Valuation Multiples for a Coffee and Snack Shop
Coffee and snack shops sell snacks and beverages such as coffee, juices, smoothies, sodas, donuts, bagels, etc… Many coffee shops include both sit-down and take-out services. According to IBIS World, there are about 72,000 coffee and snack shops in the United States. In recent years, the coffee and snack industry generated over $54 billion dollars in sales revenue. Moving forward, we are seeing increases in consumer spending and coffee consumption. As such, revenue and profit will likely continue to grow in the coming years. However, small businesses in the coffee and snack shop industry may struggle due to extreme competition. To succeed, it is important to understand the value of a coffee and snack shop. You can start by learning about valuation multiples for a coffee and snack shop.
Valuing a Coffee and Snack Shop
Understanding the value of a coffee and snack shop is crucial whether you are buying, expanding, or selling one. To learn the principles of valuing a coffee and snack shop, receive a business appraisal. If you are looking to buy a coffee and snack shop, a business valuation can help you identify a fair purchase price. Additionally, you may learn about negotiation strategies for buying a coffee and snack shop. For sellers, receiving a business valuation for a coffee and snack shop can help you determine an asking price. Ultimately, a business appraisal can help you maximize the value of a coffee and snack shop.
Peak Business Valuation is a professional business appraiser. We work with coffee and snack shops on a regular basis. Peak is happy to provide you with a business appraisal for a coffee and snack shop. We can also answer any questions you may have on valuing a coffee and snack shop. Start by scheduling a free consultation with Peak Business Valuation today!
There are various valuation approaches business appraisers may use to value a coffee and snack shop. The market approach is a common method that relies on valuation multiples. In this article, we discuss valuation multiples for a coffee and snack shop. However, this is only a guide. For accurate information about your coffee and snack shop, obtain a business valuation. Be sure to also see our articles on Valuing a Coffee and Snack Shop, Value Drivers for a Coffee and Snack Shop, and How to Value a Coffee and Snack Shop.
Valuation Multiples for Coffee and Snack Shops
Below, the diagram displays valuation multiples for a coffee and snack shop. Keep in mind, these values are only averages and may not apply to all coffee and snack shops. To learn what methods and multiples are applicable to your coffee and snack shop, receive a business appraisal. Peak Business Valuation is happy to help! Schedule a free consultation with Peak Business Valuation to get started.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
A valuation multiple is a ratio that compares a coffee and snack shop’s value to a financial metric. This may include cash flow, earnings, or sales. For example, SDE multiples are common when valuing a coffee and snack shop. These multiples compare a coffee and snack shop’s seller’s discretionary earnings to the implied value of the shop. Business appraisers consider the multiples of similar coffee and snack shops that have recently sold on the market. They then apply the multiple to your coffee and snack shop to get a range of fair market value.
For example, a coffee and snack shop has $169,000 in seller’s discretionary earnings. If the shop receives a 2.24x SDE multiple, it is worth approximately $378,560 ($169,000 times 2.24x). Conversely, if it receives a 3.04x multiple the value of the coffee and snack shop would be $513,760 ($169,000 times 3.04x).
Peak Business Valuation works with many individuals who are buying or selling a coffee and snack shop. We often use valuation multiples for a coffee and snack shop as part of the valuation process. Below, we share a range of valuation multiples that coffee and snack shops often transact at. Each coffee and snack shop is unique. As such, the range of values may vary. The following paragraphs discuss SDE, EBITDA, and REV multiples for a coffee and snack shop.
SDE Multiples for Coffee and Snack Shops
Average SDE Multiple range: 2.03x – 3.26x
According to Peak’s data, coffee and snack shops transact at an SDE multiple range of 2.03x – 3.26x. Valuation experts estimate the value of a coffee and snack shop by applying the seller’s discretionary earnings by the multiple. See the calculation below.
SDE X Multiple = Value of the Business
For example, a coffee and snack shop generates $218,000 in SDE and transacts at a 2.62x multiple. In this case, the value of the coffee and snack shop is worth about $571,160.
$218,000 X 2.62x = $571,160
SDE multiples are common when valuing a coffee and snack shop. To determine the coffee and snack shop’s seller’s discretionary earnings, valuation experts add back any expenses the new operator may not incur to the value of the shop. Some common add-backs include personal expenses, the owner’s compensation, and non-recurring or non-related business expenses. This allows the valuation expert to determine the cash flow potential of the coffee and snack shop. When valuing a coffee and snack shop it is important to understand cash flow.
EBITDA Multiples for a Coffee and Snack Shop
Average EBITDA Multiple range: 2.47x – 3.86x
Coffee and snack shops transact at an average EBITDA multiple range of 2.47x – 3.86x. Valuation analysts apply this multiple to EBITDA to determine a fair market value of the business. Refer to the following equation.
EBITDA X Multiple = Value of the Business
For example, a coffee and snack shop has an EBITDA of $170,000. It transacts at an EBITDA multiple of 3.30x. Here, the coffee and snack shop is worth $561,000.
$170,000 X 3.30x = $561,000
The EBITDA multiple measures a coffee and snack shop’s return on investment (ROI). Business appraisers at Peak Business Valuation, business appraisers, often use EBITDA multiples for coffee and snack shops since they help normalize differences. These ratios allow the business appraiser to compare your coffee and snack shop to similar businesses. Normalized ratios also provide an accurate estimate of the future earnings a buyer can expect from a coffee and snack shop.
REV Multiples for a Coffee and Snack Shop
Average REV Multiple range: 0.36x – 0.81x
On average, coffee and snack shops transact at a revenue multiple range of 0.36x – 0.81x. Business appraisers at Peak can derive the implied value of a coffee and snack shop by multiplying the most recent 12 months of revenue by the multiple. The equation is as follows.
Revenue X Multiple = Value of the Business
For instance, a coffee and snack shop makes $1,000,000 in revenue. It then transacts at a 0.58x multiple. In this example, the coffee and snack shop is worth about $580,000.
$1,000,000 X 0.58x = $580,000
REV multiples measure the total amount of revenue the coffee and snack shop generates. REV multiples are less popular when valuing coffee and snack shops. Business appraisers at Peak typically rely on the cash flow multiples – SDE and EBITDA. However, appraisers use their expertise to determine which methods and multiples are most suitable for your coffee and snack shop.
Summary
At Peak Business Valuation, valuation analysts often use valuation multiples for a coffee and snack shop. There are various factors that determine which multiples are suitable for your coffee and snack shop. To do so, it is best to receive a business valuation for a coffee and snack shop. As part of a business valuation, you will learn about the strengths and weaknesses of your coffee and snack shop. This is beneficial whether you are buying, expanding, or selling a coffee and snack shop. You will also learn how to maximize the value of a coffee and snack shop.
Peak Business Valuation, business appraiser, works with coffee and snack shops across the country. We are happy to provide you with a business valuation and answer any questions on valuing a coffee and snack shop. Get started with Peak by scheduling a free consultation below!
