Most small, owner-operated restaurants sell for roughly 1.5 to 3 times their annual owner earnings, and unprofitable ones sell for close to the resale value of the equipment and buildout. To price a restaurant for sale, you calculate both numbers, take the higher one if the restaurant makes money, and then work backward through taxes, broker commissions, and closing costs to arrive at a listing price that actually delivers the take-home you need.
Overpricing and underpricing both cost you. A listing that sits too long makes buyers assume something is wrong with the business. A listing priced below what the assets alone are worth leaves cash on the table before negotiation even starts.
The Two Ways to Arrive at a Number
There are two dominant frameworks, and most deals end up using elements of both. The asset method prices the restaurant on what a buyer would spend to recreate the physical setup from scratch. The income method prices it on the annual financial benefit the business delivers to its owner. For a profitable restaurant, the asset value is the floor and the income value is usually the ceiling. For a break-even or losing operation, the asset value is effectively the whole price, because there are no earnings to capitalize.
Pricing on Assets When There’s Little or No Profit
Commercial kitchen equipment loses value fast. Ovens, walk-in coolers, fryers, and prep tables typically resell for somewhere between 10% and 30% of their original purchase price once they’ve been in service a few years. The exact figure depends on brand, condition, and remaining useful life. Sellers who anchor to what they originally paid are almost always disappointed. Recent auction results and dealer listings for comparable models give you realistic numbers.
Leasehold improvements carry more weight than most sellers expect. Grease traps, commercial ventilation hoods, plumbing for three-compartment sinks, and fire suppression systems are expensive to install from scratch and often run $50,000 to $150,000 or more in a full-service buildout. A buyer who takes over your location avoids that entire cost and the months of downtime that come with a new install. Value these improvements based on their remaining useful life and compliance with current building codes. A ten-year-old grease trap due for replacement isn’t worth much; a recently installed hood system with a twenty-year life expectancy is a genuine asset.
Add equipment value, leasehold improvements, any transferable deposits, and the wholesale value of food and beverage inventory on hand. That total is your asset-based price and the floor beneath anything else.
Pricing on Earnings for a Profitable Restaurant
The income method captures what the asset method misses: the value of an established, cash-flowing operation. You calculate the annual benefit the business delivers to its owner, then multiply by a factor that reflects how reliable those earnings are.
Calculating Seller’s Discretionary Earnings
Seller’s Discretionary Earnings (SDE) is the standard metric for an owner-operated restaurant. It represents the total annual financial benefit a single full-time owner pulls from the business. Start with net profit and add back every expense that either wouldn’t exist for a new owner or reflects the current owner’s personal choices.
The biggest add-back is usually the owner’s own salary. After that, add back depreciation and amortization (non-cash charges), interest expense (a financing choice, not an operating cost), and any personal expenses run through the business, such as a personal vehicle, club memberships, or charitable donations. One-time costs that won’t recur also get added back: an emergency roof repair, a legal fee for a one-off contract dispute, or a large equipment purchase that was already expensed.
A worked example. Your restaurant shows $50,000 in net profit after you’ve taken a $60,000 salary and run $10,000 in personal expenses through the books. Your SDE is $120,000. That is what a new owner-operator can expect to take home before making their own financing and compensation decisions.
For larger restaurants where the owner isn’t working the line every day, EBITDA (earnings before interest, taxes, depreciation, and amortization) is more appropriate. EBITDA doesn’t add back the owner’s salary because a management-run operation has to keep paying a general manager regardless of ownership. EBITDA will always be smaller than SDE for the same restaurant.
Choosing the Right Multiplier
For most small restaurants with SDE under $100,000, multipliers land in the 1.2 to 2.4 range. As SDE climbs above $100,000, the range expands to roughly 2 to 3 times earnings. Restaurants generating $500,000 or more in SDE can see multipliers push toward 3.5, though that is uncommon outside established multi-unit or franchise operations. Restaurants as a category sit at the lower end of small-business ranges because of high failure rates and thin margins.
Several factors move the multiplier:
- Lease terms. Eight or more years remaining with a transferable assignment clause justifies a higher multiplier. A lease expiring in two years introduces so much uncertainty that many buyers won’t make an offer.
- Owner dependency. If the restaurant runs smoothly without the owner present, the multiplier goes up. If customers come specifically for the owner’s cooking or reputation, it drops, because those customers may not transfer.
- Revenue trend. Three consecutive years of growing revenue supports a higher multiplier. Declining revenue does the opposite, regardless of the explanation.
- Concept and location. A proven franchise in a high-traffic area commands more than an independent restaurant in a secondary location, even at identical SDE.
The math is simple. A restaurant with $120,000 SDE at a 2x multiplier lists at $240,000. At 2.5x, it lists at $300,000. The spread is where negotiation happens, and the factors above determine which end of the range is defensible.
Checking Your Number Against Comparable Sales
Buyers almost always look at what similar restaurants actually sold for in the same region. Sellers should too. Business-for-sale listing sites, franchise resale databases, and brokers who specialize in restaurants track completed transactions. The useful data points are sale price as a multiple of revenue and as a multiple of SDE, for restaurants of similar size, cuisine, and geography. If your income-based number lands at 2.5x SDE but comparable local sales are consistently closing at 1.8x, you either need a specific reason for the premium or a reset on expectations.
