Understanding Add Backs when Selling a Restaurant
Understanding Add Backs when Selling a Restaurant can be difficult for inexperienced restaurant buyers and restaurant sellers to understand. The real value is more than just the bottom net profit number on the profit and loss statements and tax returns.
When it’s time to sell a restaurant, how do you know what to add back to calculate the earnings before interest, taxes, depreciation, and amortization(EBITDA)? These calculations are essential to evaluate the value of the restaurant.
The EBITDA for restaurant valuations used for positive cashflow restaurants is crucial to discovering its actual value. This financial information is critical because today’s buyers will use multiples of the EBITDA to determine their offer price.
Dominique Maddox, a Restaurant Broker and Founder of EATS Restaurant Brokers says, “I let restaurant owners know the only add-backs I will include are the ones accepted by SBA lending professionals. Restaurant owners deduct many personal expenses from the restaurant’s books and records, but not all costs qualify as add-backs for a Certified Restaurant Valuation.
I have years of experience of providing Restaurant Owners restaurant valuations based on the EBITDA on their financials”. Once I find out the EBITDA, I can then assign a correct multiple to find out the recommended listing price”.
- Depreciation and Amortization
- Interest- on loan payoff
- Personal Travel and meals
- Seller’s auto expenses, including insurance
- One-time costs that are nor re-accruing
- Seller discretionary expenses, ex- life insurance, salaries to family members(not working)
- Severance and lawsuit settlements
- Manager salary-if seller is an absentee owner
The team at EATS Restaurant Brokers has expertise in factoring in add-backs when selling a restaurant. We know which add-backs and adjustments will get approved for SBA lending. Let us provide you a complimentary Certified Business Valuation; contact us today at firstname.lastname@example.org or 404-993-4448.