A restaurant is worth what an informed buyer is prepared to pay for the results they expect to get from it. In practice, a restaurant valuation is usually expressed as a multiple of EBITDA, but the multiple depends on factors that do not appear in the accounts: brand strength, site quality, cost structure, management team and the ability to replicate the concept.
What a multiple is and why it is used in restaurant valuation
A multiple is a shorthand way of expressing the price of a company. You take one measure of the business, normally EBITDA, and multiply it by a number that reflects how much buyers pay for each euro of earnings. If two groups generate the same EBITDA and one sells for more, it is because the market applies a higher multiple to it.
The multiple condenses into a single figure what the buyer thinks about the future of the business. A high multiple means they are confident results will hold or grow. A low one signals doubts: about the continuity of the site, about dependence on the founder or about the robustness of the margins.
That is why it pays to be wary of the figures that circulate as general benchmarks for the sector. Multiples vary with the size of the business, the type of concept, the brand and how replicable it is, the state of the market and the profile of the buyer. A number applied without context can leave money on the table or create expectations that no transaction will ever meet.
The EBITDA that really counts: normalised and recurring
EBITDA is earnings before interest, tax, depreciation and amortisation. It measures what the operation of the business generates, regardless of how it is financed. In restaurants it is the usual reference because it allows sites and groups with different financial structures to be compared.
The buyer does not take the accounting EBITDA at face value. They work with a normalised EBITDA, which corrects items that will not recur or that do not reflect the reality of the business. Some common adjustments:
- Owners’ salaries above or below what a professional manager would cost.
- Personal or extraordinary expenses charged to the company.
- Rents agreed with related companies on terms that differ from the market.
- One-off income or costs, such as building works, a severance payment or a grant.
- Recently opened sites that have not yet reached their normal level of trading.
Every adjustment must be supportable with documentation. A well-argued normalised EBITDA holds the price up during the negotiation. An inflated one collapses in due diligence and costs the seller credibility for the rest of the process.
What the balance sheet leaves out: the five factors that move the price
Valuing a hospitality business goes beyond EBITDA. Two groups with similar results can receive very different valuations because of factors the balance sheet does not capture.
Brand strength. A recognised brand, with its own following and a clear proposition, sustains demand even when the environment changes. The buyer pays for that ability to attract customers without depending on one particular site or person.
Site quality. In restaurants, the premises are part of the business. What counts is the location, the footfall, the time left on the lease, its renewal terms and the licences. A good result on a lease that expires soon is worth less than the same result with years of secured tenancy.
Cost structure. The buyer analyses how costs split between raw materials, staff and rent, and whether there is room to improve them. An orderly, controlled structure signals that the results do not depend on luck.
Management team. If the business works because the owner is in the dining room every day, the buyer will discount that risk. A team capable of operating without the founder makes the company more transferable and therefore more valuable.
Ability to replicate the model. A concept that has already proved itself across several sites, with documented processes, lets the buyer picture the growth. That expectation is often what lifts the multiple the most.
How the type of buyer affects the valuation
The same business can be worth different amounts depending on who buys it. A trade buyer, such as another restaurant group, may see savings from integrating purchasing, overheads or logistics, and be willing to pay for them. A financial investor will look above all at the profitability of the business on its own and its growth potential.
Nor is a full sale the same as a partial sale or bringing in a partner. In each case, what is being transferred, the role the owner keeps and the warranties the other side asks for all change. That is why a valuation is a range that is pinned down in the negotiation and depends, to a large extent, on finding the right counterparty.
Common mistakes when estimating what your restaurant is worth
Many first-time sellers come to the table with a figure in their head. These are the mistakes that most often separate that figure from what the market pays:
- Starting from turnover. Sales say little about value unless they translate into earnings. A business with high turnover and thin margins can be worth less than a smaller, more profitable one.
- Adding in the personal effort. The years of work and the money spent on refurbishments have a sentimental value the buyer does not pay for. They pay for future results.
- Applying a multiple heard in another deal. Every business has its own brand, sites and team. Borrowing someone else’s benchmark usually leads to unrealistic expectations.
- Arriving with the information in disarray. Unreconciled accounts, scattered contracts or incomplete site-by-site data breed mistrust, and mistrust turns into discounts or tougher clauses.
- Ignoring the lease. Short terms or unclear assignment conditions can weigh on the price as much as the results themselves.
- Valuing alone. A valuation done from the inside tends to see only the strengths. An outside eye anticipates the questions the buyer will ask.
A valuation through an operator’s eyes
Valuing a restaurant properly means reading the accounts and also understanding how the business works in the dining room and in the kitchen. At Link Capital we value the company and its brands against those five factors, with the operational backing of Linkers, the hospitality consultancy that holds a stake in the firm. You can see how we approach valuation within our hospitality and F&B M&A service.
If you are thinking of selling, in full or in part, or of bringing in a partner, an early conversation with a Link Capital partner will help you understand what value you can defend and what is worth preparing beforehand. All information is treated in the strictest confidence and we reply within two working days.