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.