How To Value Your Restaurant Before Selling

Seller's Discretionary Earnings (SDE) is the right number for most independent restaurants under $3M in revenue. Start with net income on the tax return, then add back: owner compensation and benefits; one-time expenses (a new walk-in, a one-off legal bill); interest and depreciation; any personal expenses run through the business that a buyer would not have. The result is what the business actually generates for an owner-operator. That is the number a multiple gets applied to.

Multiples by segment, drawn from NYC closings over the last 24 months: a small takeout-driven shop with under $500K revenue trades at 1.5–2.5× SDE. A full-service neighborhood restaurant with stable repeat business sits at 2–3×. An established concept with a real brand, a long lease, and documented systems can clear 3–4×, occasionally higher. Lease length is the single biggest swing factor — under five years remaining will knock at least half a turn off your multiple, no matter how good the food is.

There is also an asset value floor: equipment at depreciated replacement cost, leasehold improvements, transferable licenses (especially liquor), and any recipe IP. For most restaurants this floor sits between $150K and $500K and matters when SDE-based valuation comes in low.

If you are 12 months out from selling, the work is bookkeeping. Run cash sales through the POS and the tax return — a year of clean reporting moves the bankable revenue number more than any cosmetic upgrade. Renew or extend the lease. Document SOPs and recipes so a buyer is not buying you. Service the major equipment. Asking price is what you list at; closing price is what survives the buyer's due diligence and the lender's appraisal — in this market they are typically 10–20% apart.