Recently I have received several requests to purchase and sell restaurants for my clients. As a business opportunity or bulk sale, these transactions require more work than your typical lease. However, there are also benefits with higher commissions percentage wise.
When I meet with my clients or perspective clients I request a couple things and look at a few specific things.
- The Lease Contract – This is the most important document as it will provide all the terms of the lease including lease term, base rent, NNN, lease options, etc. I take the lease terms and compare it to the current market conditions. Based on the overall lease I determine if the current lease term is favorable, unfavorable or neutral for a potential buyer. Of course if its favorable it adds value, if its not it reduces value.
- Profit & Loss Statement – This document is very helpful assuming the owner has proper accounting practices. Usually if a restaurant is profitable the owner will have great books and if it is not the books typically disappear. Big coincidence I am sure. With a proper P & L we can valuate a restaurant based on its sales and an appropriate multiple, without it other information must be used.
- Location – When I meet with the client I always walk around the shopping center or around the block to get an idea of the type of traffic and demographic in the immediate surroundings. Based on a combination of what I see, what the owner tells me and what I have analyzed, I determine if the location is established, gentrifying or challenging. Then I compare the location to the lease to determine if it is consistent or not. An adjustment to the price will be made based on my determination.
- Equipment – In many instances a restaurant’s most important asset is the kitchen equipment. I inspect the equipment to determine the age, the reusability and whether its purchased or leased. This will give me a good understanding of the lowest value the restaurant can sell for. In many instances when a restaurant is struggling, with a lease that is at market price, the sales price of the restaurant will ultimately be the value of its equipment.
Once you combine the information provided by the four items above, a qualified commercial broker will be able to come to a determination for the sales price of the restaurant.
Of course there are other items that may move the needle when it comes to the price such as the layout of the space, the brand equity, ABC Licenses, etc. However, with the four items above, an accurate approximation can be made that can be adjusted based on other factors. This entire process is a combination of art and science. Ultimately, to truly get maximum value, make sure to hire an experience commercial broker that will have both the knowledge and the network to close the transaction for the right price and within a reasonable timeframe.