Buying a Restaurant

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Typically, restaurants will be listed for three (or more) times their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or, in the simplest of terms, their ‘cash throw-off’. Be sure that the seller has kept good books, preferably with a CPA. Ask for a recent Profit and Loss (P&L) statement. 

For a Restaurant that does $2M in sales; ‘all in’ rent should be between 7% to 10% of gross sales. COGS should be around 30%, EBITDA should be between 15% to 20%. 

Of course there are other factors to consider: Business debt, personnel and training, brand image and awareness, location, rental rates, equipment condition, Franchisor and/or Landlord qualification, COGS (Cost of Goods sold), inventory value, comparables in the market, and others.

Be sure to have a contractor do a thorough inspection of the premises and report any issues in writing. Have a food service company come out to and take an equipment inventory and condition assessment. You can sometimes get this service gratis if you are willing to consider purchasing any necessary replacements from the vendor (at a competitive price of course). Sit down with your bank, CPA, attorney, and business broker to review all aspects of the business deal including the lease (pay close attention to the assignment clause and any hidden approvals or fees associated with transferring ownership).