?
  4. Equipment Condition Are they NSF (National Science Foundation) approved and in good condition?
  5. Asking Price The most important is percentage of gross revenue, which shouldn't exceed 30%-40% and the gross annual revenue shouldn't be less than $500,000 for a full-service restaurant.

If you have all of these criteria, the business has a better chance to sell for its full market value.

Additional Rules of Thumb for a Successful Restaurant:

  • Median sales per full-time employee should generally range between $55,000 and $60,000 and sales per square foot should be over $300 per square foot.
  • Prime costs (total cost of sales and total labor costs) should be 65% or less as a percentage of sales (full service). This gives the restaurant the potential to earn an adequate bottom line profit provided the other operating costs are not out of line.
  • Food costs generally range from 28% to 34% of sales and as high as 38% or more in operations specializing in steak and seafood.
  • Most recent data shows full-service restaurants were sold for an average of 2.2x Seller's Discretionary Cash Flow (SDCF), or cash flow available to a full-time working owner. Lease rate and term and competitive environment are the most critical factors.

**Above facts and statistics gathered from the Business Reference Guide 2012.

Sandy Horwitz is a Principal Partner at Goldstein Schechter Koch, a 60+ year-old certified public accounting and consulting firm based in South Florida.

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