Commercial business/restaurant appraisals in the LA area.

5 Replies

Hey all,

My in-laws have their [Chinese] restaurant listed in the Los Angeles area (they own the business but are leasing the space they're in currently) and don't really seem to have a valuation of their restaurant. I was wondering if anybody has references or contacts for a reputable business appraiser in the Los Angeles area who could help them out. They are primarily Chinese-speaking (Mandarin) so it would be nice if the appraiser or someone at the company could speak/translate. If not, also not that big of a deal either though. I think they just need to get an idea of what the actual value is for the restaurant instead of considering offers based on some number they came up with that may or may not be accurate. 

Any info would be greatly appreciated. TIA!

Have you looked at bizbuysell.com  ?

That is where a bunch of businesses are sold. It is a sister site of Loopnet.

You can check by area. Generally what affects a business price is if owner will finance part of the sale or they want all the money upfront. Also if the place is worn down and needs re-imaging along with new equipment that can be expensive. If you have a long term lease in place with lower rents that can be attractive to a business buyer. If lease is fixing to expire or jump to higher rent it can be seen as a negative as sales would have to increase a bunch with food cost inflation coming to offset to maintain the same profit as before.

What is in the lease is important as well that could obligate the buyer to guarantees and other provisions they do not agree with. The lease could stipulate the business seller stays on the hook personally for any subleasing etc.

Generally buyers look at profit earnings before taxes as a gauge on price. Most sellers try to get 3 times earnings for a restaurant so it makes 100k after expenses a year profit then ask 300,000. Especially if it is a national brand or chain in a system. Buyers like to pay 1 to 2 times profit or 100,000 to 200,000. Below about 150k profit is usually all owner/operator type single businesses unless there are many stores owned for scale. Owner operator makes up about 75% of the market.

I like larger businesses where full management is in place and you can be absentee owner and still make money. That is scale able versus the one restaurant you constantly have to be at to keep it going.

The bizbuysell has business brokers on there so might want to look there for contacts.  

Originally posted by @Joel Owens :

Have you looked at bizbuysell.com  ?

That is where a bunch of businesses are sold. It is a sister site of Loopnet.

You can check by area. Generally what affects a business price is if owner will finance part of the sale or they want all the money upfront. Also if the place is worn down and needs re-imaging along with new equipment that can be expensive. If you have a long term lease in place with lower rents that can be attractive to a business buyer. If lease is fixing to expire or jump to higher rent it can be seen as a negative as sales would have to increase a bunch with food cost inflation coming to offset to maintain the same profit as before.

What is in the lease is important as well that could obligate the buyer to guarantees and other provisions they do not agree with. The lease could stipulate the business seller stays on the hook personally for any subleasing etc.

Generally buyers look at profit earnings before taxes as a gauge on price. Most sellers try to get 3 times earnings for a restaurant so it makes 100k after expenses a year profit then ask 300,000. Especially if it is a national brand or chain in a system. Buyers like to pay 1 to 2 times profit or 100,000 to 200,000. Below about 150k profit is usually all owner/operator type single businesses unless there are many stores owned for scale. Owner operator makes up about 75% of the market.

I like larger businesses where full management is in place and you can be absentee owner and still make money. That is scale able versus the one restaurant you constantly have to be at to keep it going.

The bizbuysell has business brokers on there so might want to look there for contacts.  

 Thanks! I actually just found the restaurant on bizbuysell! Lol... so it seems they *might* have done a proper valuation - they have a broker who is listing on their behalf, and I think it may be the landlord's broker. I think the landlord is on their side and wants to see them get a good sale. Still, I think it would be good for us to get the average of their past few income statements and get the rough valuation x2 or x3. I'm curious how negotiations usually go if owners are seeking 3 times earnings when buyers only are willing to pay 1-2 times. Do they usually 'meet in the middle' like 2.5x earnings? Otherwise, what criterion are used as 'bargaining' chips when negotiating that part?  

Yea, I wish my in-laws could be absentee owners but I don't think most of their staff is trustworthy or reliable. Out of all of them, less than a quarter probably are.

If the owner chooses to finance, can they usually justify closer to their sale price versus the buyer's asking price via all-cash buyout? This might be an option for my in-laws since a monthly cashflow wouldn't hurt for them. And will buyers usually be willing to go the financing route if they're leasing and also owe the landlord rent? 

Well, without actually having done any proper valuation, from what I know and have heard, it sounds like my father-in-law has committed to a purchase price of 32% *under* his asking price. Based on the asking price, I'd guess the valuation was probably slightly high but the agreed-upon price seems to put them in the ballpark of what we *think* their annual income/profit has been. Because this all happened way to fast, and my in-laws seem desperate to offload the business, we didn't even have a chance to review things with them (not that they would ask us for help with that anyway). The good news is that this will be one burden lifted off their shoulders. The bad news is that they are averse to planning ahead with their money, which is a really scary thing. 

I was in restaurant industry in all facets before getting into commercial RE about 14 years ago. Restaurant business is tough. People think everyone needs to eat something to live which is true but there are also tons of options for population levels to do so.

If you have scale and systems then restaurants can make gobs of money with lower stress. If owner operator and business has limited systems and is not efficient then lots of stress for little to marginal money. Owners can get burned out and want a break as they ARE THE BUSINESS.

@Jeremy Lee As long as the offers are coming in, you will have limited time to decide. Not a lot of people want to buy a business, especially on certain types, their list price does not matter, like any business, it’s all about your customer base and how they can be maintained after the sale, there is also the issue of employee not quitting. Cooks can walk out if they don’t want the new structure and it will change the quality. This is CA so there is no real way that you can stop someone from walking out.

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