Appraisals often are associated with annoyancethe mere thought of paying good money for someone to come into your restaurant and snoop around everything from the kitchen to your bookkeeping makes many operators cringe.
But these valuations are a necessary part of doing business, particularly in the fast-food arena, where changes like the expiration of leases or the failure of businesses are constant.
The list of reasons for valuing your restaurant is lengthy, with time and costs varying based on specific requirements. Luckily there are only three common types of appraisals used to value quick-servicebusiness, real property, and machinery and equipment.
Sometimes practitioners in a specialty are brought in individually to provide an overview of the worth of a specific part of the business. In more sophisticated scenarios, they might work together as a team, with a lead appraiser assigned.
At the minimum, an appraiser must be state certified or licensed. Appraisers must also adhere to industry standards defined by the Uniform Standards of Professional Appraisal Practice (USPAP). The organization is overseen by The Appraisal Foundation, a nonprofit group based in Washington that has been authorized by Congress.
Appraisers will often hold additional accreditation with a national professional society like the American Society of Appraisers (ASA) or the Appraisal Institute.
Beware of so-called experts with little valuation experience or those lacking background in the restaurant industry. And dont give much credence to Internet-based models offering quick or inexpensive valuations for your business; they are often based on very simple mathematical formulas that experts say are inherently flawed.
Certified appraisers look at your restaurant business with the most comprehensive eye to determine the economic value of an owners interest. Their reviews are often used to determine the selling price of the business for buy-sell agreements or to resolve disputes related to estate and gift taxation.
They review everything from cash-flow statements to intangibles such as trademarks, employment agreements, securities, and goodwill, which includes the value of a companys name and relationship with its customers. They also analyze the market from a national and regional perspective.
Business appraisers often work with attorneys, accountants, and company management to prepare merger and acquisition studies, feasibility plans, or other analyses.
Were focused on the overall value of the business, says Timothy Robertson Lee, ASA, with Mercer Capital in Memphis. The challenge, Lee explains, is to take multiple methodscost, income, and marketand determine which provides the best value for the specific needs of the company.
Under each of these methods we might get different numbers, Lee says. The purpose might decide whether we like the higher or lower numbers.
Costs to hire Mercer, which has a dedicated business valuation practice, begin around $7,000 and can run into the tens of thousands of dollars, Lee says.
Also, expect several phases for the project, including: engagement, where the appraiser identifies what type of valuation needs to be done and why; information collection of financial statements, operational data, legal documents, tax returns, and the like; a tour of the operations; and meeting with management. The final product comes in the form of a report.
Start-to-finish timeframes vary widely, but can often exceed several months.