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The Essential Guide Business Reference Guide Online to Pricing Businesses and Franchises

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The Essential Guide

to Pricing Businesses and Franchises

2016 BUSINESS REFERENCE GUIDE Compiled by Tom West

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The Business Reference Guide Online Database (BRG), published by Business Brokerage Press, is the essential guide to pricing businesses. With the online database, subscribers enjoy the BRG data they depend on with additional benefits of keyword searching, personalized printing, continual updates throughout the year, and more! An online subscription also includes a print copy of the current year’s BRG. With up-to-date rules of thumb and pricing information for nearly 700 types of businesses, the BRG is a vital tool for anyone involved in a privately owned business. Take advantage of:

Rules of thumbs for annual sales as well as discretionary earnings Pricing tips with every entry, straight from industry experts Benchmarking data on competition, location, market, expenses at a percentage of annual sales, and more Comprehensive listings of associations, publications, and websites that include more details about specific industries • General information sections including industry data, survey results and other key factors • Industry trend data and industry expert ratings • Complete contact information for industry experts

2016 BUSINESS

Benefits of the Business Reference Guide Include:

• Ability to search for businesses using keywords • Access continual updates throughout the year • Ease of adding BRG data to your reports and business summaries by simply copying the required text from the BRG Online to your work

Take advantage of the uses of the online BRG

REFERENCE GUIDE

• Easy-to-use search tool to find all entries containing a certain word • Access pricing information anywhere that you have internet access • Copy and paste rules of thumb, pricing tips, and more into an informational package or marketing piece for clients • Confirm the accuracy of your valuations with the most current data available, including entries added throughout the year

Learn more at:

bvresources.com/brg Compiled by Tom West Business Valuation Resources . 1000 SW Broadway, Ste. 1200 . Portland, OR 97205 . (503) 291-7963 . bvresources.com

1/15/2016

Business Valuation Library | BRG Online

Business Reference Guide Online A Business Valuation Library Publication, www.BVLibrary.com

Restaurants Full Service SIC: 5812 NAICS: 722511 Number of Businesses / Units: Unavailable

Rules of Thumb 20 to 35 percent of annual salesincludes inventory 1to 3 times SDEincludes inventory 2 to3 times EBIT 2 to 3times EBITDA Note: California restaurants seem to be receiving higher multiples than the rest of the country with the possible exception of New York City. For example: 35 to 40 percent of annual sales and 2 to 5 times SDE.

General Information "Keep changing the menu and always have a daily special, and house wine etc.Have a happy hour in slow time to keep the employees busy, and keep them in the restaurant.Offer incentives to servers when they exceed specific sales per capita." "Experience is a must in running a fullserve restaurant. Do not even think about buying it unless you are experienced not only in any restaurant, but specifically fullserve restaurants. Since the owner should meet with lots of customers, a friendly and positive attitude is a must. Management skill is very important, and finally, commitment to work long hours and have a good Cap Ex to replace the equipment." "There are many chefs looking to open their own restaurant. And while they are usually more than capable of providing a great meal in the kitchen, they don't always have the skills needed to manage the business. Too many chefs open a restaurant undercapitalized." "A new owner needs to be healthy and in good physical condition, have good people skills and basic accounting knowledge." "The restaurant owner needs to be passionate about making sure the customers are happy about the food and service. Make sure each customer is recognized and thanked for their patronage. Keep the faciltiy clean and make sure the entire staff can smile. Be committed to being available at all times to both the employess and the customers." "Having significant reserve capital, or the realistic ability to obtain it when required, is crucial." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"A new owner needs experience! The most crucial ingredient for success in this industry is experience whether from working in the facet of this industry that one wants to grow or getting an appropriate college degree in one's field of endeavor...experience will either create fabulous wealth or significantly dilute one's dreams." "National chains and franchises make it easier for people to enter the industry with little or no prior experience." "This business tends to be a way of life rather than a business. It requires tight controls on food costs and labor along with exceptional quality and customer service to compete against the industry leaders." "A new owner needs a strong work ethic. Culinary skills would be helpful, as would general business knowledge, strong people skills, and being customerservice oriented. Licensing in most states is limited to health department licensing and liquor licensing. The owner needs to be well capitalized and should provide enough working capital to allow for marketing to grow the business. The food business is based on people trying the product; you need to get them into the restaurant to try the product; you need to spend marketing dollars." "A successful owner must be passionate about making the guests have an enjoyable experience in his restaurant. Good quality food at fair prices seems to work. He should be prepared to work more than the average 40hour work week, often putting in more than 65 hours per week. He should be detail oriented regarding item costs, proper ordering, managing payroll and promotion. It's not a business for someone who wants to share his mother's recipes with the public unless he can offer a very professional approach to managing all aspects of the restaurant operation. It is recommended that management have 6 months of cash flow available in the beginning with access to more if necessary." "Not as bad as Cstores but reataurants are notoriously difficult to nail down the owner's SDE. Compiling adequate information to prove the actual owner's discretionary earnings is a challenge, but by obtaining the owner/seller's trust it becomes easier. It takes great creativity on the broker's part to decipher the various available documents that prove the actual income and SDE, and 'normalizing' a P&L is always necessary in coming up with numbers for buyers. We have the seller initial every document we use to firmly establish the source of the documents. Our ability in this area separates us from the runofthemill broker who won't take the trouble to dig out the true earnings of a restaurant." "It requires considerable skill managing people, including employees and customers, and managing costs to a detailed level (food and labor). Some chefs and cooks can make the transition to owner successfully, but skill in the kitchen does not guarantee success. Experience in the industry both front of the house and back of the house is important for operations, but also making sure the person knows the demands and enjoys the business. The hours are long and may not fit well into a traditional family life. Landlords look for experience, so even if the buyer and seller agree on a sale, the landlord is often a barrier if the buyer is not experienced." "This is one industry where experience is important, and is not hard to obtain in my opinion. Culinary schooling is helpful but not required in terms of actually managing or owning the restaurant. Training as a chef does not always translate into successful business management. Anyone seriously considering this industry should be willing to gain practical experience, primarily to make sure they enjoy the work and understand the time required and to some extent the physical nature. Management and motivation of hourly wage employees is important, along with customer service skills for dealing with the public/diner. Accounting and understanding of detailed expense management is critical. The ability to deal with various regulatory agencies is important. Marketing and promotion (social media included) must be part of the program, whether outsourced or as another responsibility of the owner. Don't forget that someone has to plan the menu, order inventory and create a consistently good product, usually with oversight and menu design the responsibility of the owner." "In suburban markets if real estate is available try to acquire with business. If RE is not available, try to negotiate definitive option purchase amount, and at the very least try to get a first right of refusal to purchase in the lease." "A good manager is worth whatever it costs." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"In order to be successful the owner almost always needs to be on site (mom & pop) or there are theft problems." "Be very cautious in this business. If there are no tax returns, walk from the deal if you're looking for a profit generating business. If the seller will cheat the government, then they will have no problem cheating a buyer. Observe the business activity during various times of the day, over several weeks. Why is the seller selling? Do the numbers make sense?" "Look elsewhere if it's your first venture into a restaurant, or be fully aware of the time and financial commitment." "Read The E Myth (Gerber) before you even think about starting or owning your first restaurant." "Find out if there is offthebooks income and if any employees are paid off the books." "New owner needs restaurant experience, handson owner/operator.....deep pockets, long hours.... Note **** Very important. In South Florida the season runs from December through May 15th. Sales can decrease up to 30% from June through November. September and October are historically terrible months for restaurant businesses in South Florida. The most common reason people go out of business in South Florida is because they do not understand the seasonality of this market and cannot survive the summer." "Sellers: Be sure the business shows good financials and has good costs. Buyer: don't pay for what's not on the books and ask owner financing with approximately 50% down. That will give you some indication of the seller's confidence in the numbers and you." "Midpriced casual dining restaurants are going to be the strongest segment in the business over the next few years." "Paying attention to food cost is critical. Many lose sight and let employees (chefs) control ordering. Buying right is a key to profitability. I always recommend clients who are new to the industry to learn all areas. Learn how to run the front and back of the house." "Get and keep your books in order. It is the number one reason the value is not realized. Get an appraiser or broker's opinion of value. If the business is listed for more than market value, it will likely not sell." "Owner needs people skills.Treat your customers like royalty. Take part in greeting your patrons and be involved in what is happening in your dining room. Walk around and talk to your customers in every table and ask them very simple and short questions, i.e., "how are you today?" is anything that you need? My name is....and I am the owner. Very nice meeting you." "The percentages change depending on the type of restaurant." "Buyers must structure a salable lease priorf to buying a restaurant (or starting one)." "Make sure you understand the advantages and disadvantages of franchise and nonfranchise operation." "If you have the right location, you can have great sales from the start. You do not have to build it slowly like a service business." "One of the ways to capitalize on this business opportunity is to be the second, third or fourth operator coming into a physical plant where the initial operator or operators have spent a lot of money on the infrastructure, and new operator's investment is a small percentage of what the replacement cost would be for getting into this operation." "You really need to understand your state's licensing laws and be able to have financing sources." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Focus on location, visibility, menu, direct competition, and parking; these ingredients are very important for profitability and stability of the restaurant." "Keep the number of items on the menu average; don't attempt to be everything to every customer."

