Market Value of a Restaurant

qfanatic01 · Posted: May 24 2014 Post subject: Market Value of a Restaurant

I need to find a motivated person or persons to help grow my business and I am considering offering a buy in to the right person. My family is not interested in making the effort we need to take this up a notch or two. So much potential and not enough of me to do what it takes. I need a restaurant manager and a catering manager and we could easily double our volume. Just wanted to see if anyone new of a formula used to figure the market value of my business?
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RodinBangkok · Posted: May 24 2014 Post subject:

Here an excerpt from a pretty good article, about different valuation approaches:

At the “scientific” end of the equation, professional valuators use various methods
to assess business value. Income approaches, for instance, calculate a discounted cash flow (which uses projected financial performance to evaluate how a company will perform over time) to determine the net present value of a business. Asset-based approaches determine value by adding the sum of the parts of the business to arrive at a net asset value. There are also market- based approaches that determine value by comparing a business to similar companies within its industry.
While these represent the primary approaches to business valuation, variations exist depending on the context for the valuation (e.g., financial statement reporting, tax planning or transactional purposes). Valuators also typically take a wide range of factors into account when establishing value, including:
• financial history and business forecasts • industry and market trends
• management structure and skills
• tangible assets, including real estate
• intangible assets, including goodwill, supplier relationships, name recognition, patents and trademarks, proprietary technology, etc.

Full article here:

http://www.grantthornton.ca/resources/insights/white_papers/Establishing-the-value-of-your-company.pdf

It really is going to depend on how you see your business within some of these contexts. When I sold one of my businesses some years ago the valuation was based mostly on financial performance and new business potential. The valuation for us went down a lot because I was not going to be a part of that new business.
I'd probably start by picking an approach, then work the numbers based on that approach. I'd be careful about a buy in from the get go. I'd probably do it in increments so both the new person and yourself are comfortable as things move forward. Giving the new hire a path to full partnership while testing the waters with this new person, and they have the same opportunity from their perspective. Its not easy taking on a full partner when you've been the sole decision maker in the past.
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LCDolph · Joined: 16 May 2014 Posts: 10 Location: Portland, OR

Capt Jack · Joined: 13 Sep 2013 Posts: 21 Location: Southport NC

I would be very reluctant making someone a partner. I would be creative with an incentive package tied to net profit. Hold a carrot in front of motivated gifted manager, and he/she should grow your business, leaving you 100% in control. Such as, Keep payroll under XX% per year, earn X% net profit for a 3% bonus at year end. Earn XX% net for a 5% bonus at year end. Lower food cost by 1 point, get $xxx.00.

My first job as a manager was structured that way. I had a base salary plus various kickers that totaled over 16k my first year. I barely survived off the base, but the bonus money made my year. I worked my but off to earn money for that company. And they got a huge increase in net for it.

I know I am a newbie here and have read many of your posts and respect your experience, just proceed with a lot of caution before sharing YOUR business. How could you get out of the relationship if you had to?

Harry Nutczak · Posted: May 24 2014 Post subject:

Maybe I can help shed some light on a partnership in a day or two.

One of my friends is very savvy in business dealings, to give a small clue as to his knowledge and fortune, he bought a railroad for 3 million, and sold it less than a decade later for hundreds of millions. thats just one of his "things"

I've had a few people here asking if I'd consider a buy-in, and partnering with them. I declined.
Now I am reconsidering.
Only because my friend says it'd be a good thing for me, I argued against it, and we are meeting in the next few days for him to describe the benefits in detail.
This is the guy who sold me the property I am in after he spent $15Mil buying foreclosed properties in the area and flipping them for massive profits.

So, give me a few days, and I may be able to get some helpful info.

Right now, I have a number in my head for someone to buy outright, and me stay on to train the new owners. Maybe our discussion will change my mind and take a partner on here
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Mr Tony's BBQ · Posted: May 26 2014 Post subject:

I will never have a "partner" again if I have any say in the matter!! I have seen this happen FAR too often outside my own businesses!!
My last [ and only ] "partner", one day came to me with a number he pulled out of his a$$ saying he figured I owed him X$ thousands of dollars....I pulled out the books and we figured it all out to the dime to that day right then and there, [..long story so I'll keep it short here ]
He said "never mind, we'll call it even and walked away....That was about 10 years ago....never saw a dime though he lives @ 1000 yds away....I just started talking to him again about 2 years ago....all I hear about is his health issues and how he was forced to retire......wife died etc.....Lesson learned here!
Yes, this was somewhat of a handshake partnership, but books were open to all involved at any time, worked for several years w/o a hick-up, then SOMEONE got greedy....Happens every day of the week, but never to me [ or you ] ....
I say just hire someone. Use savings, line of credit or even low interest credit cards as a last resort [ though often MUCH cheaper than bank loans ]...YMMV, but I doubt it. Nobody wants to see someone else sink your ship Bro!
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Harry Nutczak · Posted: May 26 2014 Post subject:

Tony,
Your situation is exactly why I have refused partnerships to date.
Typically the guy performing the work and their intellectual property is taken advantage of by the "Money person" in most any partnership.

The only partnership that I have seen work, is Ben & Jerry. My guess is that they spark up a huge fatty, toke that down, get the munchies, develop some spectacular ice-cream flavors, and use the profits to fill their stash of "Innovation Herb" , and repeat.

