How to Price a Restaurant for Sale
Determining the value of a restaurant for sale is difficult and intangible. The different variables make the process tricky.
However, there are some benchmarks that can be used in establishing the value of the restaurant for sale.
Establishing the price of a restaurant for sale involves different variables such as customer satisfaction, reputation as well as ease of operation. Nevertheless, the tricky process can be dealt with some benchmarks that help establish the appropriate price. In this sense, the possibility of rising or reducing the price depends on the base value. Aside from determining the price, the business also employs exit strategy such as keeping the records carefully. In this way, you can have the opportunity to make accurate assessment of the restaurant in terms of the actual profitability. Likewise, proper valuation of the business is an inexact science yet you can use some methods that can come up with realistic and manageable range of price.
Simple Methods in Determining the Price
The first thing to do is to compute the net profit of the business for the last two years. Subtract the total business expenses form the gross sales. Adjust the amount on other expenses that does not reflect such as the interest on loans and depreciation allowances of the equipment purchased in the previous years. Include in the computation the value of restaurant fixtures, décor and equipment. Base the computation on the original amount of the item and deduct the depreciation on the previous year’s tax. In this phase, you should know the right percentage of depreciation that you should subtract from the original price of the item.
In addition, you should also prepare balance sheet including all the assets and liabilities. Assets are those items that include fixtures, inventory, account receivables and real estate. On the other hand, the liabilities refer to the debts and obligations of the business. The liabilities have a wide coverage in such a way that your business could have positive net worth in case that the total liabilities exceed the total assets. Another important aspect in determining the price of restaurant for sale is the cash flow. Generally, calculating the annual income statement can help computing the purchase price.
Moreover, while establishing the price you should assess the growth prospects as well as the reputation of the business in the community. Obviously, the excellent reputation would give higher value to the restaurant. Definitely, possible buyers will be interested in purchasing your restaurant if it has good reputation as compared to other business that has poor financial statements. In computing the price of the restaurant for sale you should keep in mind that you are selling everything about your business such as the annual profits and the liquidation value. That is why you should hire professionals to help you establish the appropriate price for your business.