Expert Ratings • Competition

3.3

(1=Lot of : 4= Not Much)

• Amount of Risk

3.2

(1=Very : 4= Not Much)

• Historical Profit Trend

2.1

(1=Down : 4= Up)

• Marketability

3.2

(1=Low : 4= High)

• Industry Trend

2.8

(1=Declining : 4= Growing)

• Ease of Replication

1.8

(1=Easy : 4= Difficult)

Expert Comments "Buyer should consider the minimum wage increase for the next 5 years and factor that into the labor expenses. Sales should be in the financial statement; today's buyers are very careful, and don't want to pay for just guessing. If the seller wants top dollar, then the seller has to show the top books. Gone are those days of buying a restaurant with observation only, with no books and records. If the restaurant doesn't have good books, then I value it based on sale of asset in place." "With liquor, hard to duplicate. Without liquor, much easier to open a restaurant." "It's all about leasing and location in pricing and marketing." "With the overreach of government regulation and the shrinking profit margins, success becomes a daunting task that is only attained with hard work, a competent staff, a good location, and handson management." "A significant portion of the restaurant/bar business is from cash sales. A buyer should verify that sales reported by the owner are accurate." "Depending on the type of food and menu price points the competition is high. There has been a squeeze on profits due to higher labor costs, fuel surcharges and possible impact of Obamacare." "The restaurant business is a grueling one, and most sales are motivated by burnout of the owner after some period of years. Restaurants serving three meals, 7 days a week are most difficult to sell as they are burnoutprone operations. Primary traits of successful operators are drive, ability to multitask, human relations skills, ability to analyze a business and stay on top of costs. Everyone wants a restaurant because they think it is a dinner party every evening and don't realize the commitment a restaurant takes." "Risk in the industry is always high but in today market it's worse. The industry trends are good because the good operations survive and many of the marginal businesses are disappearing. Customers are more selective today where they spend their limited disposable dollars."

