So, your restaurant has reached a certain point in business where you can start liquidating its equity. If that’s not the case, you might consider selling your restaurant or buying a new one. You need the accurate restaurant appraisal for the perfect deal for any of the above cases.
Types of Restaurant Business Models
Here are different types of restaurant business models.
Profitable
A profitable restaurant business model has a significant impact on the appraisal at the time of a deal.
If your restaurant is labeled profitable, you are getting a return on your investment. The break-even level is not considered to be profitable. The appraisal for a profitable restaurant is always optimistic regarding future projections. Hence, a great way to close the deal at a profit.
Non-Profitable
The non-profitable restaurant model refers to a restaurant that is not yet returning the investment. If your restaurant is at a break-even point, this too shall be considered a non-profitable restaurant model. The timing of the non-profitable appraisal is quite essential.
If we look at the practical appraisal dynamics, no restaurant owner requests a restaurant appraisal in a non-profitable state.
In case of loan repayment or an emergency sell-out, the restaurant can be lined up for an appraisal. But doing so will significantly lower the actual appraisal price of the restaurant.
Why Should You Consider Getting an Appraisal?
Like any other business model, the restaurant appraisal is purely associated with the business. There are three scenarios under which an owner should ask for a verified appraised report for the restaurant.
- First, if the owner is ready to sell the restaurant soon.
- Second, if the owner wants to expand the restaurant chain business by acquiring new restaurants. A positive restaurant appraisal report is essential to boost investors’ confidence.
- Third, if the owner is willing to liquidate a certain equity proportion of the restaurant. The equity proportion in question will also impact the appraisal report.
Factors to Consider for an Accurate Appraisal
Asset Evaluation
The biggest factor that impacts an appraisal’s overall projection is asset evaluation. Assets are more like solid reserves a business possesses.
There are two forms of assets. First, assets that don’t generate a new income stream for the owner are set to play their part in the form of instant cash outs. Second, assets that do generate cash flow for the owner.
The primary asset in the restaurant business world is the number of profitable restaurant outlets. High-end cooking equipment is also regarded as a form of assets. It would be best if you were very careful with the assets listing.
Economic Impact
COVID taught us many things, but the most prominent was the impact of the economy on a business. No matter how great your business is, the economic impact will determine what actual appraisal you will get in the end.
Any economic impact will directly impact the buying capacity. As a result, the whole restaurant operation will also be affected accordingly. Make sure you select the proper economic phase for appraisal.
Investors Involved
Many businesses today include a certain percentage of equity owned by investors. These investors put their money into a profitable business model to get a profit in return. To get an accurate appraisal, you need to be very clear with the investor’s involvement.
Plus, some investors are always looking for transparency in business. So, if you are ready to take an initiative associated with restaurant appraisal, it is better to collaborate with the investors first.
Growth Chart of the Business
For those unfamiliar with a growth chart, it is the projection model for the business. The chart contains projections related to the future of a business depending on the current growth statistics. The better the growth chart, the more positive the appraisal report will be.
This is precisely the factor you need to focus on in the restaurant-based business model from day one. The growth chart is directly associated with the quality of your products or services.
In the case of a restaurant business model, the main factor will be the food you are offering, followed customer service and location.
Customer Acquisition Statistics
Custom acquisition statistics significantly impact the appraisal report of service or product-based businesses. Customer acquisition refers to the frequency your business attracts more customer. As a restaurant owner, this factor decides whether or not your business has attained a scalable route.
For example, if the statistics show that your customer acquisition model is working great, the appraisal will show positive statistics. This will boost the confidence of potential buyers and investors as well. The acquisition model is the true measure of a business’s projected success.
Methods to Evaluate a Restaurant for Appraisal
Market Valuation Focused
The market valuation stream is the most practical among the top evaluation methods for a restaurant appraisal. The method focuses on the stance of a restaurant in the market rather than focusing on its income. This adds a lot of credibility to the whole process of evaluation.
For example, the market valuation considers the potential of the restaurant. This includes focusing on the time scale during which the restaurant has started making some prominent sales to get above the break-even point. The subjective approach allows you to evaluate the potential growth of the restaurant business as well.
Plus, there is a lot of technical and practical insight involved in the market valuation model. According to this, both parties can negotiate a deal based on practical factors. This will allow both parties to come to an evaluation point with accurate projections regarding the business growth.
But there are some prominent cons involved with the whole process as well. For example, this evaluation model can’t be trusted with large-scale investments as the market trends are not always accurate in terms of projections.
Income Valuation Focused
Restaurant owners most frequently use the income valuation focused model throughout the globe. As the name already indicates, the income valuation depends on the income generated by a restaurant in a fixed time frame. This generated income is then used to project the future growth charts of the business.
There are almost zero technicalities involved in this appraisal method. All you need to have audited data regarding the income your particular restaurant outlet has been able to generate. The model doesn’t consider valuation factors like economic impact, etc. This ends up producing a pure income-driven appraisal.
The benefit of this model is the accuracy. This method has no risk of economic downfall or potential market loss. The appraisal will depict the overall worth depending on its potential to generate income. In short, the investors will get a clear representation of the business’s net worth.
The major con of this method is the low appraisal charts. No matter how well your restaurant is performing, the method will only involve the income it has been able to generate. It doesn’t include any potential growth in the business.
Asset Valuation Focused
Last but not least is one of the most credible restaurant appraisal methods, the asset valuation model. Some experts believe that getting an appraisal for your restaurant-based business is a great way to secure potentially well-performing future growth. The core focus of valuation in this model is the assets of a business.
This includes both income-generating, tangible and intangible assets owned by the business. But, the general nature of an asset has a significant impact on the appraisal report. For example, income-generating assets are more valuable than solid assets. This is because these assets will be a source of generating a steady income.
The asset appraisal method also involves a lot of consideration regarding the technical aspects. For example, the nature of an asset impacts the asset appraisal greatly. The nature also includes whether an asset is permanent or rented.
As a potential seller of a restaurant business, the asset valuation model is not the best option. Some experts state that it is equivalent to the fact that you are acknowledging the downfall of your business. In other words, you are not relying on the steady income stream of your business anymore.
Final Note
Like any other business appraisal model, the restaurant appraisal models have pros and cons. But in the end, it all depends on what is the most suitable option for your business. Remember, you need to focus on the appraisal model that depicts the best picture of your business both in the short-term and the long-term.
At Wiley Financial, we provide expert restaurant appraisal services. Contact us now to book a free consultation.
