hi everyone i've had the great privilege
and honor of listing and selling a
number of restaurants and bars over the
last several years
one of the biggest questions
that i get from both buyers and sellers
is immediately they want to know right
away how much is this bar how much is
this restaurant really worth there are
really two values in the restaurant
industry and bar industry that are pl in
play here
first what the seller wants to sell it
for and second
what the bar restaurant is actually
worth
i'm going to talk about a couple of ways
which buyers and sellers can have a
rough calculation on the value of an
establishment that is currently open in
doing business what the business what
the restaurant what the bar is actually
worth if a restaurant is closed there
are other evaluation metrics which i'll
cover in another video
now if you're thinking of buying or
selling a bar or restaurant it's really
a good idea to have a professional
appraisal done
this will take into account many things
that this back of the envelope
calculation which i'm about to tell you
will not like the economy cost of assets
the age of the business and so on
i'm speaking about a ballpark idea that
helps give you a starting point and a
rough idea of the valuation of the bar
or restaurant you're either looking to
buy or sell
there are two ways to do this the first
is called the seller's discretionary
earnings approach and the second is the
percentage of sales approach let's talk
about the seller's discretionary
earnings approach first
what that is is the seller's
discretionary earnings approach is you
take this seller's discretionary
earnings of a business
and that's calculated by taking the net
income of a business and adding back a
number of expenses that a new owner
would not have for instance the first
expense you could add back is any
one-time expenses the owners had over
the last year in order to make
improvements in the business a new owner
would not technically have those
expenses going forward so what you could
do is you take the net income add back
one-time expenses add back the owners
the current earners compensation to come
up with the seller's discretionary
earnings
and the way that that's works is you
take your seller's discretionary
earnings and what i'm seeing currently
in the restaurant industry is i'm seeing
around the valuation of two to three
point five times so if the
seller's discretionary earnings of a
restaurant is
a hundred
that restaurant is going to be worth
anywhere between
200 000 to 350 000. now there's other
um
variances and things that i've seen but
right now that's a good ballpark figure
for what the market's bearing
another way to do it is to take the
percentage of sales approach and the
percentage of sales approach will give
you a r another rough idea of restaurant
bar evaluation
and the way that you do that is you look
at the restaurants or bars
total sales and you apply a 20 to 40
percent
of total sales to get a rough idea
valuation now the seller's discretionary
earnings
is not a perfect way to approach it
the percentage of sales is not a perfect
way to approach it but what it'll do is
it'll give restaurant tours and also
give
buyers a good idea on what the
restaurant or bar is currently worth so
again the seller's discretionary
earnings you take that multiplied by 2
to 2.2 excuse me to 3.5 times and then
also to the percentage of a restaurant
or bar sales usually ranges between 20
to 40 percent so if a restaurant is
doing a million dollars in sales their
rough valuation is gonna be right around
two hundred thousand
to four hundred thousand dollars so i
hope this video helps if you have any
questions about it um
please feel free to reach out and i look
forward to working with you