http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Costs of food and labor result in small profit margin. Very competitive, but industry overall has demand from consumers. Cost of entry can be very high relative to return on investment if doing a new buildout. Recommend second generation facility for this reason. Usually cost effective to buy an existing restaurant even if paying some goodwill and then changing the concept." "Sellers need to understand that if they are the ones who made the initial capital investment, they may not recoup their investment. I try to make them understand that when they opened it was based on returning the investment in the form of operating profits over the course of ownership (years). Market value based on cash flow may not justify a price that would equal the high cost of investment. Normally the reason for sale is something other than, or in addition to, simply making money from the sale. Buyers should ask the typical questions about reason for sale and what the seller would do if he or she were to stay longer. The landlord relationship should be discussed. Competitive changes in the area should be researched." "There is typically a very large capital investment to open a restaurant in compliance with building and health codes. Restaurants can usually be sold, whether profitable or not, mainly because of the high cost of buildout. Asset sales for conversion are common unless the restaurant is not viable, usually due to lease or location. Industry trend—there will always be a need for restaurants as people dine out for convenience or pleasure, but cost of goods, cost of labor, and regulatory environment continue to squeeze the profit margin which makes the business challenging and risky. Ease of replication—in relation to some other businesses I would say it is easy to create and open with the exception of the high cost of initial buildout and remodeling. It is not too difficult to open especially if the infrastructure is already in place, but it can be difficult to make a profit. Operational experience is important although many enter the business without the recommended experience, which then justifies the opinion that this is a high risk category." "Experience is not required but preferred. Successful owners can run all aspects of their operation (including the kitchen); for restaurants performing $1MM or under this is a must, whereas larger operations (>$1MM) can allocate more payroll for specialists." "Increased food costs have diminished profitability therefore showing an overall decline in historical profit trend. A general forecast that profits will be down in the New England markets based on this past winter having some of the worst weather on record." "Make sure you have a busy location with a lease no more than 10% of the gross sales." "The buyershould first sit down with an expert and let the expert explain to them the pluses and minuses of buying a restaurant. Too many buyers function strictly on an emotional level. With the help of someone who knows that type of business, ask for actual food and beverage purchases. Get a list of the suppliers and call them to verify." "A profitable restaurant is easily marketable. Verification of sales and owner benefits is important, so a profitable restaurant with good financial records is very marketable." "Historical profit seems to be trending upwards mainly due to the stability of the global economy. In seasonal locations like Cape Cod restaurant sales on average are trending upwards mainly due to consumer confidence and more vacationers dining out." "This is a lifestyle, not a business, in most cases. Be prepared to put in long hours until systems, policies, procedures and a reliable staff (including managers) are in place. Restaurant experience is nearly always required to obtain financing due to the high risk and historical failure rate." "Location, location, location. Also critically important, cleanliness, customer service and food quality." "Normalize owner and/or manager salaries. Question how many hours the owner is working. Be very careful with lease options that are at market rent. If it is a triple net lease, check and see if the building is for sale. As an example; the current owner paid $800K 10 years ago. He wants to sell as an investment property. New landlord pays $1,600,000. Taxes that the tenant must pay just went from $15,000 annual to $30,000 or more. Nothing the buyer of the business can do but he should be prepared that it may happen in strong markets." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Iwill advise the buyer to make sure that he watches the activity during the busy times, to be ready to spend enough time in the business in order to manage it correctly, that this type of business needs a full time owner operator to be successful and grow the business, and to make sure that he hires a due diligence expert that is familiar with restaurants. I will advise the seller to price the business in a realistic way since most of the businesses on the market for sale are restaurants. I will show the seller sold comps in his area, and also tell him to keep all his records in order to prove the numbers during due diligence." "If the restaurant is leased, make sure that the lease is assumable and that renewal options exist so that similar rent going forward can be obtained." "Understand the industry plan, budget, P&L weekly. Work hard to have the best service and food; understand the numbers and what they tell you." "Develop a good business plan and make your changes slowly. Don't spend all your money on leasehold improvements!Buy the real estate if you can." "Experience is very important in this field. Majority of restaurants close thedoor or sell within the first 5 years." "Whereas a chain is a 'cookie cutter' buildout, an independent will usually have unique features that are not so simple to replicate. Restaurant profits appear to be higher than the past few years. More sellers of the really good restaurants want to sell." "Salability is mostly dependent upon two factors; Profit to the owner and price. The 4X and 5X multiples will not sell. Neither will a business making less than $50,000. We don't accept an assignment for a business making under $75,000." "Buyers have a much higher risk aversion in this market which slows the decision process and many deals are lost at the eleventh hour because of second guessing their decisions to buy. There are so many vacant, fully outfitted restaurant spaces available. The ease of replicating and consequently the lower cost of getting in business is attractive to first time restaurant owners. To experienced buyers it's still location, location, location, business trends and proven SDE history." "Lease is key: at least 5 years with at least one 5year option." "Historical profit trend is less important than in some other industries, because many will buy the restaurant as a conversion opportunity, although the profit trend does impact the price. It is true that many restaurants and bars do not show a profit on the books or tax returns, but this is less of a factor today due to the dominance of debit and credit card revenues and POS systems." "The rental rate per the lease agreement is very important. Watch out for percentage rent clauses as well. A belowmarket lease with years to go is a big benefit. A short lease or abovemarket rent is a problem." "Barrier to entry can be restricted by number of pouring licenses in town or municipality." "Competition in the surrounding area is not much of a factor because more restaurants together become a reason to visit a location (provided they are different concepts)." "1. Competition is daunting. Big chains can & do kill independents. 2. Very risky business due in large part to competition but also changing customer attitudes and the media. 3. Profit trends are down due to increasing labor costs and competition. 4. Location, location, location! 5. Tough to sell due to all other factors. 6. The field is growing but is being diluted by grocery and big discount stores selling prepackaged meals. 7. Most any concept can be fairly easily replicated in menu and design. The key is in quality, quantity and service." "You never know why one concept works or doesn't, but location is key and you're only as good as your servers!" http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Competition and risk are both high because it's rather easy to enter the industry (getting harder) and too many novices attempt owning a restaurant. The economy is definitely affecting the bottom line. Due to the high cost of recent construction, the rent factors have increased and arecutting into the restaurant's profitability and also hindering the opening of new restaurants in prime locations. In the highrent areas of Metro Orlando the costs have risen from $25.00/S.F. to as much as $60.00/ S.F. My office sales still constitute approx 45% foodrelated businesses. The industry is still growing although more difficult to replicate than inpast years." "The hard truth is that most restaurants fail. It is often the 2nd or 3rd restaurateur that makes a location work. Part of the reason is that that party has a lower initial cost than the original party that did the buildout, purchased new equipment, etc. Buyers benefit tremendously from seller's losses."

