Regardless of industry, every entrepreneur will step out into a dog-eat-dog world, fighting for their company’s survival in oversaturated markets. Restaurant owners know this trial even more so than many other entrepreneurs; entire life’s savings are poured into restaurants that won’t even make it to see their first or fifth anniversaries.
Some restaurant owners are fortunate enough to choose when they are ready to sell; others are forced to sell on shorter notice. Disregarding circumstance, the ultimate goal of each restaurateur is to acquire a fair profit from the sale of their business. A restaurant owner’s bias will inflate this desired number, of course, but a valuation of the restaurant is the only way to get a final, fair number.
The valuation method used to determine this number will be reflective of the restaurateurs’ reasons for selling their business. A certified appraiser will use the appropriate method to formulate the value, doing their due diligence to represent the financial loss, personal sacrifice, and time commitment that has gone into preserving the restaurant, while keeping fair market value in mind.
But what does selling a restaurant look like when there are over 620,000 food establishments scattered across the United States? Experts warn restaurateurs to be mindful of their timeline when possible; selling a restaurant in an overcrowded market takes away your ability to negotiate, lessening the amount you get from the sale.
Every prime location has become congested with food and beverage establishments – individually-owned or chains – that are all competing with one another for high levels of foot traffic. Restaurants are now growing at twice the rate of the population. No matter what geographical spot you select for your restaurant, you will be side-by-side with other restaurants who have your same goals in mind; unfortunately, only a handful of restaurateurs will survive.
Prospective buyers are weary of purchasing restaurants during these riskier periods. The rise of restaurants has put overwhelming pressure on individual owners – more food options means falling profits – yet chains restaurants continue to grow, making it even more difficult for smaller restaurants to prosper.
Depending on your situation, it may be in your favor to postpone selling your restaurant. Even if you wait to sell, a valuation is still advantageous. It will not only highlight the value of your restaurant as it currently stands in the market, it will also provide you with insight on how you can increase that value over time.