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 Placing a value on an existing restuarant

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  • Total Posts: 22
  • Joined: 11/9/2012
  • Location: Fargo, ND
Placing a value on an existing restuarant Fri, 04/19/13 10:48 AM (permalink)
I am looking to purchase an existing quick service sandwich shop (it is currently a franchise). The location is leased, and I do NOT have any plans to keep the current franchise. My plan is to use the existing layout, equipment, etc. to operate my own concept.
The big question I have is; how do I place a fair value on the restaurant? I've already placed a value on the equipment, but I can admit there is value in the location, securing the lease, fit up, ect. I'm just not sure how to evaluate that.
The franchise restaurant currently operating in this locations is barley breaking even, after payroll, franchise fees, lease/rent, food costs, etc. I have confirmed the lease rate/terms with the building owner, and I have also confirmed with the current restaurant owner that there is no obligation to the franchise.
Any help/guidance is appreciated. Thank you in advance.

    • Total Posts: 299
    • Joined: 2/23/2011
    • Location: Starkweather, ND
    Re:Placing a value on an existing restuarant Sun, 04/21/13 3:06 AM (permalink)
    If all your buying is the space and the equipment,then value it as such.what it is or could of been means nothing.your buying the equipment and paying the current lessee a sum to move out and give up the space.So what is that worth to you?

      • Total Posts: 9526
      • Joined: 9/1/2006
      • Location: Gilbert, AZ
      Re:Placing a value on an existing restuarant Sun, 04/21/13 4:46 AM (permalink)
      Depends on what you need the valuation for.
      If you need it for establishing the paying price that's one thing
      If I'm the seller, I'd be trying to get some money for "Good Will". - the dollar value of the current sales base that I spent time & money to develop.
      If all your paying for is fixed assets, then the value is the value of the equipment and lease.
      If you need it for a bank loan, then you need projected sales & profits in the equation.
      There are all kinds of Business valuation calculators on the internet, Here's one
      <message edited by Foodbme on Sun, 04/21/13 5:01 AM>

        • Total Posts: 2225
        • Joined: 3/16/2011
        • Location: Kennewick, WA
        Re:Placing a value on an existing restuarant Sun, 04/21/13 12:48 PM (permalink)
        Why would there be a value to the location if the chain operation can't make a profit there. If the location is a value to your concept, doesn't mean it's a value to someone else's concept.........I would just buy what they are selling, your not buying a well established successful operation. You may think this will be a successful location for your concept, but, it's not successful until it's successful...............pnwc

          • Total Posts: 22
          • Joined: 11/9/2012
          • Location: Fargo, ND
          Re:Placing a value on an existing restuarant Tue, 04/23/13 12:44 PM (permalink)
          Thank you everyone. I am moving forward, and plan to make an offer based on the assets, and a small amount of, "good will." If they aren't receptive, I plan to contact the building owner directly, and see if I can work out a lease directly with him.

            • Total Posts: 1949
            • Joined: 6/22/2009
            • Location: Near You, WA
            Re:Placing a value on an existing restuarant Tue, 04/23/13 3:03 PM (permalink)
            pnwchef is right, there is no good will to you in their business that is going belly up, there is some value in the equipment and build out.
              Dr of BBQ

              • Total Posts: 3716
              • Joined: 10/11/2004
              • Location: Springfield, IL
              • Roadfood Insider
              Re:Placing a value on an existing restuarant Tue, 04/23/13 5:21 PM (permalink)
              Bill and the Chef are both correct why pay what you don't have to. Makes no sense at all. Just call the landlord and tell him your interested and when this guy notifies him (the landlord) that he is closing your new landlord will call you.   

                • Total Posts: 22
                • Joined: 11/9/2012
                • Location: Fargo, ND
                Re:Placing a value on an existing restuarant Wed, 04/24/13 11:34 AM (permalink)
                Dr of BBQ, you are 100% right. After some more thought, my plan is to offer them the exact value of their assets in order to, "go the easy route." If they reject my offer, I will go directly to the landlord and offer to sign a lease right away, thus forcing the current tenants hand.
                If after that point the landlord works out a lease with me, I will again offer to purchase the current tenant's assets, which at that point would be much more desirable than liquidation.
                Wish me luck.

                  • Total Posts: 1908
                  • Joined: 10/1/2004
                  • Location: Millbury, MA
                  Re:Placing a value on an existing restuarant Wed, 04/24/13 12:03 PM (permalink)
                  When a friend got rid of his music store franchise, he was able to assign the lease, with the landlords permission. He then sold the signage and fixtures to the new guy for $1. He avoided the cost of taking down the sign and restoring the store (in a strip mall) to clean, bare walls condition. His rent was about $150 a day, so he couldn't screw around with a long close. Thankfully the inventory was mostly easy to wholesale back to suppliers.
                    Sonny Funzio

                    • Total Posts: 902
                    • Joined: 2/13/2006
                    • Location: Detroit, MI
                    Re:Placing a value on an existing restuarant Thu, 05/2/13 11:35 AM (permalink)
                    Make sure that the Building Dept and Health Dept are going to sign-off on it's current equipment, kitchen, etc set-up.  Just because they approved in previously does not mean they might not want something modified, changed or replaced.  May need to schedule an inspection.
                    Can be big and unpleasant costs if it gets sprung on you later.

                      • Total Posts: 174
                      • Joined: 2/25/2012
                      • Location: Eugene, OR
                      Re:Placing a value on an existing restuarant Mon, 05/6/13 3:32 AM (permalink)
                      Yes. Consider what Sonny has said. There might have been things the HD and the City put up with in some kind of personal exception or "grandfathering" in, which may not be applicable to you when you take over, even if there aren't many modifications made.
                      I went into a cafe recently and got a letter a few months later about some upgrading to the plumbing, like putting in a grease trap.
                      HD inspectors get shuffled around to new territories, people retire and turn over. Good communication with them off the bat will allow you to know what you are in for and make sure you aren't gonna hit any brick walls.
                      Also, regarding the previous biz selling their "biz" along with the perceived value of their equipment... I see this all the time on craigslist. A biz for sale for some crazy amount of money. But why are they going out of biz? Most of the times because the economy sucks and they cannot sustain or are not dynamic enough to adapt to the challenges. Yet they want you to buy the grey cloud they are trying to get out from under. You see the listing weeks later for half the amount. Then weeks later you see just the equipment being sold in a lot. Then when nobody bites on that, you see it being pieced out. And whatever doesn't go in that gets sold dirt cheap to the local used restaurant supply, or who knows, makes its way to the Goodwill. I just picked up a legit SS equipment stand for $15 at Goodwill! I couldn't believe it. Lastly you see the spot for lease again and it might stay that way for months or longer, depending on your local economy.
                      Good luck.
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