Seller Financing "Seller financing is typical, since SBA not excited to loan on restaurants, but the down payment should be large enough for restaurants with ABC liquor license, the liquor license has lot of value in case the restaurant fails." "Seeing many cash transactions on entry level businesses." "Smaller restaurants use seller financing. Bigger facilities can get institutional lending." "Outside financing is available only for national chains and franchises or for a few exceptional local restaurants with excellent longterm financials. Most local type restaurants require seller financing." "If the numbers can be substantiated on tax returns, bank financing is possible; if not, more seller financing will be needed." "Seller financing mainly because the typical restaurant lacks the sort of financials that a bank will loan against.The average amount of seller financing is 44% of the selling price." "Less than 20% fit the criteria for SBA guaranteed financing. Most sales are cash or have a component of seller financing." "Business with real estate outside financing is more common. Restaurant business with revenue under $1 MM seller financing." "Often a mix of traditional bank financing (SBA loan typically), some seller financing and maybe some outside investors." "In today's market it is mostly owner financing for small food service businesses because the financials are not typically good. This would apply for single owner businesses; in partnerships the businesses typically have better financials. Food service operations with over $1.5 million–$2.0 million sales are generally better managed and have better financial controls and frequent financial reporting. In those cases some outside financing is possible if the numbers are good and meet standard and theoretical costs." "Bank financing is typical of the restaurant includes the real estate. Seller financing is common when the business owner is in a leasehold position. On average most deals have an element of seller financing, whether it's a portion of the acquisition price or the inventory." "In our market most are cash. SBA for very good businesses, owner carry for bars is not uncommon (4050% down)." "Both seller financing and outside financing are typically available the key factor is the quality of the financial statements." "Owner terms, but we're seeing more SBA driven loans." "Bank financing is always a challenge but with restaurants it is magnified. Banks will lend to restaurants that have good cash flow per tax returns however they may require some seller participation (seller carry some debt). Have done numerous seller financing deals as well as hybrid bank/seller financing." "Seller financing should always be done in conjunction with a lease assignment and the length of the seller financing should never exceed the current term of the lease." "Average time is 60 months. 78% of my sales over $200,000 are done with some owner financing. The average amount of owner financing is 44% of http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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the selling price. Interest these days is 2 3/4% to 3%." "Because the payback here is short, up to 24 months for an independent and up to 36 months for a franchised restaurant, the finance portion won't be longer than that, invariable 612 months" "Less than 5% of our transactions are seller financed due to the high failure factor. Most sellers would rather have a smaller price and all cash. Those financed deals range in the 2 to 3 year range for payback always fully amortized." "It ranges from 3 to 7 years, with most industry experts reporting 5 years."

Questions "The buyers should find out the percentage of food vs. liquor when they perform due diligence. They also have to find out about key employees, especially the chef—if he/she will stay. The condition of equipment, grease trap, dishwasher hood if needed, and make sure it is current with city and health department codes." "How many hours owner works, if it's more than 40 to 45; I do adjust for employees." "What are the sales trends and respective profits. A buyer needs to dig into the financials and get a thorough understanding of all expenses. If they don't understand, they should ask an accountant for help. What are the terms of the lease. How is the landlord to deal with. Does he take care of his property and respond to your needs as a tenant. Is the seller current with payments to the landlord & vendors." "Staff loyal? Menu same for how long? Personal receipt? Age of kitchen equipment? Delivery?" "How much time is left on the lease; are renewal options fixed or at 'market.' How many hours a week does the owner spend in the restaurant." "Make sure the books are accurate—a lot of cash tends to pass through these businesses and sellers often cannot support claims with reliable data." "The business is not for the faint of heart but can be very fun to operate. Must ask the seller to prove the figures. Are all recipes written down? Is the kitchen staff trained, or is the owner required to do all the cooking?" "Buyer should review all sales tax payments and actual food and liquor receipts not just the P&L especially if there is a lot of unreported income." "Tell the seller that no one is going to buy their business unless they can answer three questions: 1. What does the business take in? 2. What are the necessary expenses to operate the business? 3. What is left over for the owner as profit (SDE)? We cover our document, What every seller should know, to school sellers on working with a business broker. In part it states that 'selling a business is nothing like selling a house where the seller doesn't even have to play a role in the sales process.' That cooperation is mandatory when questions are asked or documents are requested and an immediate response is required 'even to the occasional inconvenience' of the seller." "Are you willing to finance the sale? Buy what is on the financials." "Learn about the landlord. Understand the cost of goods. Know whether there are promos and discounts being used to generate revenue and what may be outstanding. Know who the key employees are in the kitchen and whether any are being paid outside of normal channels. Look into past health department reports and ABC conditions." "1.) Is the seller in good standing with the state Department of Revenue (DOR) and Department of Unemployment Assistance (DUA)? Failure to comply http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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can result in delay of transfer and delay in transfer of liquor license. 2.) How old/how many tons are the heating/cooling units. I advise purchasers to inspect these, as this can be a large unforeseen cost." "How many hours have you been working? Are all sales recorded? Are there any employees being paid in cash? Do you know of any new competition coming to the area?" "How old is the air conditioning unit(s)? Inspect the A/C thoroughly. This is commonly overlooked by inexperienced buyers and can be a large unforeseen expense.Read your lease thoroughly and hire an attorney to review/negotiate it.Make sure to look at the gross sales to rent ratio" "How can I verify the sales number?" "What areas do you think you could grow your business? The seller should know where he sees room for instant growth and where they should 'trim.' What are the day to day roles of each employee? Many times employees can work additional jobs to save on labor. High labor cost can eat up your profit fast!" "Why did you buy or start this business and what do you think of it now?" "How many hours the owner works, food and beverage costs and payroll costs. How long is the lease—is there percentage rent, what are the escalations in the lease?" "Reason for selling, history of the business, what makes it special compared to competitors, any lawsuits pending, three years' P&Ls and tax returns, List of FF&E, Personnel info (duties, tenure, pay, hrs. worked weekly, any benefits, hours worked by owner, competitors' names and est. market shares, areas for growth of the business, catering done, monthly sales for past 3 years, published newspaper or magazine articles, names of professional advisers, zoninglicense or EPA issues, inventory value, business hours, etc., etc., etc." "Whatare the food costs. Do you have trouble getting help. What type of marketing do you do." "How much are liabilities?" "What does the future look like for the location? Zoning, competition, lease rate, etc." "Percentage of cash vs. credit. Is there reliance on a key chef?" "Is the price/sq. ft. of the lease within market?" "Which equipment is leased and which is paid, and the condition of the equipment. Is there a grease trap? What kind and what size? Any key employee, especially the cook, and whether he or she wants to stay." "Will the owner offer financing, training, noncompete (for how many miles); is the lease assignable; is all equipment approved by the NSF (many states do not allow domestic appliances in a commercial location); are trade name, Website, recipes and training manuals included in the deal?" "It is useful to know if the owner has experimented with different hours (breakfast, lunch, dinner, weekend brunch, late night entertainment). Of course the reason for sale is good to know. Any expected modifications from health dept. or franchisor? Any liquor license violations or restrictions?" "Is there any competition coming to the area?" "Ask about cash payroll. May sellers pay all or part of their payroll in cash. Check if the POS computer is connected to the corporate headquarters or http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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franchise. How long the seller has owned the business might be a good indication that after they bought it they decided that they made a mistake and want out." "Work histories of staff? Staffing resources? What vendors should I not deal with and why? Suggestions for growth or expansion?" "Do they have good and current tax returns; are the federal, state and payroll taxes current; and does the family have nonessential employees on the payroll? Are sales taxes and gratuities being included in the sales? Some accountants will permit the operator to do that, then remove them as an expense." "Which equipment do you own that is leased? Do you have any giftcard programs?" "Does a refurbishment need to occur? Why are you selling now?" "What is your strongest area in your business? What part of your business needs the most improvement?"