What You Keep After Taxes
The sale price and the take-home price are two different numbers. In an asset sale (the structure most small restaurant sales use), the buyer and seller must agree on how the purchase price is allocated across categories of assets, and both parties report the allocation to the IRS on Form 8594.1Office of the Law Revision Counsel. 26 U.S. Code 1060 – Special Allocation Rules for Certain Asset Acquisitions2Internal Revenue Service. Instructions for Form 8594
Buyers push allocation toward equipment and tangible assets because they can depreciate those quickly. Sellers push toward goodwill because it is taxed at lower capital gains rates. This tension is one of the most contested pieces of any restaurant sale, and it needs to be resolved in the purchase agreement, not left for tax season.
The allocation to equipment triggers a specific trap. If you have been depreciating your kitchen equipment and sell it for more than its current tax basis, the difference is taxed as ordinary income under Section 1245, not at capital gains rates.3Office of the Law Revision Counsel. 26 U.S. Code 1245 – Gain From Dispositions of Certain Depreciable Property If you took bonus depreciation or a Section 179 deduction to write off equipment in the year you bought it, your basis may be near zero, and nearly the whole allocated value comes back as ordinary income. This is called depreciation recapture, and it catches many sellers off guard.
The portion allocated to goodwill is generally taxed as long-term capital gain if you have owned the restaurant more than a year. For most sellers, the long-term capital gains rate is 15%, though it can be 0% or 20% depending on total taxable income.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses On the buyer’s side, goodwill is amortized over 15 years.5Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles
A seller looking at $300,000 who assumes a flat 15% capital gains rate on the whole amount is in for a surprise. Between recapture on equipment, ordinary treatment on inventory, and state taxes, the effective rate is usually higher. Work through the allocation with a tax advisor before you set the listing price.
What Comes Out of the Sale Price Before You See It
Business broker commissions on small restaurant sales typically run 8% to 12% for transactions under $1 million, dropping into the mid-single digits for larger deals. On a $300,000 sale, a 10% commission is $30,000 gone before you see a dollar.
Budget also for legal fees to draft or review the purchase agreement, accounting fees for the tax allocation and final returns, and any outstanding liens or UCC filings on equipment that need to be released before title transfers. If you have been running personal expenses through the business, expect cleanup costs to get the financials into presentable shape. A handful of states still require bulk sale notices to creditors before closing; failing to comply can make the buyer liable for your unpaid debts, which kills the deal if discovered late.
Work backward from the take-home you actually need. A seller who wants to walk away with $250,000 after a 10% commission and $15,000 in legal and accounting fees needs to list closer to $295,000, not $250,000, and that is before taxes.
Training and Non-Compete Terms That Ride With the Price
Almost every restaurant purchase agreement bundles two provisions with the price. A transition training period, during which you introduce the buyer to suppliers, walk them through recipes and systems, and help with staff handover, typically runs from a few weeks to a few months. Under three months is usually built into the purchase price without extra pay. Three to six months often carries a separate consulting fee. Anything past a year can effectively turn you into a temporary employee, with the tax and benefits consequences that come with that status.
A non-compete keeps you from opening a competing restaurant nearby and pulling back the customer base the buyer just paid for. Courts enforce non-competes in business sales more readily than in employment contexts, but they still need reasonable duration and geography. Radius should roughly match where your customers actually come from; duration typically runs three to five years. An overbroad clause covering an entire state or lasting a decade can be struck down entirely, leaving the buyer with no protection, so getting the scope right at the negotiation table is cheaper than litigating it later.
Records to Have Ready
No valuation holds up without documentation. Buyers and their accountants will want at least three years of profit and loss statements alongside the corresponding federal tax returns. For a corporation that means Form 1120; for a sole proprietorship, Schedule C filed with your personal Form 1040.6Internal Revenue Service. Instructions for Form 1120 (2025) U.S. Corporation Income Tax Return Three years is also the IRS’s standard recordkeeping window, so anything less raises credibility problems.
You also need a detailed list of every piece of furniture, fixtures, and equipment included in the sale, with original purchase price and approximate age. Pair that with your current lease, including any assignment or transfer clause that lets the new owner step into your tenancy. A lease with favorable terms and years of remaining tenure is one of the most valuable assets a restaurant has. Round it out with inventory records, health department inspection reports, outstanding permits and licenses, and payroll summaries showing headcount, wage rates, and benefit costs. Organizing everything into a shared digital folder before you list saves weeks of back-and-forth once a serious buyer appears.
When a Professional Appraisal Is Required
Self-valuation works when both sides are experienced and the deal is straightforward. It falls apart in several common situations. If the buyer is financing with an SBA 7(a) loan, the lender will likely require an independent business appraisal as a condition of the loan. Partnership buyouts, divorce proceedings, and estate transfers also demand formal valuations that will hold up under scrutiny.
A certified business appraiser applies all three approaches (asset, income, and market comparable) and reconciles them into a single defensible number. Appraisal fees for a small restaurant typically run a few thousand dollars, which is small compared with the cost of mispricing the business by $50,000 or more. If you’re unsure whether your situation calls for one, the answer is almost always yes.