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What needs to be considered in business valuation of restaurants?

If you are planning to sell your business or might consider doing so in the near future, getting an accurate business valuation is crucial. To an entrepreneur who built his business from the ground up, that company may seem priceless. Naturally, however, you'll need a more objective estimation.

Restaurants are somewhat unique when it comes to business valuation, because there are certain factors to consider that are usually not as important in valuing other types of businesses. We'll discuss some of those in today's post.

Everyone needs to eat. In that sense, the products being offered will always be in demand. That being said, consumers have a lot of restaurant choices, which means your restaurant will need to be competitive on many fronts. A valuation analyst might consider factors such as:

  • Location of the restaurant
  • How much competition the restaurant faces from other restaurants nearby or those offering similar menu choices
  • How well your menu reflects consumer preferences
  • How experienced the management of your restaurant is
  • Customer loyalty and critical reviews

Valuation of your restaurant will also likely be based on demographics of the community you are in. These include:

  • Average age of the population and expected population growth
  • Employment/unemployment trends in the area
  • Average wages of consumers and how much disposable income they have
  • How your prices compare to other area restaurants
  • Whether or not your restaurant is part of a chain

Hopefully, these lists give you a better understanding of the many interconnected factors that must be considered when valuing a restaurant. It may also help you realize that business owners sometimes need to seek outside assistance for legal and financial matters. Working with an experienced business law attorney and a valuation analyst can greatly simplify these tasks and ensure legal compliance, accuracy and efficiency.

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