How do you value a restaurant without clean add-backs?
Without clean add-backs or certainty on whether to use multiples of cash flow or seller's discretionary earnings, owners who only know their rough sales and take-home pay risk severely lowballing themselves. This makes it difficult to come up with a trusted valuation or defend a number once a buyer gets into diligence.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
- 1Using a broker opinion
- 2Consulting a CPA
- 3Getting a formal appraisal
- 4Reversing into a valuation from comparable restaurant sales
- 5Asking experienced operators on forums for help
- 6Requesting three years of books to analyze the numbers independently
In their words
Unedited, grouped by where they were said, most upvoted first within each place, each linked to the thread it came from.
“He knows his sales and roughly what he takes home. He does not have clean add-backs, does not know if anyone uses a multiple of cash flow or seller’s discretionary earnings for restaurants like his, and does not want to lowball himself just because someone sounded interested.”source ↗
“If you’ve sold, or even gotten far enough into diligence that you had to defend a number, how did you come up with a valuation you trusted?”source ↗
“I have seen some indications that some deli’s runs food cost of 55% I am not sure what is exactly hitting that cogs number but doesn't appear to be kitchen wages. Please help me make sense of this.”source ↗
Where this came up
People with this problem also raised
- 3How to price a business with no revenue
- 2How to value a small retail business with declining profits and rent hikes
- 2What commercial restaurant equipment is safe to buy used?
- 3How do you sell a minority share in an unprofitable small business?
- 7How do I know if I should sell my business?
- 2How to get out of a restaurant lease when losing money