Pricing Tips "Don't put a lot of weight for rule of thumb on annual sales, since the occupancy cost has increased significantly in the last 3 years. It's the same for the labor cost, therefore, it is very critical to multiply with SDE. The multiple of SDE goes up for the restaurants with $100,000 + SDE, and if the restaurant has a full liquor license type 47, B&W type 41 license, catering license type 58, entertainment license, etc." "Most restaurants with liquor sell for 70% multiple. Without liquor the ratio drops to 3540% of sales. Light menu a big plus. Home cooking hard to duplicate for a buyer." "Price can vary with cash flow and, with leased properties, the quality and length of the lease." "Does the owner just manage the business or is he the chef or cook? Business is more valuable if owner just manages the business." "Ease of operation—fiveday operation worth more than a sevenday. Always look at food to bar sales as to what percent." "Lease should be no more than six to eight percent of sales. Food cost and payroll costs are the key items to control after lease costs." "Much depends on the size of the revenues and earnings; the multiples increase above $500k in sales. Gross profit should be 70% or better." "We never use gross sales to determine a price. Only a multiple of SDE is used. For businesses that rent their space, the average is 2X SDE with 1.7 1.8X selling faster than 2X. For businesses that own their real estate, the formula becomes 1.4X SDE plus real estateeither appraised value or agreed. "The main factor that drives pricing from a sales perspective is if the restaurant has liquor or is just food. From an EBITDA or SDE provable figures drive the multiple as well as the condition of the equipment and decor in addition to the lease terms. The type of food served also will be a factor; the more ethnic, the more difficult to sell." "The more technical the business, the lower the percentage of gross sales. Another way to say that is the more difficult to operate the business and the more intense the management involvement, the lower the multiple. Fast food sells at higher multiples than a white tablecloth restaurant." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Lease terms and rent are a key factor. There is a great range of complexity within the industry that also contributes to determination within the range of 2.0–2.75." "Pricing based on cash flow can range from 2.0 to approx. 2.5 depending on several factors: lease terms, condition of FF&E, stability and years established, hours of operation, complexity of operations. Location is always a factor but is generally already reflected in the financials. Unprofitable restaurants are marketable based on location, infrastructure in place, ABC Licensing, quality of FF&E, and lease terms." "In suburban markets occupancy costs should not exceed 10%. Restaurants with revenue under $1 MM are less desirable and likely treated as startups from a lending standpoint unless significant cash flow can be shown." "Including real estate, the price can be up to gross sales and up to 35–40% in leased space, but debt service should always be calculated to see if it makes sense for a buyer. This is going down as restaurants have become less desirable in recent years. The higher end restaurants are the toughest to sell, as the down payment needed is greater." "Each deal has a different set of circumstance depending on four factors I use: (1) strength of revenue—is it growing, flat, declining? (2) profitability—is it growing, flat decreasing? (3) lease and location—is it a high traffic location or a destination location? Are there plenty of years left on the lease? How's the rent compared to market and compared to the sales volume? And are there restrictions in the lease that could hurt a sale? (4) Finally, the condition of the restaurant and its equipment. Is the place in great shape or a bit worn? Is it clean or filthy? I score each of these factors to generate an average score and relate that to an estimated value." "Since 95% of all restaurant sales are sellerfinanced, the determined price is a direct function of 4 components: goodwill (sales), lease (7% of sales is ideal), equipment, seller financing...how is it structured." "Occupancy costs should be in line with industry averages of 6–8%." "90% of the restaurants in this market are sold as asset sales and have no verifiable cash flow or books and records. These are priced according to the market which is typically between $50K and $250K, depending on type of restaurant, and if the restaurant has a hood, grease trap, etc... Rent is a major factor in determining price. Restaurants with above market leases stay on the market a long time and are difficult to sell. The value of a full 4COP liquor license in Miami Dade is in the $175K range and this must be added to the price of the FF&E and Leasehold Improvements. Neighborhood is a huge factor in this market with restaurants in the top neighborhoods selling at higher levels. Restaurants for sale with good books and records and verifiable payroll records that are cash flowing are scarce in this market and when they are available they typically sell at a premium.(3X SDE all day) There are many buyers in this market looking to obtain their VISA's. The most common type of VISA buyer that we are seeing is for the E2 Investor Visa program where the purchase requirement seems to be in the $100K range. The story of the guy that needs to obtain his VISA and is willing to substantially over pay for a restaurant is a myth. Gross sales and rent are the best value indicators to me." "Proper use of the SDE formula is the most accurate way of valuing an independent restaurant with sales under $3 million per year." "Seasonal restaurants, 'takeout,' and 'togo' style restaurants with strong cash flow are desirable and trade at a higher SDE multiple and gross sales multiple (40%). Yearround fullservice restaurants with sales under $500k are less desirable and trade at (20–30% of sales) depending on profit." "The multiples increase as revenue and earnings increase due to economies of scale. Cost of goods should be at or below 30%. Must look for cash that is unaccounted for and nonoperating assets and expenses." "Multiples are the highest possible. Need to look at prime costs to make sure they are within industry averages, must normalize owner's salary, and rent needs to be less than 8% as a ratio of sales (6% is ideal but not achievable in some markets)." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Twice the probable yearly seller's profit" "Key factors are the food cost, payroll cost and rent expense as a percentage of total revenue. Rent should be about 6% to 8% of total revenue. Food costs and payroll costs vary depending on the type of restaurant. Franchised units typically sell for more than mom and pop units." "You need to take into consideration the location, rent, any way to bring expenses down within reason and the concept." "Age of equipment and F&F very important and lease. Numerous leases are priced over market rents; it is important on a feasible rent structure ideal 6%8% of sales volume. Equipment ages quickly in this industry key in that it is maintained on a regular basis." "We use Owner's Discretionary Benefit exclusively because a new owner wants to know what will be available for them. The cash component of a restaurant owner's owner benefit must be clearly proved; otherwise we refuse the listing." "100% of gross sales if the real estate is included and 30% if in leased space." "Rent ratio over 10% lowers the SDE, EBIT, EBITDA and the percent of annual sales. The percent of annual sales is reduced point for point on every point rent ratio above 10%." "% of annual gross needs to be supported by SDE so higher prices get higher % of sales and lower %'s may have no SDE and may be just the sale of the tangible and intangible assets. Lots of other factors to consider including comps for like businesses." "Obtain bank statements showing deposits to help verify income. Obtain check register to verify expenses. POS numbers will usually be higher as most of the cash will show on thePOS (but maybe not the deposits). Taking a really good prospect to lunch or dinner almost always pays off! For businesses conveying real estate, our 13year average of multiples for scores of restaurant sales shows a multiple of owner's discretionary income of 3.1X which includes real estate. These same sales show a multiple of 1.6X owner's discretionary income plus negotiated real estate value. I have averaged 98% of the asking price for 13 years using these formulas." "If longterm lease at undermarket terms, could pay premium." "Every state is different; you need to understand the real estate impact with the lease or property ownership, licensing laws and food trends." "Whether franchise or independent restaurant, location, parking, rent, number of seats, any patios, equipment condition, compliance with the city and health dept. codes; any liquor license, entertainment license etc. will affect the multiple above; if the restaurant is located in Aplus location with all the above conditions, I would value as high as 3X SDE." "Make sure to adjust the pay for family members working in the restaurant to current market rates for equal skill level." "Home cooking lowers price. Number of seats. Food cost and menu prices." "Asset Sales Pricing: businesses doing between $200K and $500K in yearly sales are selling at an average of 32% of yearly sales; businesses doing between $501K and $999,999 in yearly sales are selling at an average of 29% of yearly sales; businesses doing between $1M and $1,999,999 in yearly sales are selling at an average of 21% of yearly sales; businesses doing $2M+ in yearly sales are selling at an average of 17% of yearly sales. Going Concern Pricing: selling at a multiple of 1.0 to 3.0 times adjusted cash flow depending on the degree of difficulty of the business, how long the business has been in operation, the quality of the location, the terms of the lease and upside for the business." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Compare COG to industry standards. Rent factor vs. sales. Extraneous cost to generate sales, e.g., music, price deals, advertising, hours of operation." "1. Occupancy cost should not exceed 10% of annual gross sales. 2. Watch accountspayable aging. Restaurant operators tend to drag vendors out to 60–90 days. 3. If cost of sales exceeds 35%, there is probably some skimming going on." "2 times EBITDA plus value of FFE + Liquor License+ Inventory" "Most restaurants will sell for 30%–35% of gross sales, but the bigger the business the better. Over $2 millionin annual sales normally needed to make real money." "Adjust for exceptionally low operating hoursvs. extremely long hours." "Restaurants with small profits are worth more as an asset sale than based on sales or net cash flow. The cost of opening a new restaurant makes over 50% of the restaurants for sale only worth what the buyer feels he would have to spend to open a new one. The cost of permits and fees has driven the cost of new restaurants through the roof, and buyers should always consider taking over an existing one even if not profitable." "Nonfranchise restaurants are worth 30%–40% of annual sales. Franchise sitdown have been selling for 50% of annual sales, if they make a profit big enough to justify the price. Johnny Rockets are now selling for around 1 year's gross income. Franchise food not making money; before debt service, theyare worth the value of the assets in place." "The last 100 fullservice restaurants soldwere sold for an average of 2.2x Seller's Discretionary Cash Flow (SDCF), or cash flow available to a fulltime working owner. The range was 0.0x (simply taking over a lease for a nonprofitable venture) to 5.0x SDCF (wellestablished community icon with unique and nonduplicatable concept). Lease rate and term, and competitive environment are the most critical. In certain geographies, availability of liquor licenses may be even more critical." "Due to the high cost of creating a restaurant, we are seeing more conversion sales or asset sales. For unprofitable newer restaurants (with recent build outs and newer equipment) having longterm leases in place, we can often recoup 1/3 to 1/2 of the total cost of creation." "5day breakfast, lunch, or alcoholonly bar: 40% of sales. Large fullservice over 6000sf and $1 millionin sales: 25% of sales. All others: between 30– 35% of sales depending on profitability and condition of facility." "May require reverse gross margin proofing. EBITDA formulas typically larger restaurants." "Minimum length of lease: 10 years; consistent sales history over three years. Assumes no major renovations required. Pricing for going concern only with market rent."

