Is there any rule of thumb for putting a value on a small local Bar/Restaurant business?

Small neighborhood bar and separate but connected restaurant.
In Selling Property - Asked by Rick L. - Oct 1, 2014
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Answer(s)

Laurina E.
Broker/Agent
Pembroke Pines, FL

The "Rule of Thumb" would be using a comparable sale, while this is customary for residential real estate it is a very difficult task for business valuation methodology. Business value is based on the ability to generate income and the likelihood of that business to create income in the future. I would suggest using other methods, while more detailed and time consuming...they will more accurately depict a value in all fairness to the buyer and seller of the business.
I would suggest using the method better fit for the purpose. In selling a business I would suggest using Income Cap or Multiple Method. You will need financial information to apply these methods, but if done correctly you will be sure to have a number that fairly represents the value of the business.
Laurina Emiliani, MBA
Real Estate Broker
Speedy International Realty
305-513-4890
Business Brokerage
Commercial Investments
Your South Florida Expert

Oct 2, 2014
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Mark and Paul B.
Broker/Agent
Pocatello, ID

Specifically with Bars, on top of determining the value of the FF&E & the Real Estate, I would recommend you determine the value of the liquor or alcohol license independently as well. Sometimes the greatest value can be had out of separating the 3 and selling them individually. If they just want to sell the business as a whole, I would recommend going with the income approach and adjusting for locational externalities. Hope that helps. Note however, that businesses almost always sell at higher Cap Rates or Discount rates than regular rental real estate, so perhaps having the business sign a lease for the building and selling the building and the business separate could create more value.

Oct 2, 2014
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Michael L.
Broker/Agent
Pasadena, CA

One facet to keep in mind is that "small local bar/restaurants" are notorious for not reporting all income on the books. This puts more money in the owners pocket, but when it is time to sell, the books don't look as enticing as if all the income was reported for the life of the business.

Oct 2, 2014
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marco o.
Broker/Agent
Saugus, MA

You would need the real numbers ( not the numbers the seller gives you ) the business could be worth what the equipment and liquor license, lease are worth due to no sales Or it could be worth 2 x the real yearly profit Example if there doing $ 100,000.00 a year profit that's minus all expenses it's worth 2 x that = $ 200,000.00 with a new 5 year lease w/ 5 year option

Oct 9, 2014
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Paul S.
Listing Administrator
Purchase, NY

The rule of thumb, is that there is no rule of thumb. There are many variables in the purchase of such an entity as a bar or restaurant. Especially when there is no Real Estate involved. One of the most important is the fact that "one offs" typically base their success on loyalty to the proprietor. Not a methodology used by appraisers, but a very real impact. Also, one offs have a tendency to "hide" profits. This will not give you a very good multiplier, and if they give you the,..we do much better than the books indicate...wink, wink. walk away. You may never realize similar numbers based on speculation. 2x's earnings, and a very clear understanding of expenses.(theft,broken plates, glasses,etc. can really add up) FF&E has more inherent depreciation than a used automobile, ...unless it is high end. Still, based on age and condition....anything over 5 yrs isn't worth more than 25% of the original cost. That include kitchen equipment as well. Also, the LEASE,..in order to make a real go of a business you will need at least a 10 yr. lease with options. If there are no options on the current lease, be sure that an acceptable lease is a contingency. Stock and food items will be inspected as well by the Health Dept. What you think you can keep,...may not be the case. Any food or liquors that are rejected must be credited by way of reduction in price or check. Be sure and do a search of any activity on the books at Planning & Zoning.. don't want to buy a business where the block may undergoing drastic changes. As you are interested in the establishment,...you quite possibly a patron,... ask yourself objectively....Is this highest and best use of my investment dollars in this economy... Most of the time "One Offs" are on the market because they didn't "Pay Off"

Oct 23, 2014
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Paul S.
Listing Administrator
Purchase, NY

The rule of thumb, is that there is no rule of thumb. There are many variables in the purchase of such an entity as a bar or restaurant. Especially when there is no Real Estate involved. One of the most important is the fact that "one offs" typically base their success on loyalty to the proprietor. Not a methodology used by appraisers, but a very real impact. Also, one offs have a tendency to "hide" profits. This will not give you a very good multiplier, and if they give you the,..we do much better than the books indicate...wink, wink. walk away. You may never realize similar numbers based on speculation. 2x's earnings, and a very clear understanding of expenses.(theft,broken plates, glasses,etc. can really add up) FF&E has more inherent depreciation than a used automobile, ...unless it is high end. Still, based on age and condition....anything over 5 yrs isn't worth more than 25% of the original cost. That include kitchen equipment as well. Also, the LEASE,..in order to make a real go of a business you will need at least a 10 yr. lease with options. If there are no options on the current lease, be sure that an acceptable lease is a contingency. Stock and food items will be inspected as well by the Health Dept. What you think you can keep,...may not be the case. Any food or liquors that are rejected must be credited by way of reduction in price or check. Be sure and do a search of any activity on the books at Planning & Zoning.. don't want to buy a business where the block may undergoing drastic changes. As you are interested in the establishment,...you quite possibly a patron,... ask yourself objectively....Is this highest and best use of my investment dollars in this economy... Most of the time "One Offs" are on the market because they didn't "Pay Off"

Oct 23, 2014
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