Valuing a Fast-food Restaurant
Due to the recent pandemic, this industry saw a dramatic impact. While some fast-food restaurants fared well and, in some cases, even saw increased growth, others shut down for extended periods of time. In 2021, the industry has begun to rebound and by 2022, it is expected to be ahead of previous levels. The COVID-19 crisis eliminated many lower-performing operators. Because of this, many fast-food restaurants will see a reduction in pricing due to increased risks and decreased revenues. But this is expected to change in the coming months and years.
This drastic impact has caused a rise in the buying and selling of fast-food restaurants. Whether you plan on selling a fast-food restaurant or buying a fast-food restaurant, it is important to understand the fair market value of a fast-food business. Below we discuss how a valuation expert goes about valuing a fast-food restaurant or limited-service restaurant.
Valuing a Fast-Food Restaurant
As a business appraiser, Peak Business Valuation works with dozens of individuals who are buying or selling a fast-food restaurant. An important part of the process is obtaining a business valuation. A business appraisal will you understand what the fair market value of a fast-food business is and how to maximize it. If you plan on buying a fast-food restaurant, a business valuation can help determine an offering price. This also helps increase your confidence in your business purchase.
A business valuation report identifies the value of the business. It also includes valuation multiples and factors that impact the value. Below is a guide for average valuation multiples for the fast-food industry/limited-service restaurant industry. Then details factors that drive the value of a fast-food restaurant. Keep in mind the below factors are only a guide. For specific information about valuing a restaurant, you are looking to buy or sell, schedule a free consultation with Peak Business Valuation.
For more information be sure to read Valuation Multiples for a Fast-food Restaurant and Value Drivers for a Fast-food Restaurant.
Market Multiples for a Fast-food Restaurant
- SDE Multiple Average: 1.5x – 2.83x including inventory
- EBITDA Multiple Average: 3.34x – 4.25x
- REV Multiple Average: 0.27x – 0.54x
** Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$5 million. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.
By understanding what the value of a fast-food business is, you can know what steps to increase the value. This is helpful whether you are growing a fast-food restaurant, buying a fast-food restaurant, or maximizing the value prior to selling. For a more extensive valuation, reach out to a valuation professional by scheduling your free consultation.
Key Success Factors
Peak Business Valuation values fast-food restaurants on a regular basis. Below are several factors that can help distinguish your fast-food restaurant. These can also increase the value of a fast-food business. For more information, see Value Drivers for a Fast-food Restaurant.
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. A business appraisal will determine a fair value for the assets. If you own a fast-food restaurant keeping your facilities and equipment up-to-date and well-maintained is crucial.
Location & Facilities
Next, the location and state of the facility can have a dramatic impact on 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 is more appealing to customers and potential buyers.
Next, a valuation expert will consider the brand recognition of the business. The more established and well-performing the business is the more value it may have. Well-known chain and franchise restaurants often receive higher valuations than single-unit operations.
Online and Mobile Presence
With the recession, the fast-food industry is using technology more to connect with customers. Customer’s use of online and smartphone applications increased drastically as in-store dining became limited. As such your online and mobile presence is key to creating easy access. Customers should easily be able to view menus, place orders, and pay all through their mobile devices.
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. These programs reward loyal customers and draw them in more frequently.
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 it becomes. It can also reduce the risk of team members leaving with a transition of ownership.
Cash Flow & Profitability
Last, 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 these metrics. They will ultimately determine whether your business values 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. For more information see, Managing Cash Flow.
In summary, there are many important factors to consider when valuing a fast-food restaurant. Whether you are buying, selling, or growing a fast-food business it is important to understand the value. Obtaining a business appraisal can you help understand what your business is worth today and how to maximize the value of a fast-food restaurant.
Peak Business Valuation, business appraiser Utah, values fast-food restaurants across the United States. We would love to answer any questions you may have about the value of a fast-food restaurant. You can get started today by scheduling your free consultation below!
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