Benchmarks Statistics (Chain Restaurants) Number of Establishments

32,576

Average Profit Margin

4.4%


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Revenue per Employee

$59,000

Average Number of Employees 55.3 Average Wages per Employee $18,789 Products and Services Segmentation American food

56.6%

Breakfast foods

17.0%

ItalianAmerican food

9.3%

Seafood

9.3%

Other food

5.7%

Specialty burgers

3.8%

Asian cuisine

1.8%

Industry Costs Profit

4.4%

Wages

32.0%

Purchases

32.1%

Depreciation

2.3%

Marketing

2.2%

Rent & Utilities 12.9% Other

14.1%

Market Share DineEquity Inc. 7.5% Darden Restaurants Inc. 6.0% Source: IBISWorld, December 2015 Statistics (Single Location FullService Restaurants) Number of Establishments

263,710


4.3%


$52,600

Average Number of Employees

12.9

Average Wages per Employee

$18,089


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Products and Services Segmentation Asian restaurants

25.5%

American restaurants

20.2%

European restaurants

14.5%

Other

13.7%

Mexican restaurants

12.9%

Pizza restaurants

6.4%

Seafood restaurants

4.0%

Steakhouses

2.8%

Industry Costs Profit

4.3%

Wages

34.4%

Purchases

38.9%

Depreciation

2.4%

Marketing

2.2%


5.9%

Source: IBISWorld,November 2015 Statistics (Premium Steak Restaurants) Number of Establishments

2,432


6.2%


$66,100

Average Number of Employees

45.5

Average Wages per Employee

$20,128

Products and Services Segmentation Classic steak restaurants

35.0%

Steak and seafood restaurants

32.6%

Other premium steak restaurants

22.0%

Premium Brazilian steak restaurants

10.4%

Industry Costs http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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Profit

