Appraising a commercial restaurant business requires buyer as well as seller to work together to evaluate the financial performance, goodwill, and physical assets. The buyer wants to know if the key employees will continue serving the restaurant or sign non-compete clauses, what encumbrances of the restaurant business are, and if there are any lawsuits pending. If the owner wants to sell the restaurant then he should have a thorough checklist that can be useful in the appraisal process to determine a fair selling price of the business.
Here are some useful tips that play a crucial role when appraising a restaurant business.
- Appraise the physical assets. One of the major steps when appraising a restaurant business is considering all its physical assets. These include land, restaurant building, kitchen equipment, cutlery, furniture, linen, stemware, cash registers, management software, and hard goods. Prepare an inventory of all physical assets of the business and get them inspected to find their current market value. It is better if the buyer and seller agree on a neutral appraiser or they obtain third-party appraisals. Note all damaged assets that need to be replaced since these assets will incur buyer expenses after he becomes its owner. Assistance of professional commercial real estate appraiser can be worthy when dealing with a restaurant sale or purchase.
- Review the financial documents. Being the seller you should review the financial documents of your restaurant to check its current balance sheet and recent cash flow. Consider cash assets and amounts owed. Also, consider long term loans, leases, contracts, and insurance policies. Evaluate the net, annual profit for your restaurant business since it will help you determine an appropriate selling price, which is calculated with help of the net profit of the business. Provide your prospective buyer with bank statements and tax returns. If you are a buyer then it is better to request all financial information and inspect it carefully before you buy the restaurant.
- Discuss employee agreements. Key employees are crucial part for the successful, smooth operation of a restaurant business. For instance, if a well-known chef works in the restaurant then his service is counted during the business appraisal process. If you don’t have restaurant experience when buying the business, the service of current manager or chef may be crucial for the successful, smooth operation of the business in the future. Check whether the employees will be available after the sale of the restaurant or they are willing to sign non-compete agreement. If you buy a restaurant operated by an expert chef then you don’t want that chef to open a new restaurant in your vicinity.
- Calculate the liabilities. If you are a buyer, ask for a list of restaurant liabilities including money owed, contracts, pending lawsuits, insurance policies, repair or replacement expenses, the latest bad reviews, and current health department citations. Once you receive this list, sign a form acknowledging that you have knowledge of all liabilities. If you are the seller, you need to sign a statement acknowledging you have revealed all claims against the restaurant business and are accountable for anything that is discovered after the sale of your business.
- Consider the intangibles. Check intangibles of the restaurant business including its name, trademarks, reputation, liquor licenses, logos, permits, locations, recipes, zoning, building code exceptions, and key personnel. Determine whether you can run the business without all or some of these intangibles. Also, determine which will transfer with the sale. Proficient real estate appraisal services will help you include the worth of key intangibles in your appraisal.
- Sum it up. Determine the net profits of the restaurant over the last three years. If you are purchasing a restaurant that made remarkable net profits, you can assume that you can gain back your investment and make good profits in the coming times. If the net profits are positive for last few years but are in small amounts each year then you will have to work hard to make back your investment.
Following these six techniques you can obtain a fair and accurate value of a restaurant business easily and make final decision on its sale or purchase without any hassles.