I'm supposed to meet up with my friend in the next day or so, Maybe I will come away with a different outlook after our meeting, and be able to shed some good info here.

I know I could use some help that is genuinely vested in the same goals as I am, but being taken advantage of is a major concern for all of us.
I'm to the point where I could happily pack up my knives and mandolin, just walk away, and not look back.
It's not because we are hurting for business. I took a failure of a location that had 4 separate owners in a 12 year period where no previous venture made it a full year, and I've got the highway lined with parked cars anytime we are open.
I'm looking at bigger and more challenging things right now, and my target is the Milwaukee Metro area, then try to go regional with it.
Maybe Tony and I should be talking.................
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T00lman · Posted: May 27 2014 Post subject:

I live by the motto people and money don,t mix . I prefer to fly solo
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BUGSnBBQ · Posted: May 27 2014 Post subject:

I was in a 'Partnership' from 1997 to 2000. Construction business. All legal, incorporated, etc. Going into the 4th year, our accountant brought up a few things to me as far as what things my 'Partner' was spending on our company CC's. Hmm...I don't remember these 'Business Lunches', car maintenance (his and his wife's), gas charges in South Carolina, etc. I confronted him and his reply was 'It's just a couple of hundred. We're making plenty of money. What's the big deal?'. First of all it was $3K in that quarter alone. And how much went through I didn't know about? I was so pissed I paid number-boy, out of my own pocket, to go through everything since the beginning and found another $25K of questionable charges. Needless to say that was the end of that 'Partnership'. We'll figure out what the company is worth, split that, and you owe me $25K (plus the $2K I spent finding all this out) out of your half. It was a mess breaking up, and the worst part was he lived across the street from me.

I would find a good headhunter to find the right person(s) to do what you want to do. With monetary incentives tied to performance and customer satisfaction.

In my experiences, partnerships RARELY work out when one person has the knowledge and the other has the money.

Good luck, you're gonna need it! Laughing

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Lone Star BBQ & Grill · Joined: 30 Jan 2014 Posts: 23

I was in a partnership in the early 80's. Business was quite successful, partnership was not. Breaking up the partnership was worse than a divorce. Never again.

Harry Nutczak · Posted: May 29 2014 Post subject:

Heres a question for all you guys that had failed partnerships;

Was a partnership agreement drawn up by an attorney, and reviewed by your personal attorneys?
Were the rules and responsibilities of said partnership laid out on paper with all involved parties briefed on what is expected, what is not allowed, and grievance remediation?

"Handshake Partnerships" typically turn out to be a nightmare, especially when one person is the "Money Person" and the other is the worker.
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Ridge View BBQ · Posted: May 29 2014 Post subject:

Perhaps its because we're all family owned or the fact that we all have a strong work ethic. But our little business has thrived for the past 7 years on a 4 way partnership. We all have assumed our own duties and perform them to the best of our ability. But, I can see that our formula wouldn't work for everyone.
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Mr Tony's BBQ · Posted: May 29 2014 Post subject:

Cat797 · Posted: May 30 2014 Post subject:

You know, Dave Ramsey says that the only ship that doesn't sail is a Partnership.....

But if you must......I'd take Harry's advice and have it drawn up by a third party attorney (i.e.- not yours or your partner's), with explicit instructions on who put what into it, what is expected of each party, compensation and how that changes, and most importantly, what happens when one of you breaches the contract and you have to dissolve said partnership.

If it's in writing on paper and signed, completed by attorneys, while painful, should make a break up more tolerable.....

Cheers,
Ed
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BUGSnBBQ · Posted: Jun 01 2014 Post subject:

Harry - In my case we had our partnership agreement done by an attorney who specialized in small business. I had him look over what I found and he told me my 'partner' had clearly violated the terms of the agreement. We then had to get our own attorneys, due to him (our attty) having a conflict. What a mess to get settled Twisted Evil

. That's why I won't go into business with my wife's best friend - Been there, done that. Plus I don't want to own a restaurant. A bar, on the other hand... Laughing

I'm more 'Management Material' anyway Shocked

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nskitts · Newbie Joined: 14 Jun 2011 Posts: 80 Location: Jackson, OH

Harry, very interested in what your friend has to say. I would love to learn some business lessons from that guy!
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Harry Nutczak · Posted: Jun 18 2014 Post subject:

Poppa's PTL Club · Posted: Aug 13 2014 Post subject:

Moonie and I talked about a partnership about 4 years ago. It was easy to see after not all that much conversation that we had two very different visions in mind: he an East TX BBQ joint and me a BBQ joint focusing as much on the soul food/country cooking sides with some funky twists

We were smart, not partnering and each went out on our own. We have have both been proven right in our visions, each being very successful in locations about 10 miles apart. No partnership agreement would have settled the core issues we disagreed about and neither of us was wrong, but we would have had battle after battle over strategy, food, etc.

IMO, most BBQ guys are very opinionated and no partnership agreement will settle the hard feelings that will come out of losing control of your singular vision.

PS Moonie and I are still great friends, have pretty similar levels of success and have almost certainly made more scratch apart than we probably would have made as partners.
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Lone Star BBQ & Grill · Joined: 30 Jan 2014 Posts: 23

Haven't heard from Moonie in awhile. It would be fun to get an update.