Before purchasing or selling a restaurant business, a restaurant valuation or restaurant appraisal must be completed to determine its true value. A valuation of a restaurant determines the restaurant's ability to generate consistent profits.

The four different approaches to value restaurant business are asset-based valuation, capitalization of income valuation, cash flow-based valuation and market valuation. If you are interested in learning more about this and about becoming a business valuation restaurant expert, consider the following restaurant business valuation education and training suggestions:

1. Take college courses in real estate valuation — a critical component of restaurant valuation.

2. Read what the experts have to say about restaurant industry valuation.

3. Enroll in a business valuation seminar to learn more about how to complete a valuation of a restaurant business.

Action Steps
The best contacts and resources to help you get it done

Take college courses in real estate valuation -- a critical component of restaurant valuation

Real estate valuation is an important part of determining a restaurant's worth and is a critical component when calculating worth using a restaurant valuation formula. College courses in real estate valuation will provide you with essential background knowledge necessary when determining restaurant business worth.

I recommend: Johns Hopkins University's Carey Business School in Baltimore, MD has a Real Estate Valuation and Appraisal study program. The New York University School of Continuing and Professional Studies also offers a course in Real Estate Valuation

Read what the experts have to say about the restaurant valuation process

Industry experts are an invaluable source of information when it comes to restaurant appraisals. The Internet abounds with information about restaurant equipment appraisals as well as restaurant valuation formulas.

I recommend: Diomo offers an online program written by experts that covers all aspects of restaurant buying, including financials and valuations. About's AllExperts site features answers about restaurant valuation written by restaurant industry insider Rick Dudasik.

Enroll in a business valuation seminar to learn more about restaurant valuation

While all businesses are unique, their are many components in regard to conducting an appraisal that are common to all. Consider taking a business valuation course to learn business appraisal basics.

I recommend: The State of New York's Institute of Assessing Officers offers a one-day seminar to assist assessors with restaurant valuation issues. The American Society of Appraisers offers several courses related to business valuations.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Part of determining the value of a restaurant is knowing the value of the real estate as well as the physical dwelling. This is why, more often than not, a restaurant appraisal will be completed by someone licensed by the state as a real estate appraiser. Consider getting your real estate appraisal license in addition to learning about the nuances of restaurant valuation if you are serious about getting into the restaurant valuation business.

A business valuation of a restaurant is an excellent tool if you are looking to buy or sell or if you just want to determine the market value of a restaurant for tax or loan purposes. This valuation of a restaurant is different from a normal business valuation because the restaurant industry valuation is subjective. This subjectivity derives from the high failure rates in the industry and the fact that restaurants thrive based largely on its reputation with its customer base.

As seen by the any of the recent food contamination scares, a restaurant business valuation can change drastically from one day to the next. Even with all this uncertainty, there are inherent assets and intrinsic values that, for some restaurants, can survive any strain on its reputation. When you place a particular business valuation restaurant through the process, there are few items you need to consider:

1. Understand the various techniques for restaurant appraisal.

2. Contact a restaurant valuation expert.

3. Determine the valuation of a restaurant.

Action Steps
The best contacts and resources to help you get it done

Evaluate the different restaurant valuation formulas

Before you employ the services of a professional, it is important that you understand exactly how the valuation models work. Purchasing a restaurant valuation report without understanding the methods is like buying a car or house without ever seeing either.

I recommend: Examine the most popular restaurant valuation formulas on Diomo Corporation. These formulas are the basis on any restaurant appraisal. Purchase a do-it-yourself restaurant valuation kit from the Value Any Business website.

Call a professional to estimate a restaurant's worth

Now that you understand the basics of the restaurant business valuation, the next step is contacting professional valuation specialists. Remember these valuations are approximations and are more of a guideline for the value of the restaurant.

I recommend: Request a free consultation from the business valuation experts at SPARDATA. Use The Fair Valuers to put together a valuation report within three working days.

Utilize other sources to determine the valuation of a restaurant business

There are software programs and case studies that can help you or your business determine the valuation of a restaurant business.

I recommend: Quickly determine the purchase price of a restaurant business by using several proven valuation calculations in ValuAdder. PPC's Guide to Business Valuations includes a case study of a restaurant valuation.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The market determines the price for most anything people buy or sell. Restaurant business valuations can't always be totally on target. The true value is what the public is willing to pay for those assets.

Figuring a restaurant's value can be difficult, no matter whether you are looking to sell your bagel shop or you're a potential buyer for an Italian sit-down restaurant. New or developing businesses (especially those in the restaurant industry) usually are in the red for a while before they start showing a profit. However, high financial returns are entirely possible later on. But the current value still must be estimated. Different valuation methods further add to the complex task, as using one method may yield a higher valuation than using another.
Consider the following key terms when it comes to restaurant business valuations.

Action Steps
The best contacts and resources to help you get it done

Market value

Market value is based on what a buyer would be willing to pay for your restaurant. Regional and local market conditions, as well as industry conditions, come into play when determining market value.

I recommend: Learn more about how market value is determined for a restaurant through FGH International.

Asset-based valuation

Asset-based valuation refers to a valuation approach in which the restaurant's assets and liabilities are measured and analyzed.

I recommend: Check out the example of asset-based valuation offered by the law firm of Hoge, Fenton, Jones & Appel.

Income-capitalization valuation

Income-capitalization valuation is a forward-looking method in which calculations are made based on what income the restaurant can expect to produce in the future.

I recommend: Review this example from Restaurant Report on calculating a cap rate for an income capitalization restaurant valuation.

Valuation multiples

Valuation multiples are different factors used to come up with a restaurant selling price. These multiples are expressed as ratios and used in valuation calculations. Examples of valuation multiples include the selling price divided by business gross revenue, business net sales or cash flow.

I recommend: Visit Entrepreneur Media to learn how valuation multiples can be used.

Discounted cash flow valuation

The discounted cash flow valuation method arrives at a valuation price by figuring the expected cash flow of the restaurant.

I recommend: Review the formula used to calculate a discounted cash flow valuation and a further definition through Investopedia.

Owner's benefit method, or seller's discretionary cash flow

The owner's benefit method, sometimes called the seller's discretionary cash flow, does not make predictions on expected business income. Instead it makes assumptions based on business history and uses those numbers for valuation calculations. This method is most popular with and beneficial for small restaurants.

I recommend: The Diomo Corporation offers an owner's benefit formula when determining a restaurant value.