It’s a common misconception that a restaurant’s financial success (or lack thereof) will completely make or break its sale price. Sure, a popular and prosperous restaurant can command a premium on the market, however, there’s a lot more that goes into valuation than just profit.
There’s a lot that people get wrong about selling (and buying) a restaurant. Even within the realm of commercial real estate, the restaurant space is a unique, standalone specialty. To that end, getting a great result from the sale of a restaurant requires insights from a professional restaurant real estate agent with exclusive expertise – like us.
In this blog, we’ll look at one of the most misunderstood elements of restaurant valuation: the financial success of the business.
Curious about the market value of your restaurant? Click here to get a free, no-obligation valuation from top industry specialists.
Profit Vs. Price
Let’s start with the million-dollar question. Can you sell a restaurant that’s barely breaking even or outright going under? Absolutely. In fact, selling a restaurant that’s commercially successful isn’t that different from selling one that’s failing – at least when you break it down to the essential elements.
Here’s the deal. All restaurants have value, even ones that are struggling to find success or have already closed their doors to customers. Sure, when a restaurant is ultra-successful it may attract premium offers from buyers and investors, which drives up the final sale price. However, this dynamic doesn’t apply to the inverse. In other words, if a restaurant is struggling to make a profit, its market value won’t plummet to the same degree.
Hoping to maximize your restaurant sale? Explore these related readings next for more advice.
- Selling Your Restaurant? What Happens After the Deal Closes?
- Selling a Restaurant Business in Ontario: 5 Things To Know
- Why You Should Sell Your Restaurant With a Realtor
Most Buyers Want a Blank Canvas
You’ve put countless hours of work into your restaurant and while you may be proud of everything that you’ve built – your brand, your menu, and your relationship with customers, it’s important to understand that most buyers are coming in with their own concept.
Most restauranteurs aren’t looking to buy a well-established business that has a legacy to uphold. Rather, they’re looking for a blank canvas to bring their own vision to life. With that in mind, your profits and losses aren’t always directly relevant to their plans for the business.
Buyers are likely to put more stock into your restaurant’s future potential, rather than its current cash flow.
What Determines Your Restaurant’s Market Value?
At the end of the day, there’s simply so much more that goes into a restaurant’s market value than profits and losses. Restaurants are evaluated on 2 metrics; base value or base value + income. Base value is what a restaurant is worth even with no profits coming in. This refers to the lease, location and other factors. Restaurants, unlike other types of businesses, do have an inherent base value.
Every business is unique, but restaurants are truly unique in the marketplace, and if you’re running a restaurant business, regardless of profit or popularity, then you have something to sell.
Here are a few factors that influence your market value:
- Location
- Infrastructure (venting, plumbing, electrical, licenses, permits)
- Size and layout
- Chattels (equipment, furnishings, decor)
- Lease terms
- Property inclusion (if relevant)
Looking for more fresh insights about selling your restaurant? Check out these blog posts.
- 5 More Reasons to Use a Restaurant Specialist for Your Toronto Restaurant Sale
- How to Stage Your Toronto Restaurant For Sale
- When is the Best Time to Put Your Restaurant Up For Sale?
Selling Your Restaurant Proactively
Your restaurant’s poor performance may not be detrimental to its sale potential, however, it’s still negative to your bottom line as a business, your personal finances, and your reputation as a restauranteur. To that end, it’s still a good idea to be proactive in listing your restaurant for sale before you get too far in the red – if things are trending that way. For example, if you’re operating at a loss every day, it could be best to cut your losses and begin the selling process so that you’re able to start paying off debts sooner rather than later.
Our Best Advice: Sell With a Restaurant Agent
If you’re planning on selling your restaurant, the best thing you can do to maximize your results is to partner with a professional restaurant real estate agent. As we mentioned up top, restaurant real estate is particularly nuanced. So, if you want to get the best result from your sale, you’ll need to work with a specialist – not a residential or general commercial agent.
On top of their industry-specific selling strategies, a top-performing restaurant real estate agent will also have direct connections to industry players and can expose your business to a more relevant and qualified pool of potential buyers – contributing to a smooth and successful sale.
Ready to sell your restaurant? Carve Real Estate can help! Reach us at ryan@carverealestate.com or call 416-618-0054.
