Restaurant Valuation Calculator: How Much is a Restaurant Worth?

The Reality of Restaurant Valuations

I'm going to be blunt. A lot of people won't touch restaurants as investments. As a result, the amount of money (or multiple) you can get for the business suffers. As business expert Codie Sanchez puts it in a viral TikTok video, "The average small business in the US sells for around $800,000. The average restaurant $198,000." She warns, "No wonder banks don't lend to restaurants." This ranks as one of the three businesses Codie would never invest in.

According to Sam Domino, a Transaction Advisor at Beacon Business Brokerage, a restaurant is typically valued at 1.5x to 3x of seller's discretionary earnings (SDE). However, these multiples vary significantly based on restaurant type and annual revenue.

Restaurant Valuation Multiples by Revenue

Sam Domino provides these rough multiples based on restaurant type and revenue:

As you can see, annual revenue numbers and restaurant type both play a critical factor in determining restaurant valuation. But each valuation is highly nuanced. Is the restaurant growing or declining in annual sales? How long has the restaurant been open? Where is the business located? Does the owner keep good records for the business? Does the owner need to be involved in the business for it to run? All of these questions determine the value of the business.

Eric Silverstein, founder of The Peached Tortilla established in Austin back in 2010, offers a sobering perspective on restaurant valuations. "You pour your soul into every plate, every late night scrubbing the grill, but when it's time to sell, buyers just see numbers: your SDE, your rent, your food costs," Silverstein explains. He adds, "I've seen folks open places thinking they'll sell the concept in three years for a big payout, but that rarely happens. It takes years to build a loyal crowd, streamline costs, and show steady sales growth."

I've dabbled in restaurant investing personally, but have always thought of it more as a donation and don't expect a return. For example, I contributed $500 to Malcolm Bedell who launched "The Original Honey's Fried Chicken Palace" in Maine. Malcolm has a ton of experience operating hands-on in his businesses and has a good track record of success.

Malcolm informed me "1x - 2x annual earnings is not uncommon for a small independent restaurant if they can find a buyer at all." He adds, "Some restaurants who sell are lucky to get a fair value based on used cooking equipment and a location with some foot traffic. These are tough businesses to run and sell unless you scale and get your processes down."

Real-World Restaurant Performance: A Case Study

Here's an excerpt from a recent investor report that illustrates the challenges of restaurant operations. I invest in this restaurant and get quarterly reports that I will share with you here. I think these challenges highlight how the reasons why many investors stay away from this asset class.

"Q4 was one of our best yet at Honey's Fried Chicken Palace, and it makes me extremely confident and optimistic about the next year to come. As I outlined in our last quarterly report, we seem to still be in the 'honeymoon' period at Honey's, with customers continuing to increase, positive reviews nearly across the board, and refinements to our process that leave the kitchen confident that we can handle nearly any amount of volume that comes our way."

"As I review the monthly numbers for Q4, one of the most striking things is that our sales revenue for December was almost exactly the same as our sales revenue in July, which if you're at all familiar with Midcoast Maine and the ebbs and flows of our seasonal traffic, you understand is almost completely unheard of for our region."

"We're continuing to face the same staffing crisis that many in our industry are coping with. For Q4, however, our labor cost averaged out to 20.1%, which is well below our goal of the 30% that is standard for this type of business."

Despite strong sales and controlled labor costs, the report notes that quarterly distributions have been paused to cover increasing overhead costs like utilities. This illustrates a key challenge in restaurant valuations: even successful operations may struggle to generate distributable profits.

Key Formulas Used in Restaurant Valuation

Here are the calculations I built into this calculator.

          
Base Value = EBITDA × Industry Multiple

Where:
- EBITDA = Annual Revenue - Operating Expenses
- Industry Multiple = Typically 1.5x to 4x depending on restaurant type
        

          
Adjusted Value = Base Value × (1 + Years Adjustment + Growth Adjustment)

Where:
- Years Adjustment: -10% to +10% based on operational history
- Growth Adjustment: (Growth Rate - 5%) × 1%
        

          
EBITDA Margin = (EBITDA ÷ Annual Revenue) × 100

Industry Averages:
- Quick Service: 12-18%
- Fast Casual: 15-20%
- Full Service: 10-15%
- Fine Dining: 12-18%
        

          
SDE = Net Income + Owner's Salary + Owner's Benefits + 
      Interest + Taxes + Depreciation + Amortization + 
      Discretionary Expenses

Valuation = SDE × Multiple (typically 1.5x to 3x)
        

Understanding Your Results

The calculator provides three key outputs:

• Estimated Business Value: The calculated market value of your restaurant based on the EBITDA multiple method, adjusted for operational history and growth projections.
• Industry Benchmark Comparison: How your restaurant compares to industry averages for similar concepts in terms of valuation multiples and financial metrics.
• Tips for Increasing Valuation: Personalized recommendations to improve your restaurant's value based on your specific inputs.

An Academic Perspective on Restaurant Valuations

Aswath Damodaran, who teaches at the Stern School of Business at New York University, offers a detailed case study on valuing an upscale French restaurant if you want to dig deeper into the topic of restaurant valuations.

In this presentation, Damodaran points out that restaurants face an illiquidity discount (20-30%) due to the lack of a liquid market: "In private company valuation, illiquidity is a constant theme." The discount varies by company health, size, and market conditions with studies showing restricted stock discounts of 33-35%.

The chef's reputation drives a significant portion of the restaurant's value with an estimated 20% revenue drop if they leave. "Adjusted operating income (existing chef) = $370,000; Operating income (adjusted for chef departure) = $296,000." This highlights the critical need to account for key personnel in valuation. Make sure to determine if a key player is coming with the transition of ownership of a restaurant. This human element will determine the valuation of a restaurant. So keep in mind if you're managing the yourself, you'll likely get a discounted offer from an investor.

Brett Lindenberg

Brett Lindenberg is the co-founder of BackofNapkin.co. Brett has interviewed hundreds of entrepreneurs, gathering their stories and extracting the insights behind successful startups big and small. His passion lies in making startup calculations accessible so every dreamer has the numbers they need to take the leap. At home, Brett enjoys life’s best calculations: quality time with his wife and two daughters.

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