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What's Your Restaurant Worth?
By Sandy Horwitz
5 Critical Criteria for Restaurants to Meet:
- Location – Busy location, high traffic, booming business in the area and mid to high-income population.
- Occupancy (rent, property taxes and insurance on property and contents) – Should not exceed 10% of gross revenues.
- Conversion Potential – Can the restaurant be converted into another concept that will not compete with other restaurants within the same particular center?
- Equipment Condition – Are they NSF (National Science Foundation) approved and in good condition?
- 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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