What the average restaurant broker doesn’t want you to know about how to buy restaurants in major markets like Atlanta, Georgia

Buying a restaurant is a math problem with a right and wrong answer. If your broker can’t answer these questions about how much to pay for Atlanta restaurants for sale, find another one.

There are three methods of establishing valuation of Atlanta restaurants for sale used in the industry. An expert Atlanta restaurant broker should be familiar with all three though the Income Valuation Method is the most favorable and trusted method used to value Atlanta restaurants for sale. In the days of lending for Atlanta restaurants, it was the method used to secure financing on a business. If the restaurant had solid profits, and under normal economic conditions, it's likely a buyer could purchase the Atlanta restaurant for sale with 20% down and obtain an SBA secured or other type business loan. At some point those lending scenarios will return. Until then, it still provides the most acceptable method of valuation for banks, lenders and individuals in assessing how much to pay for a restaurant. In a situation where an Atlanta restaurant buyer is paying cash, this helps to reduce fear of the transaction as the business has a proven track record.

An Atlanta restaurant for sale with strong books and records, assessed under the Income Valuation Method has the highest number of potential buyers and hence commands the highest possible price. An expert Atlanta restaurant broker can go through the Profit and Loss statement along with tax returns to find the Seller’s Discretionary Earnings (SDE) or owner benefit that is customarily accepted by lenders to value the business. This includes net income PLUS reasonable and customary add-backs.

What is not allowable for “add-back” purposes are efficiencies a new owner could potentially achieve that the current operator hasn’t. It should factor in your decision to buy but should not be calculated in the pricing of any Atlanta restaurant for sale. The entire purpose of the add backs is to calculate owner benefit and ultimately pricing of the business. If you can identify strategies to be more successful in the future than the current owner, that benefit belongs to you as a buyer, not to the seller in the pricing of the business.

Once the Seller’s Discretionary Earnings is appropriately determined, then it becomes the basis for a “multiple” for pricing Atlanta restaurants for sale. Every buyer wants the answer to the question, “What’s the multiple for restaurant pricing?” and the response rarely satisfies anyone. In general, Atlanta restaurants for sale can be offered and sold somewhere between 1.70 and 2.75 times earnings, with market factors adjusting this up or down. For purposes of this article, we are limiting our discussion to single restaurant units. Multi-unit sales (anything above two, especially franchise) changes the multiple significantly and requires a whole different analysis and pricing model.

“How much to pay for an Atlanta restaurant for sale? ” can be affected by any of the following variables including: strength of books and records, saturation of concepts in the marketplace, seasonality, location, comparable Sales Information or “comps,” franchise or independent offering, geography and competition.

Strong brokers that know the Atlanta market and should be able to share exactly where a restaurant is priced based on the multiple and why. Ask some questions of your broker to be certain they fully understand restaurant pricing. If you’re not satisfied with the response, find an expert Atlanta restaurant broker to help you buy a restaurant.

Robin Gagnon is Atlanta Restaurant Broker and Vice President of We Sell Restaurants and wesellrestaurants.com . Robin holds an MBA in Finance. She frequently writes on the topics of restaurants sales, restaurant valuation and financial topics surrounding the buying and selling of restaurants, bars and clubs. She previously served as Vice President of Strategic Marketing for Macy’s South, a $4 billion dollar retail division. Robin has served for more than a decade as a member of the ASU Business Advisory Council. She is also a founding member of the ASU Entrepreneurship Board. Robin is a licensed real estate salesperson in both Georgia and Florida. Robin is a weekly contributor to the Atlanta radio show "Dishing with Donna" where she and Eric host a segment on the restaurant and business brokerage industry.

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