How to Value a Restaurant Business
If you are in the process of valuing a restaurant or looking into buying or selling one, here is a good rule of thumb: valuing a business that you are selling or buying is not an exact science. It’s kind of making a red sauce; there isn’t one correct way to make it, unless it’s your way. Just kidding. But there are multiple ways to value a business.
Here is a simple valuation technique for restaurants. Step one is to determine the owner benefit. You do this by taking the business net from the profit and loss statements (also called P&Ls or ‘cash flow statements’). You should end up with the net profit. Then, you add back any additional income the owner might be taking from the business.
Do they take salary? Are there benefits that the owner is taking? The reason why we add these additional incomes back to the net profit is because a new owner might have different ways of using cash. So, what we want to do i