Restaurants For Sale Online Releases Pricing Study
by Jacob Zimmerman, Restaurants For Sale Online
June 2005
 
Restaurants For Sale Online frequently has been asked, how do I price my restaurant, bar or club for sale? The issue of valuation is very complex with restaurants as there are so many variables involved. We highly recommend consulting with a broker in your local market to get their opinion. In the case in which the restaurant owners owns the real estate in addition to the real estate, it is very important to look at comparable real estate sales in the area.

Restaurants For Sale Online offers two common valuation methods which have been proven to be utilized in the industry. These valuation methods are purely average based and the owner should consider local variables and consult local intermediaries prior to setting pricing. Restaurants For Sale Online assumes no responsibility or liability in owners decisions on pricing.

Two valuation models used in the industry are the gross sale and cash flow multiple models. Based on a sample of over 800 listings taken from our website we have pretty good evidence that these multiples are widely used. Keep in mind that other parts of the business including equipment value, below market leases, and goodwill are not necessarily factored into these equation.

Gross sale multiple: 50%-60% of yearly gross sales. Out of three separate surveys we conducted the averages of listed businesses ranged between 58%-61% of gross yearly sales for businesses which reported. Keep in mind that listed price does not generally reflect actual selling price. Business brokers will usually suggest a multiple closer to 50% depending on the businesses marketability. In the case of a struggling business this multiple may be lower.

Example:
Assumption 1: $300,000 yearly gross sales
Assumption 2: 50% gross sale multiple
$300,000 x 50% = $150,000 Asking Price
 

Cash flow multiple: The cash flow multiple is utilized more often when a business is profitable. The cash flow multiple ranges from 150% to 350% of the yearly cash flow.

Example:
Assumption 1: $100,000 yearly cash flow
Assumption 2: 250% cash flow multiple
$100,000 x 250% = $250,000 asking price

Business + Real Estate Included: Take the appraisal value of the real estate, plus the value of the business using one of the two above models. 

Example:
Assumption 1: Real Estate Value = $900,000
Cash Flow Valuation = $300,000
$900,000 + $300,000 = $1,200,000 asking price
 

2005 Restaurants For Sale Online Pricing Survey Results:
Listing Survey from Restaurants For Sale Online data
Conducted 6/1/05 *Survey results rounded to nearest $1,000

LISTING PRICE: (Based on 837 Samples)
Median Listing Price: $215,000
Average Listing Price: $391,000

GROSS SALES: (Based on 472 Samples)
Median Gross Yearly Sales: $420,000
Average Gross Yearly Sales: $638,000
Median Gross Sales Multiple: 50.4%
Average Gross Sales Multiple: 59.2%

CASH FLOW: (Based on 289 Samples)
Median Cash Flow Yearly: $88,000
Average Cash Flow Yearly Sales: $129,000
Median Cash Flow Multiple: 277.8%
Average Cash Flow Multiple: 302.0%