6.2%

Wages

30.1%

Purchases

33.5%

Depreciation

1.9%

Marketing

3.0%


19.1%

Market Share Ruth's Hospitality Group, Inc. 9.2% Darden Restaurants Inc. 6.4% Source: IBISWorld, April 2015 "Benchmark sales per square foot for a steakhouse are $400+, Food costs at a steakhouse typically average 40% +/." "Must be able to keep food costs down. Spoilage kills lots of good restaurants." "Ideal prime cost is 50%." "$10,000 to $12,000 per seat per year." "Need to keep rent below 8% of gross sales to have a good chance of success." "Food costs vary according to the type of restaurant. Many fast food enterprises can be in the 28% to 33% range; fullservice restaurants typically have a higher cost of sales in the 35% to 38% area. Controlling payroll costs while still covering shifts well requires good management." "The more alcohol in the sales mix, the greater the profitability should be; requires inventory controls." "The major controllable expenses are FLP >> food goal 33–34%; labor goal, including employer payroll taxes, 25–27%; paper goal 1.5–2%. Occupancy cost should be between 6–8%; above 8% you have another partner, that being the landlord." "We look at margins as a common benchmark. Also income per hour opened per week." "Food costs range from about 25% to 35% depending on concept. Labor cost is about 22–25% for quick service and closer to 30% for fullservice. Having owner replace general manager can save an average of 4–5% on labor depending on revenue. Therefore, most independent restaurants net between 10–15% with an owner manager. Franchises often net 10% or less depending on royalty and management cost." "Too often the RE has gotten too valuable for the sales level, thus the occupancy cost to the next buyer could go higher than industry averages, thus the seller is going to have to carry back more of the deal to make it work." "$300$500 PSF sales yield, $50,000 $75,000 per employee per year. Casual category specific can go up to $75,000 $100,000. Food cost should http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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average 32–40 % depending on type food (steaks & seafood) high vs. burgers and fries and southwestern (Mexican) low and competition in the market. Owner operators are more successful than absentee owners." "Occupancy cost (including all NNN/CAM charges) should not exceed 10% of annual revenue. This is a very difficult benchmark in high urban areas or soughtafter vacation destinations, i.e., Nantucket; however, for one to be successful, reasonable occupancy cost is crucial." "COGS is a blend. With high protein costs I am finding food COGS are climbing to 34–36%;, liquor costs have been constant with a target of 19–21%. Payroll target is 30–35%. In theory if the prime costs are within industry averages, rent is 6–8%; a decent operator will drive 10% in EBITDA or more." "Prime cost needs to be 60%" "It's all over the board but a 6% lease in a hot location with a good assignment clause is like gold!" "$50 per sq. ft. in gross revenue per month should be expected. Food cost can range from 22% all the way up to 37% and payroll with a working owner can range from 23% to about 38%."

Expenses as a Percentage of Sales • Cost of Goods

25% to 35%

• Payroll/Labor Costs

25% to 35%

• Occupancy Costs

06% to 10%

• Profit (pretax)

08% to 20%

Industry Trend "Authentic restaurant in right location will do great, since people are looking for original and unique types of restaurants. People are tired of seeing the same franchise restaurant and will want something different. Of course the taste and the service is very critical, therefore, hiring a great chef is a must." "High end steakhouses will continue to feel the pressure as more restaurants enter the market and the restaurant industry continues to become more promotionally driven." "Flat business growth. Economy a big factor." "A growing brand awareness among consumers = more chain and franchise units." "I see minimal growth with an increase in expenses creating a smaller profit for restaurants." "Business is getting better slowly after the recession." "Hopefully with a new president, repealing of a plethora of executive regulations, and a recovering economy, the wellfunded, professionally managed operations will continue to thrive...those businesses that have been struggling will fall by the wayside and get picked up by the growing class of http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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entrepreneurs that have a solid vision." "Expect things to remain very competitive tough to compete against national chains, but it can be done if management is exceptional." "With the amount of new products emerging from the market with flavored wines, vodka, whisky...one has to stay up on what is in." "Restaurants and bars will continue to be a soughtafter type of business. Turnovers will remain high. As rent will continue to rise, restaurant owners will be more creative in finding less popular locations and turn to social media for marketing and to promote their locations." "As the economy turns, if gas prices stay down thus putting more disposable income in consumers' hands, business should continue to improve for the restaurants with low to mid menu price points. The higher end restaurants will continue to have economic pressures." "Sole Proprietorship. Assuming the economy continues to improve I expect restaurant sales to increase marginally in the next few years. Generally, I think the trend will be to cover higher costs with moderate price increases. Once a new administration is in place and a new effort to lessen the impact of big government is functioning, a rapid improvement in sales and turnover will become evidenced. If we continue on this big government liberal approach, then the restaurant busines will limp along barely covering costs." "Much the same as we have seen over the last 3–5 years. Costs will rise. Limited disposable income will cause customers to be more selective. Owners will need to become more focused on limited menus and higher sales revenues on higher margins." "The demand for restaurants in general seems stable and strong, but it may become more difficult for the independently owned single operators to maintain market share when dealing with costs and regulatory environment including minimum wage increases. California is more burdensome than many other states in this regard and some franchises and chain restaurants have avoided expansion to the area. People are more health conscious and particular with their food in general and there is an opportunity to cater to this market if the restaurant can provide a good value for the product. Bars and clubs including microbreweries and craft cocktail houses are doing well." "There will continue to be strong demand for restaurants in general, but it is challenging for the independent restaurants to compete with the franchises and chains. The independent owner must have a way of differentiating from the many choices available, in terms of the menu, or personal service. Ethnic and specialty restaurants (vegetarian for example) are increasing in popularity. However, in my experience, people say they are interested in healthy alternatives, but they are not willing to sacrifice taste or variety when dining out, so expectations are high." "Overall trends were positive in the Northeast with more disposable income with positive economic growth in the marketplace; however due to the brutal winter in 2015 for the Northeast, I anticipate first quarter profits to be substantially less than 2014." "These have been tougher to sell in recent years, less buyers interested." "Pricing trends up due to inflation and national pressure on minimum wage. A shift away casual dining and fast food to fast casual dining growing rapidly. National chains grabbing more market share from mom and pop operations. Continued sluggish growth." "Very good in terms of people going out to eat. Poor for independents opening new businesses due to gov't regulations and shrinking profit margins. Successful chains can sustain increased operating costs." "Pretty steady with more working spouses and our busy lifestyle(s). Takeout or pickup should continue to grow." "Good service and good food priced fairly will always be popular." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Increased diversity of competition and the increase in independent restaurants ." "I continue to see a very moderate sales increase in the independent restaurant business. Sales stagnant and expenses increasing lead to lower profits. That coupled with pressure on the salary and wage front leads me to think that sales will continue to be slow and financing very difficult." "Lots of downsizing and specialty food operations. Menu food types specific." "I see the trend in the restaurant business over the next few years as a large turnover of existing restaurants as people move in and out of the industry. A major push for the large chains will continue to move into city locations and squeeze the margins and business of the independent main street businesses." "As global economy improves, the U.S. will continue to flourish and families/individuals will have more disposable income which should help the industry. Massachusetts is a growing area and melting pot for restaurant entrepreneurs. Many multiunit operators (with 5 or under locations) are now entering into high occupancy cost destinations such as new outdoor shopping center developments to compete with area chains. This trend is helping grow the restaurateur's concept organically without franchising their concept. These decisions are high risk/high reward for the multiunit operator." "Depends on the area—baby boomers will likely eat out more as long as they can. Tourist and sunbelt areas are expected to be hot markets." "In Denver extremely strong; Colorado in general strong. Other markets such as Texas are very strong but some markets are still struggling." "It has great potential for growth when an owner has industry experience and pays attention to the competition in his area. Giving great service and serving a quality product. Treating every customer like royalty and not letting a single patron leave his business unhappy. Satisfied customers are great advertising." "The industry is improving—highly competitive." "Will be turnover as it always has been; education and hard work will pay off" "Less independent sales, more franchised sales, more tenant reps for lease of both 2nd generation spaces and new startups! Landlords are paying big bucks to get credit worthy, experienced tenants!" "There should be a small increase." "Restaurant workers represent a whopping 10 percent of the workforce, and a vastly disproportionate share of lowwage workers. By changing a few policies and adjusting some industry practices, the nation could sharply reduce the number of families in poverty and enhance the middle class while actually saving taxpayer dollars." Source:"For many restaurant workers, fair conditions not on the menu," Boston Sunday Globe Editorial, February 16, 2014

