How To Appraise A Restaurant

How do you make money from a restaurant? You can make money from opening 3 road side restaurants,selling them when they have bumped up in value and target inputing your flavour into an existing franchise, its not rocket science there are many illiterates and low scale SMEs that have benefitted from such exercises, mama cass and calabar kitchen are a few examples off the top of my head. however, a restaurant may be appraised by a prospective buyer. There are several reasons for appraising a restaurant, along with many nuances to the appraisal itself. Let's review how a prospective buyer can appraise a restaurant for purchase. There are three general ways that restaurants' sale prices are established: based on profits, assets, or "key costs," referring to its location and value. The buyer should be aware of whether the restaurant is making a profit and what furniture, fixtures and equipment (FF&E) are included in the sale. If a restaurant is profitable, a buyer can take a financial approach to the appraisal. If the restaurant is not turning a profit, it still has value in its equipment. In some cases, a restaurant is sold for key costs: its location, property etc Keys to appraising your restaurant [b]FOR PROFITABLE RESTAURANTS[/b] [b]Dust up on your book keeping[/b] Thoroughly review all books and records. Review all the financial data available. This includes a minimum of the past three years' returns(after tax and levies especially in lagos), profit and loss statements, and any additional records of cash sales ,cost of goods sold (COG) is usually around 20 to 40 percent of revenues depending on the type of restaurant. [b] Gather the Pakos[/b] Obtain a list of all furniture and equipment that will be included in the sale price. Although the value depends on the annual profits, the restaurant however loses value when customers stand to eat or seat on the window or wash their hands with the same water you just used to soak a pot of rice, no way not even if you are [b]iya basira[/b] [b] Settle the arrears[/b] Knowing about real estate in nigeria especially lagos, you have to review the entire lease thoroughly before signing it. Understand the annual rate and any common area maintenance (CAM) fees, along with any other charges and fees. Also, review the term and option to extend. [b]Check out your annual profits[/b] Use a multiplier of the annual profits to determine the restaurant's value. In a good economy, the rule of thumb for profitable restaurant value is two to three times the restaurant's annual profits (or discretionary earnings) plus inventory. In a bad economy, it is more likely a 1.5 to 2 multiple of discretionary earnings plus inventory ;D don't worry its more of a hands on approach exercise it won't be a problem to learn when the time comes. [b]FOR UNPROFITABLE RESTAURANTS[/b] Examine the hood, floor drains, three-part sink and permitted refrigerator units to make sure they are functioning. The restaurant industry is probably one of the few industries where you can sell a business that isn't making a profit, as the biggest barrier to entry is the initial build-out cost. A restaurant will sell for its permitted and functioning equipment or sometimes for its location and entitlement to operate at that location. Restaurant staff is an asset too. Don't overlook the employees; they are often an important asset to consider too. Get a good understanding of their salary and benefit structure. Make a thorough review of the lease or the real estate purchase agreement. Make sure all licenses are in order, before you sign any binding agreements.