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Originally Posted by FlyingScot
Whoa! Agreed on the price--maybe if they dropped a "0"? Not many stand-alone restaurants have equity value beyond the movable equipment and (in this case nonexistent) real estate. That's why so many simply close when the owner has had enough.
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The easiest step in a restaurantuer's life is getting the restaurant open, and that isn't as easy as many may assume. We've seen a handful of attempts in our local market lately that have drawn out for better than a year. Now they are open and they have to build a customer base. This can take years. I can remember days/nights in our early years when we only had one or two tables total, spending $50-$75 each. At the time we needed to do $1000 a day to break even. For most cars, the only reason to come into our parking lot was to do a U-turn. It's demoralizing to endure. Buying something turnkey can springboard someone into immediate positive cash flow.
There are three methods for valuating the restaurant that does not own the real estate it operates on or the equipment he uses to operate. The one I believe to be fairest is 20 to 30% of gross sales providing the restaurant has been operating for better than three years and has a positive cash flow.
An element I don't see any of the Harvard business professor addressing is impact of the restaurant's position with social media. Opening a new restaurant today has the new challenge of climbing the standings. If I were a buyer, the first thing I would look at is what the restaurant's yelp, trip advisor, Google, and Facebook ratings and standings are. I know from experience that even with a less than idle location, heavy traffic comes to those that are on the top of these list. How much is that traffic worth?
It takes more than $1 million to open a McDonald's franchise. You won't own the real estate and the failure rate is very low.