How to sell a restaurant in Canada, and what it is worth

Restaurants in Canada typically sell for 2.0 to 3.5 times adjusted earnings, and below $500,000 of earnings our valuation takes 0.5 off that range. The lease often carries most of the value, so its remaining term and the landlord’s consent to assign matter early. Where earnings are thin, the equipment value sets the floor.

The range restaurants sell for

If you plan to sell a restaurant in Canada, start with a realistic range. Food and hospitality is one of the lower rows in our multiple table, at 2.0 to 3.5 times adjusted earnings, and the full table by industry shows the rows above it. Diners choose a new place any night they like, and the next owner has to keep winning them back.

Adjusted earnings are the profit with your own salary and personal costs added back, as SDE or EBITDA explains. A restaurant with under $500,000 of adjusted earnings sells mostly to individuals, and our engine takes 0.5 off the multiple at that size.

One restaurant, priced three ways

Take, as an illustration, a restaurant with $400,000 of adjusted earnings and a wide spread of diners, so that its largest customer is under 10 percent of sales. Only who runs it and the direction of its earnings change from one version to the next.

The managed version is worth $160,000 more at the top for the same earnings. A buyer who has to stand behind the line every night is buying a job, and prices the restaurant that way. Selling a business that depends on you covers how to step back in the year before.

The lease is often the main asset

In many restaurant sales the lease carries more value than anything in the kitchen. A good location on a long lease is what a buyer pays goodwill for, and a lease with eighteen months left gives them little to buy. Ask early whether any renewal option passes to the buyer.

Read the assignment clause before you talk to a buyer. Where the lease requires the landlord’s consent to assign, the landlord will want the buyer’s financial statements and may ask you to stay on as guarantor. In a share sale the lease stays with the company, though a lease may treat a change of control as an assignment, so the same clause applies. A garage that rents its bays meets the same clause, as selling an auto repair shop notes.

In Ontario, section 23 of the Commercial Tenancies Act deems a standard of reasonable consent into commercial leases that lack an express provision to the contrary, as a Bennett Jones note on landlord consent explains. The wording of your own lease decides how much that protection is worth, so have a lawyer read it first.

The liquor licence transfer

Liquor licences are issued by the province, and the buyer applies to take yours over. In Ontario, the AGCO’s guide to transferring a liquor sales licence states that “a transfer of the licence is required if there is a prescribed change of ownership”. The licence holder and the buyer both sign the transfer application and an Application for Authorization to Contract Out, and the buyer may operate only once the Registrar has issued that authorization.

In British Columbia the current licensee starts the transfer, and the establishment can stay open while the application is pending. The buyer becomes the deemed licensee once the LCRB tells both parties the application is administratively complete, according to the province’s licence transfer page. The fee there is $330, and the licence has to be current, since an expired one is ineligible.

In either province, make closing conditional on the licence passing, and put dates in the agreement for each side’s filings.

Cash, the POS and what a buyer credits

A buyer pays for the sales your records prove. The CRA requires businesses to keep their records for six years from the end of the last tax year they relate to, and its page on audit trails lists point of sale among the systems that feed a business’s accounts.

Cash takings left off the books stay off the price. A buyer will compare POS reports with bank deposits month by month, and a lender works from the filed returns. Three years of sales reports that match your deposits support the full multiple, and the add backs buyers accept explains which owner costs you can add back on top.

Franchise or independent

A franchised restaurant sells under its franchise agreement as well as its lease. Read the transfer clause first. It sets whether the franchisor approves the buyer and what fee it charges, and some agreements give the franchisor the right to buy the unit before an outside buyer can.

The brand helps a sale when the buyer wants a tested system and the franchisor’s training. The remaining term matters as much as the lease does, so a franchise near its end needs a renewal the buyer can rely on. An independent restaurant sells on its own name and location, and its chef and staff carry more of the value.

Equipment as the floor

Where earnings are thin, the price falls toward what the assets would fetch. In an asset sale a buyer can value the kitchen equipment and furniture item by item, and that figure is the lowest price worth accepting, since it is close to what you would recover by closing and selling them yourself.

Take, as an illustration, a restaurant with $100,000 of adjusted earnings, which our engine would put at $150,000 to $300,000, and equipment that would fetch $120,000 at auction. Here the price is mostly the equipment and the lease, and a sale near the bottom of that range can still beat closing for an owner ready to retire. Share sale or asset sale explains the tax side, and the proposed Productivity Mega Deduction may let a buyer expense much of that equipment at once.

The lease and the records decide a restaurant’s price more than the menu does, and both can be put in order a year ahead. To see where yours sits, the Quick AI valuation gives an early range in a few minutes, before you give anyone your name, and how accurate an online valuation is explains what that range can tell you.

The buyers, due diligence priorities and sector requirements are set out on InvestDeal’s restaurant and hospitality M&A advisory page.

Questions owners ask

What is a restaurant worth in Canada?

Typically 2.0 to 3.5 times adjusted earnings, which is profit with the owner’s salary and personal costs added back. As an illustration, a restaurant with $400,000 of adjusted earnings that the owner runs day to day would fall between about $660,000 and $1.26 million in the valuation InvestDeal runs, and higher with a manager in place.

Does my liquor licence transfer to the buyer?

The buyer applies to the provincial regulator to take it over. In Ontario, the AGCO requires a transfer on a prescribed change of ownership, and the buyer operates once the Registrar issues an Authorization to Contract Out. In BC, the buyer becomes the deemed licensee once the LCRB confirms the application is administratively complete.

Do I need my landlord’s consent to sell my restaurant?

Where the lease requires consent to assign, yes, and a lease may treat a change of control in a share sale as an assignment too. In Ontario, section 23 of the Commercial Tenancies Act deems a standard of reasonable consent into commercial leases that lack an express provision to the contrary.

Will a buyer pay for cash sales that were left off the books?

A buyer pays for the sales your records prove. Buyers compare point of sale reports with bank deposits, and lenders work from filed returns, so unrecorded cash stays out of the earnings the multiple is applied to.