Fast-Food Restaurant Valuation Multiples
Fast-food restaurants are a staple of modern life. They are known for speed, convenience, and affordability. These businesses run on tight margins yet serve hundreds of customers daily. Some fast-food restaurants are independently owned, while others are part of a franchise. Either way, these restaurants can be very profitable. When it is time to buy or sell, understanding the value of a fast-food restaurant key. Valuation multiples are a common tool to estimate the restaurant’s worth. These tools help compare your business to others in the industry. Since each restaurant is different, choosing the right multiple is crucial. An accurate restaurant valuation supports smart decisions and successful deals.
This article outlines three of the most common fast-food restaurant valuation multiples. Please note that the figures we mention reflect industry averages. As such, it is likely they will not capture the unique qualities of your specific restaurant. For an accurate restaurant valuation, it is best to consult a certified business appraiser.
As a professional business appraiser, Peak Business Valuation frequently values fast-food restaurants. We are here to answer your questions and provide a reliable fast-food restaurant valuation for your business needs. Schedule a free consultation with Peak today to get started!
What are Fast-Food Restaurant Valuation Multiples?
Fast-food restaurant valuation multiples are financial ratios that estimate a restaurant’s value. They compare the business’s worth to a financial metric, like earnings or revenue. To determine the right multiples, business appraisers assess sales data from similar fast-food businesses on the market. The three most common multiples are based on SDE, EBITDA, and revenue. Each multiple provides unique insights depending on the restaurant’s size and performance.
Common Fast-Food Restaurant Valuation Multiples
Peak Business Valuation uses SDE, EBITDA, and revenue multiples to value fast-food restaurants. The sections below explain each multiple and list typical ranges for the industry. Keep in mind, these ranges are general benchmarks and do not account for every restaurant’s unique qualities. For more information, check out Valuation Multiples for a Fast-food Restaurant.
SDE Multiples for a Fast-Food Restaurant
The SDE multiple is one of the most common methods used to value a small fast-food restaurant. SDE stands for seller’s discretionary earnings. It reflects the total financial benefit a single owner-operator earns from the business. To calculate SDE, business appraisers add back the owner’s salary, personal expenses, and one-time costs to net income. This provides a clearer picture of the business’s true earning potential.
Formula: Value = SDE × Multiple
Range: SDE multiples for fast-food restaurants often range from 1.5x to 2.83x SDE.
Fast-Food Restaurant EBITDA Multiples
EBITDA multiples are often used to value larger or multi-location fast-food restaurants. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. This figure clarifies the business’s core performance by excluding items like taxes or accounting choices. This multiple helps buyers better understand profitability and cash flow potential.
Formula: Value = EBITDA × Multiple
Range: EBITDA multiples for fast-food restaurants typically range from 3.34x to 4.25x EBITDA.
Revenue Multiples for a Fast-Food Restaurant
Revenue multiples compare the business’s total revenue to its market value. Business appraisers usually use revenue from the last 12 months. Because this multiple does not account for the business’s cost structure, experts often rely on cash flow-based methods like SDE or EBITDA.
Formula: Value = Revenue × Multiple
Range: Revenue multiples for fast-food restaurants may range from 0.27x to 0.54x revenue.
Peak Business Valuation is a certified business appraiser. We are happy to provide you with a thorough and accurate fast-food restaurant valuation. If you have any questions, reach out to Peak! Schedule a free consultation today.
How to Value a Fast-Food Restaurant Using Multiples
In addition to using fast-food restaurant valuation multiples, valuation experts take extra steps to ensure accuracy. This includes using the market, income, and asset approaches. They also review financial trends and industry risks. As a result, a fast-food restaurant valuation provides more detailed insights. Working with a business valuation professional is the key if you need reliable results. To learn more about how to value a fast-food restaurant, contact Peak Business Valuation! You can also check out How to Value a Fast-Food Restaurant.
Factors Affecting Fast-Food Restaurant Valuation Multiples
There are several factors that influence fast-food restaurant valuation multiples. Recognizing these variables can help restaurant owners make informed decisions to improve their business’s worth. Below are some key factors to consider:
- Franchise Agreement Limitations: Many fast-food restaurants operate under franchise models. Restrictions in these agreements may include pricing controls or remodeling requirements. These limitations can affect profit potential and reduce valuation multiples.
- High Competition: The fast-food industry faces heavy competition. Competing on price typically results in lower profit margins, reducing earnings and valuation multiples.
- Location: Visibility, foot traffic, and ease of access all impact revenue. A well-located restaurant will likely receive higher multiples.
- Reputation: Whether independent or part of a franchise, a recognizable and trusted brand name is crucial. This goodwill contributes to customer loyalty and stronger sales, boosting valuation.
- Technology Use: Modern systems, drive-thru efficiency, and online ordering capabilities are increasingly important. These factors can make a business more attractive to buyers.
To dive deeper into what affects a fast-food restaurant’s valuation, read Value Drivers for a Fast-food Restaurant.
Conclusion
If you need to know what your business is worth, fast-food valuation multiples are a good starting point. SDE, EBITDA, and revenue multiples provide helpful benchmarks during the valuation process. However, these figures are only part of the equation. Factors like brand strength, location, and franchise agreements also play a role. For an accurate and reliable valuation, it is best to work with a qualified business appraiser. These valuation experts take thorough measures to account for the business’s strengths, weaknesses, risks, opportunities, and more. Restaurant owners can use this data to grow their business’s worth.
If you are a fast-food restaurant owner seeking to buy, sell, or grow your business, reach out to Peak Business Valuation. We can provide an accurate analysis of your restaurant to guide better business decisions. Begin valuing a fast-food restaurant today by scheduling a free consultation with Peak!
