Free guide · Buying a restaurant
Buying a restaurant? Check the seller's numbers first.
You have the seller's spreadsheet and an asking price. This guide walks you through the checks to run before you sign. You will see what the business really earns for you, whether the price fits, whether it can carry the loan, and what to ask the seller.
Planning estimate. Not tax or legal advice. Have a CPA and a lawyer review any deal before you sign.
01 — The earnings walk
From the seller's profit to the cash left for you.
The seller's profit line is not what you will take home. It has to walk down, one step at a time. Each step adds or takes away one thing you can check.
Most sellers price the business on SDE. That stands for seller's discretionary earnings. It is the profit, plus what the books pay the owner, plus a few costs that a new owner may not have. Then you take out what you will change, your own pay, and the loan.
- Seller's profit—The bottom line of the seller's profit and loss (P&L).
- + Owner pay inside the books—Wages the owner paid themself as a cost.
- + Interest and depreciation—The seller's loan interest, and the paper cost of wear on equipment.
- + The seller's add-backs—Costs the seller says a new owner will not have.
- = SDE as sold—The number the asking price is usually built on.
- − Add-backs you do not accept—See the next section. No proof means it does not count yet.
- ± Rent change after you take over—A new lease, or a rent step written into the old one.
- − Equipment leases—Payments for leased ovens, coolers or a register you will take on.
- = SDE after your changes—What the business earns before your pay and your loan.
- − Your pay—What you need to live on, or what a manager would cost.
- = What the business earns for you—SDE after your changes − your pay.
- − Loan payments—A year of payments on the money you borrow to buy it.
- = Cash left—What is left after the business pays you and the bank.
Every amount above is a dash on purpose. It stays a dash until you have the real number. A blank that turns into a zero makes a deal look better than it is.
How SDE is defined: BizBuySell's guide for CPAs, and We Sell Restaurants.02 — Add-backs
Add-backs without proof don't count until you accept them.
An add-back is a cost the seller says you will not have. It goes back into the profit, so it raises SDE. And it raises the price.
Some are fair, like the seller's car, or a one-time repair. Some are not. Add-backs are the step that buyers and sellers argue about most.
So here is the rule we use. An add-back counts if you accept it. It also counts if there is paper proof, like a receipt or an invoice, and you have not turned it down. An add-back with no proof does not count until you say it does.
- Ask for the paper behind each add-back.
- Ask if the cost will come back once you own it.
- Take out any add-back you are not sure about. Then see what the price looks like.
03 — The price check
Is the asking price in range?
Divide the asking price by SDE after your changes. That gives you the multiple.
The math
Multiple = asking price ÷ SDE after your changes
Restaurants often sell for 1.5 to 3.0 times SDE. A multiple above that range needs a reason. A strong lease, a busy spot or new equipment can be one. A falling trend is not.
Range: secondary sources (Acquisition Stars, Iconic). A range, not a rule.You can also check the price against a year of sales. A common rule of thumb is 25% to 45% of a year's sales.
Secondary · BizBuySell, 2021–2025
BizBuySell's average restaurant sale over 2021–2025 was 2.15 times SDE, and 0.39 times a year's sales.
We read these averages in summaries (Acquisition Stars, Iconic). We could not reach BizBuySell's own tables. Treat them as a rough guide.Watch one trap. A price that stays flat while sales fall is a warning sign. The multiple looks fine on last year. It looks worse on this year.
04 — The loan check
Can the business carry the loan?
This check asks one thing. After it pays you, does the business earn enough to make the loan payments, with room to spare?
The math
DSCR = (SDE after your changes − your pay) ÷ a year of loan payments
DSCR stands for debt service coverage ratio. At 1.00, every spare dollar goes to the bank. The SBA's line is 1.15. That means the business earns $1.15 for each $1.00 of loan payments.
The 1.15 line: SBA SOP 50 10.Below 1.15, the deal is tight. A slow month can mean you skip your own pay to make the payment. Try a lower price, a longer loan or more cash down, and run it again.
05 — Do the records agree?
Do the records agree?
The P&L is what the seller says. Other records show the same sales from a different side. If they tell the same story, you can trust it more.
| Record | What it shows |
|---|---|
| Profit and loss (P&L) | The sales the seller reports to you. |
| Sales-tax return (Florida DR-15) | The sales the seller reported to the state. Look at column 1. |
| Register reports | Net sales the register rang up, day by day. |
| Bank deposits | The money that actually reached the bank. |
Line them up for the same 12 months. Register data can also show cash that was rung up and never deposited. That is called skimming. It is a red flag, even if the seller says the "real" sales are higher.
Our rules of thumb, not sourced
These are our own lines for when to ask more questions. They are not from a study, and they are not rules.
- Two records of the same sales should agree within 5%.
- Deposits below 85% of sales need an explanation.
- Fewer than 5 years left on the lease is a risk.
- Labor under 28% of sales is worth asking about.
A seller who will not show tax returns is a warning sign on its own.
06 — Florida flags
Two Florida rules to know before you buy.
You can owe the seller's unpaid sales tax.
In Florida, the buyer of more than half of a business, its assets or its stock can owe the seller's unpaid sales tax (Fla. Stat. 213.758).
There are two ways out. The Department of Revenue can give the seller a certificate of compliance. It shows that all returns were filed and all tax was paid, and that you and the seller have no insiders in common. Or an audit can clear the seller.
You may hold back part of the price to cover the tax. If you do, you must pay it to the state within 30 days. What you can owe is capped at the fair market value or the price, whichever is larger.
Source: Fla. Stat. 213.758, 2024 text, read on flsenate.gov.Most liquor licenses do not move with the sale.
The 4COP quota license is the only Florida liquor license that can usually be transferred. It stays in the same county. Its price is set by the market, not by the state. Ask if it is part of the sale, and what it is valued at.
Source: Florida DBPR, via broker summaries.07 — Take this to the meeting
Questions to ask the seller
From the free guide at ownermath.app/buying-a-restaurant. Planning estimate. Not tax or legal advice.
Print this list and bring it to the meeting. Tick each one as you get an answer, and the paper to back it up.
Only the questions print. Use your browser's Print to print the whole guide.
Planning estimate. Not tax or legal advice. Have a CPA and a lawyer review any deal before you sign.
Let the Deal check do this math for you.
Add the seller's files to the Deal check in Owner Math. It runs the earnings walk, the price check and the loan check, and it lines up the records. Every line shows its math. Any number you have not given stays a dash.
The Deal check is part of the Plan and Operate plans. Plan comes with a free trial.
Sources
- SDE, how it is defined: BizBuySell's guide for CPAs; We Sell Restaurants.
- Price range (1.5 to 3.0 times SDE), 25% to 45% of a year's sales, and the BizBuySell 2021–2025 averages: secondary summaries (Acquisition Stars, Iconic).
- The 1.15 loan line: SBA SOP 50 10.
- Which records to compare: CT Acquisitions; Restaurant365.
- Sales-tax successor rule: Fla. Stat. 213.758 (2024 text, flsenate.gov).
- 4COP quota license transfer: Florida DBPR, via broker summaries.
- The 5%, 85%, 5-year and 28% lines are our own rules of thumb. They are not sourced.
Before you sign a lease, see also seven lines to fill in before you sign.