How Much Is a Restaurant Worth?

How restaurants are priced

Every credible small-business valuation is two steps: normalize the earnings, then apply a multiple that reflects risk. For a restaurant, normalizing is where most of the argument happens — owner and family labour is frequently unpaid or underpaid in the P&L, and adding it back at market rates often cuts stated SDE by a third. Do that first. The multiple then reflects one question above all others: how much of this cash flow walks out the door with the seller? A restaurant where the owner is the chef, the face, and the scheduler is a job with inventory attached, and it prices like one.

For the underlying mechanics — what counts as an add-back, how SDE differs from EBITDA, and how working capital is handled at close — see how to value a business.

What moves the multiple

• Remaining lease term and rent-to-sales — This is the single biggest driver. Ten or more years of assignable term including options supports a premium; under five years, or a landlord with consent rights they intend to use, caps the deal at the bottom of the range. Rent above roughly 10% of sales compresses the multiple regardless of term.
• Owner dependence — A restaurant with a salaried general manager and a chef under contract prices materially higher than an identical one run by the seller, because the buyer inherits an operation rather than a shift.
• Licence transferability — A full liquor licence that transfers cleanly carries real independent value in quota states and can be worth more than the operating business. One that does not transfer, or that sits with the seller personally, is a repricing event.
• Equipment and build-out condition — Hoods, walk-ins, HVAC, and line equipment near end of life are a near-term capital call the buyer must underwrite. Recent, documented, permitted work moves the number up.
• Verifiable sales mix — Three years of POS exports reconciled to sales-tax filings and merchant statements. Heavy cash with no corroboration is discounted, not credited — unreported sales you cannot verify are worth nothing to a buyer and nothing to a lender.

What pulls the price down

These are the findings that most often reprice a restaurant deal between the letter of intent and the closing table. Each is a reason to bid below the mid-range, or to shift part of the price into a seller note or an earnout rather than paying it at close.

• A lease under five years remaining, not assignable, or with a personal guarantee the landlord will not release.
• Stated SDE that does not expense the owner's or family's hours at market rates.
• Sales trending down over the trailing twelve months while the asking price is based on a peak year.
• Deferred maintenance on hood, refrigeration, or HVAC that the seller has never quoted.
• A liquor licence held personally, in dispute, or subject to a transfer queue measured in months.
• Concentration in one delivery platform whose commission structure can change without notice.

Worked example: a $140,000 SDE neighbourhood restaurant

A single-location restaurant reports $1.1M of revenue and $140,000 of SDE. The owner works the line six days a week and takes no salary; replacing that role costs about $65,000 fully loaded, so normalized SDE for a non-operating buyer is nearer $75,000. At 2x that is roughly $150,000 — not the $280,000 the 2x-on-stated-SDE arithmetic implies. Now adjust: the lease has eight years including options and assigns with landlord consent (neutral to positive), the walk-in and hood need about $35,000 of work in the next two years (down), and the liquor licence transfers cleanly and is separately marketable (up).

A realistic bid lands nearer $130,000–$160,000 for the business, with the licence valued and negotiated on its own line and the equipment gap taken as a price reduction rather than absorbed at close. Run the same arithmetic on any listing you are considering: expense the owner's labour at market, divide the asking price by what is left, then ask what in this specific restaurant justifies its position relative to the 1.5x–3.0x range. If nothing does, the price is the seller's cost basis rather than the market's.

Before you rely on any of this

Market ranges orient a first conversation; they do not price a deal. Once you are past the initial screen, get the last three years of tax returns, reconcile them to the P&L, and have an accountant or a certified appraiser confirm the normalized earnings. Working through our due diligence checklist before you sign a letter of intent is the cheapest money you will spend on the transaction.

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