FSBO Blog

We had a lot of interest in the Special Deal we offered at the beginning of the year, so we decided that we can help people by offering a better than normal deal. Now you can get the second month of your listing completely free. Check us out – its now significantly less $$s to get on to the front page of google, yahoo, bing and the other major search engines. Check out our deals:

Here’s where we get to the nitty gritty of it all – how much is your business worth?

First things first – I’m not a valuer, I have no education in valuation techniques, and if you don’t take anything I say here with a grain of salt, then I am not responsible, and you really do need help!

I have 12 years experience talking to hotel and restaurant buyers and sellers, and what I do know comes from that.

Google ‘hotel valuations’ or ‘restaurant valuations’ and look through the mass of material that’s there. If you don’t understand it, go somewhere else! You will find that serious valuations look at several different methods of arriving at a valuation for your business. If you are serious, you should work through several of these to see what you come out with. Best of luck!

So how can I help you now that I’ve told you to go somewhere else? Basically by giving you a quick and dirty way to check what you see from other valuation methods, what you know in your heart your business is worth, and to see if you can come out smiling or running!

Restaurants: Many buyers will tell you they are willing to pay 30 – 35% of annual gross for your restaurant business ( I have also heard of 3 – 4 x net income)

Too easy! Lets look at some complicating factors:

1.Inventory should go on top of whatever you come up with.

2. Fast Food and pizza places, particularly if they are francized should sell for closer to 40% of annual gross, coffee shops for 40 – 50%. Bars are also higher, given their higher unit profit ratio,

3. Final price will also depend on lease terms (many buyers tell me they are looking to pay 5 – 7% of gross as rent, some up to 10%. If yours is less than this, up the price, if more….)

4. Other factors that will affect the price are: #years in business, location, potential, alcohol license, location history (is there a history of failures in this location?), physical condition, and whatever other factors make your restaurant unique!

5. State of the economy – when times are tight (e.g. right now) sales are going to be at the lower end of the valuations we have talked about.

Hotels: Again, your quick and dirty formula says that a buyer should be willing to pay 30 – 35% time annual gross. Thus if your gross is $1,000,000 the value of your hotel should be $3 – 3,500,000. In the ‘good old days’ of rising property prices, hotels in hot spots such as California and Florida were going for 5 – 7 times annual gross. Oh, the good old days!!

Other quick and dirty formula I have found are:

100,000 x the cost you charge for  Coca – Cola! (no guarantees on this one)

ADR = $1 for every $1000 in room property value. The Average Daily Rate, or ADR,   measures the average dollar amount paid per room per night. For example, if a hotel earned $100,000 in a year with 500 rooms available, its ADR would be $100,000/500 or $200. The other way round gives you a per room value that you can use to arrive at a business valuation.

A good friend of ours with decades of experience in this industry claims that an individual buyer with a siginificant  loan and no significant financial backing cannot afford to pay more that 33-35% of gross – otherwise they will be operating at a loss.

Check through items (4) and (5) in the ‘restaurants section above to see some of the factors that will affect this valuation. If you have a bar/restaurant or other income sources or facilities, this is obviously also going to affect your value.

In the hotel industry, land or property values are not adequately reflected in this formula, and should be taken into account.

As you can see, this whole business is fraught with ‘issues’  that need to be dealt with.

Unfortunately, there is no substitute for getting a professional valuation done by a valuer who has experience in your industry. Thats tough to find and expensive to pay for. There are computer programs that will churn out a series of valuations for you that are much more reasonable in cost, but again may leave out factors specific to your business.

Establishing a valuation is incredibly difficult. If you are like many, and really dont want to go the Rolls Royce route, here are some tips:

1. Work really hard at being objective – don’t look for valuations to justify what you think your business is worth.

2. Get valuations done using different formula and compare

3. Realtors often offer a free valuation in the hopes that you will list with them. Beware! Many realtors have excellent knowledge of the residential housing market, but little experience with your specific industry. Your business is valuable to them, and they will go all out to get it. You need to ‘qualify’ your realtor – make sure s/he has in-depth experience in your field, and can evaluate all the factors we have mentioned above, and the various complex valuation methods you will have found in you google search.

How much is your business worth?

In the housing market realtors rely on the fact that most people value their property above the ‘market rate’ . Many housing sellers try to sell their property themselves only to fail dismally. Whereupon the realtor steps in, prices the property at a more realistic level and charges a healthy commission to sell it.

Happens in the business of selling businesses too! So beware, you have been warned, and if your are selling real estate as well as a business, you are in danger of doubling your excesses! You do, however need to come up with a value for the real estate and a value for the business.

In the restaurant world, the capital you put in to start the business has little relevance to todays value. The amount you owe on the business is no indicator either. Thinking about these two things is just going to make you depressed, so steer away from them.

In future blogs, I’ll look at questions such as:

1. should I employ an appraiser? Should I ask my accountant?

2. what about those nifty easy formula that people use to show the value of a business?

3. I can get a free valuation from my local realtor. Whats the harm in that?

… and more! Check back -

We have been in this business for 12 years now – and have never seen anything as quiet as the past 1 1/2 years. Our field is connecting buyers and sellers of lodging and foodservice properties, and from our perspective it looks as if anyone who could avoid selling, did so!
However, the past month has seen some movement – we are getting in more quality leads, and more properties and businesses to sell. About time too!
Lets hope the much vaunted upturn of the economy extends to banks lending money to buy properties and businesses to people who need the loans – not just to those who don’t!!
From our experience properties and businesses that can offer to finance their sale get a much healthier response – no surprise there, but, as always – “seller beware” – choose your buyer carefully if you dont want your business back down the road!

I’ve been told that if you have a square monitor our hotels site header bleeds over to the right.
Has anyone found this?

Our Special 2010 Offer is proving popular – new listings coming in every day.If you sign up for one month on any of our hotel or restaurant websites you get one month free. Sign up for three months – get 3 months free.

What a deal!!

We are now adding all our new listings to Facebook and Twitter. So, when you add a listing to www.restaurants-fsbo.com, www.hotels-fsbo.com and www.hotelsforsale.biz you’ll get the extra exposure for no extra charge – its free!!

I’ll use this blog to add what I hope are helpful comments to buyers and sellers of hotels, restaurants and so on.
Where we are having issues that you should know about we’ll publish them here as well.
Hope this is helpful!