Howdy Ags,

I have been in business for a year and a half and trying to nail down what this business is actually worth. Little back story. I bought a distressed fast food restaurant at the end of 2024. Don't own any of the RE or equipment, currently in a triple net lease. Looking to purchase the RE this year. Our first full year in business we did 1,350,000 in sales and cashed flow 130,000. 20% more then the previous year with previous ownership. I have strong intuition we will grow another 10%.

For context this restaurant is in a smallish town, 6000 population. I don't have to put much effort into it. Mainly some small admin work. Have a good management team in place. I bought it for 50,000 and invested an additional 50,000 back in late 2024.

If anyone could give some input, I'd like to figure out what the "business portion" is worth without the Real Estate.

Interested to see what others say. Food service industry very difficult with food and labor costs. Keep your current mgmt team happy. Make sure you have a good pulse on how they are doing and how things are going.

I have never looked at any in the fast food industry, but the what I have typically seen in other industries is 2-3x of Seller's Discretionary Earnings. Again every industry is different, but that is a start.

Also, the less you do personally, the better. If you have a strong team in place and only have to do minimal work, that will definitely put you on the higher end of the range.

Business valuations are usually a multiple of EBTIDA (Earnings Before Taxes, Interest and amortization). EBITDA is a calculation of your net profits that basically adjust your expenses and liabilities.

Cash flow (gross revenue) is essentially an irrelevant metric without knowing your net profits and how you manage your expenses.

If your looking for a hand wave number, you can usually just go by your net profits. If your thinking of selling, you'll need to get someone with industry specific experience to help you calculate your EBITDA. A broker in that market should be able to help. Try googling "Fast food franchise brokers and you'll likely hit on one.

The second step is determining the multiple. That's how many times your EBITDA (or net profits) someone in that market would be willing to pay. I don't know anything about the fast food business but my guess would be somewhere in the 3 to 5 range, meaning EBITDA/net X 3=the sale value of the business.

It may be higher, just don't know. Well run Medical and Dental practices in good areas can get as much as an 8 multiple on EBITDA right now but I don't see any type of food service business getting that high.

Appreciate the insight. I also miss typed earlier. Our P/L for the year was 130,000. We don't have any debt so I assumed cash flow was the same.

How do you price a business that has significant assets (e.g., semis, tractors, machinery, industrial generators for producing own electricity, etc.). So, let's say your profit formula would come out to $500k (I'm making up numbers) then even multiplied by 5 gets you to a number that breaking up the company into pieces and selling of the assets would get you 2-3 times more than that?

Simple analogy - how can say an internet company and a manufacturing company even be in the same discussions/methods of valuation?

I would guess in the $300-400k range but there are lots of variables to that.

Typically assets are priced separately from the blue sky value of the business. When I sold my business, the sale price was a function of EBITDA X (a multiple) + fair market value of equipment + inventory. In my case, equipment and inventory was around 11-12% of the total price.

Just looking online and I found "EATS Brokerage" a fast food business broker.

https://eatsbroker.com/about-us-eats-broker-the-real-estate-business-broker/restaurant-business-broker/

In my experience, brokers will generally be eager to give a free valuation, hoping to get a listing. In my case I had 2 different brokers give me a "snap shot" estimate of my businesses valuation from my P&L. Although I ultimately sold direct and did not use a broker.

The multiple will you get will depend on a few things: 1) going rate in your specific industry (usually a range), 2) Future growth potential based on your immediate demographics, and 3) likely an ongoing employment contract for you and/or other key employees

I am by no means an expert on business valuations or sales but having just recently been through a sell, after 5 or so years prior of learning as much as I could about the process, just passing my opinion based on my experience.

hth

I've done a few of these and doing one now. You're looking at 2.5X CF or so. Lots of variables though as previously discussed.

Were you paid a W2 salary that's part of that $130k Net Income? If so what was it because that's a big piece of the puzzle for how much you actually made.

No. I don't draw a salary. I also don't put much work into it other then some admin work. If I was managing full time, I'd feel it would be more appropriate to pull what a manager would make out of the net profit. The stores also 90 min from my house.