Value Drivers for a Fast-food Restaurant
Fast-food and limited-service restaurants are in constant demand. Despite a slight downturn during the pandemic, this industry is expected to increase as disposable incomes increase. This industry is incredibly competitive and highly saturated. As such there are hundreds of transactions yearly. If you are buying or selling a fast-food restaurant you will want to understand the value of a fast-food restaurant.
Peak Business Valuation, business appraiser Utah, values fast-food restaurants on a regular basis. Below are several factors that can help distinguish your fast-food restaurant. These factors can also increase the value of a fast-food business. For more information, see Valuing a Fast-food Restaurant. As well as Valuation Multiples for a Fast-food Restaurant.
Value Drivers for a Fast-food Restaurant
A valuation expert will assess the strength and weaknesses of your business through a business appraisal. Below are several factors that impact the value of a fast-food restaurant. These are value drivers. Each value driver will impact the business appraisal for a fast-food restaurant. Wanting to know what drives the value of your fast-food business? Schedule your free consultation today!
First, one of the most important value drivers a valuation expert will consider is the assets and equipment of the business. Most restaurants heavily rely on assets and equipment to operate the business. When selling or buying a fast-food restaurant, it is important to consider the value and condition of the equipment. Often an important piece of a fast-food restaurant transaction is a machinery and equipment appraisal. This appraisal will determine a fair value for the assets. Peak Business Valuation, business appraiser Utah, is happy to provide a machinery and equipment appraisal for a fast-food restaurant. Schedule your free consultation.
If you own a fast-food restaurant keeping your facilities and equipment up-to-date and well-maintained is crucial. The better the condition of your assets and equipment is, the more valuable they will be in a business appraisal.
Next, the economic condition can have a large impact on the value of a fast-food restaurant. Particularly during the recent pandemic, many restaurants struggled. As such, the valuation of restaurants, in general, was lower. When the economy has a positive outlook and disposable incomes are rising, the value of a fast-food restaurant is generally higher.
Location & Facilities
The location and state of the facility can also impact the value of the fast-food restaurant. High traffic areas tend to have higher demand and thereby are more valuable. As mentioned above, well-taken-care-of facilities appeal to customers and potential buyers.
Next, a valuation expert will consider the brand recognition of the business. Established and well-performing businesses tend to be of higher value. Well-known chain and franchise restaurants are often more valuable than single-unit operations.
However, the value of brand recognition can be impacted by the buyer’s perspective. An investor or business buyer may see a relatively new business performing well and be enticed to buy. While another may see it as more risk, and thereby not be willing to pay as much for the business.
Online and Mobile Presence
Having an online and mobile presence is becoming increasingly important to stay competitive. With the recession, the fast-food industry is using technology more to connect with customers. Customers’ use of online and smartphone applications increased drastically as in-store dining became limited. As such your online and mobile presence is essential to creating easy access. Customers can view menus, place orders, and pay all through their mobile devices. Investing in a strong online and mobile presence will pay off.
Healthier Menu Options
Recently, there is a trend towards healthier eating. The United States in general is increasing awareness of healthier habits. As such, it impacts their food choices, particularly in the fast-food industry. This includes adults as well as children. Restaurants offering a variety of healthier food selections on their menu attract more customers. Customers seeking healthier menu options may be willing to pay more as well. Both aspects can create a more valuable fast-food restaurant. More customers (especially higher paying customers) = more revenue.
This industry is highly competitive. As such having a loyal customer base is key to stable cash flow. Many limited-service restaurants create customer loyalty programs to reward loyal customers and draw them in more frequently. A valuation expert assesses the level of customer loyalty compared to similar fast-food restaurants. See The Value of Customer Loyalty.
Stable Team and Documentation of Processes
This industry is known for high labor turnover. When buying a business, a potential buyer will want to know about the team. Are employees particularly cooks and chefs planning on staying? How documented are the processes and procedures? The more documentation there is, the more easily transferable the business becomes. It can also reduce the risk of team members leaving with a transition of ownership.
Cash Flow & Profitability
Cash flow and the profitability of the business are key. Every restaurant varies in these metrics, but it is best to be comparable to other similar businesses. A business valuation expert will analyze this. It will ultimately determine whether your business is valued higher or lower than other similar fast-food restaurants. As a business owner, keeping your books up to date will help you track cash flows and ensure they are in a good place.
Dependence on the Owner
Last, but not least is the businesses’ dependence on the owner. This is often one of the largest factors Peak sees in small businesses impacting the value. In the most valuable companies, the owner is not involved in the day-to-day operations of the business. There are many strategies to reduce owner dependence. A couple of ideas include creating a management team and documenting key processes. For more ideas see Reducing Owner Dependence.
Understanding what drives the value of a fast-food restaurant can help you set goals to maximize the value. If you are buying or selling a fast-food business, you need to know how to value a business. Determining the value of a fast-food restaurant can be complex. As such, a business appraiser can be an extremely useful individual in your business transaction.
The first step to finding out what your business is worth is with a business appraisal. A business appraisal determines the fair market value. It also identifies areas to increase the value of a fast-food restaurant. For more information, see Valuing a Fast-food Restaurant.
Peak Business Valuation, business appraiser Utah, values dozens of fast-food businesses. We have the expertise to answer any questions you may have. Get started today by scheduling your free consultation!
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