Advantages "Unlimited growth opportunities, pride of ownership! You still can work around schedule for slow times." "Lots of writeoffs." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Profitability tends to increase with size. At the level that management can be added, owners usually reduce hours worked." "Be your own boss." "It is sort of a lifestyle business. This attracts entrepreneurs to open restaurant/bar." "A midpricedmenu restaurant can perform in good and bad times. Everyone enjoys food and can relate to it." "A higher degree of education is not necessary. Owner can manage his own time. Often cash money is a turnon. Instant feedback is both good and bad. If he runs a good operation the best reward is having a guest go out of their way to tell him how great their experience has been and that they will return and tell their friends to come in. A good relationship with respect from the employess is often very rewarding." "One can actually get rich in the restaurant business. We have sold independent restaurants where the owner was netting, after all expenses, up to $400k annually with others clearing between $200–$350K." "The ability to flex creative skills" "It can provide a fun working environment and social outlet for those who find this important. A person can use their creativity in numerous ways, to include designing the menu and complete dining experience (facility, ambience, guest experience). It can be very successful financially if done properly. It can be suitable for someone wanting a single location as well as those who want to create a larger business with multiple locations of the same or different concepts. It can be a great career choice for those who are hardworking and smart, but formal education may not be necessary. Many recent immigrants are attracted to the industry for this reason." "One doesn't have to speak the language to have a great restaurant. Good food, service and pricing can be the formula, i.e., Chinese restaurants...rarely does the owner speak English." "Can be very busy from the moment you open. No receivables." "Social and creative opportunities are high." "Great cash flow, lots of potential, and repeat business for the right operator." "Opportunity to please a lot of people and develop a strong relationship with the community." "It's never been held as high thanks to TV (food channel)." "Easy to learn and get into." "70% profit margins after overhead is covered" "Second generation restaurants have a lower entry cost." "Easy to find a place to buy." "Restaurants are always marketable due to the existing tenant improvements such as hoods, walkin refrigeration, grease traps, plumbing, etc." "Still attractive to ethnicities and people that see themselves at front or back of house." "If you do enough advertising you will succeed. Easy to calculate the value of a business to buy or sell." "The advantage of a restaurant operation is that it is always marketable. Unless it is simply located in a bad location, a buyer can change the concept and the seller can recoup substantial value for buildout, equipment, liquor license, etc."

Disadvantages "Long hours, control all the employees, control the food waste (that is a big one), and make sure servers are doing a great job, otherwise, you will be blamed for it.You have to keep the chef and if you are lucky enough to have a manager, you have to keep him happy." http://www.bvlibrary.com/BRGOnline/brgArticlesPrint.aspx?docRef=697

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"Attracting and keeping good people. Social media can be pretty cruel if/when an unreasonable guest lashes out." "Hard work and commitment to being successful many times takes a significant toll on family life." "Requires hands on management, long hours, and must deal with staff turnover and training. Staff for restaurants are typically low paid and staff often does not show up or leaves with little or no notice." "Requires tight controls in order to maintain costs." "Long hours, alcoholism." "Anew restaurant/bar can shut down within months after opening. High competition, high risk." "Managing increasing costs on a timely basis. Personnel creates numerous challenges. Sometimes the business requires an inordinate amount of time." "Most restaurants do not thrive without significant oversight by the owner. Many are not profitable unless the owner is working a productive shift as manager or chef. The long hours make it difficult to balance with a family life involving young children. Regulatory environment is a challenge (alcoholic beverage control, health department, labor laws, ADA, building department etc)." "Highly competitive and a new competitor in the area can seriously affect the business. Remodeling and updating every 5 to 7 years is important." Requires a large capital investment; there is heavy regulation by local, state and federal governments regarding many issues and in particular hiring legal employees, meeting handicapped requirements in the physical plant, enforcing regulations for serving alcohol and vulnerabilty for litigation from disgruntled employees, customers, etc. "Margins have continued to decrease. The steady decrease has forced owners to work more hours and reduce payroll expenses. Food costs have continued to increase, and transportation costs are also increasing food costs. Facility lease rates have still not significantly decreased enough to fall in line with sales." "Most concepts fail and the investors lose large amounts of money. The landlords usually want very high rents for prime locations, and the investment to build out the location can be almost as much as buying the real estate."

BRG Online Content © 2016 Business Brokerage Press, Inc.

Copyright © 2016 Business Valuation Resources, LLC. All rights reserved. (503) 2917963 Accessed: Friday, 1/15/2016 9:08:10 AM. Prepared for: Ronnie Nelson , Business Valuation Resources, LLC


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