How Restaurant Valuations Work

Unlike a house that gets valued based on comparable sales in the neighborhood, a restaurant is valued based on how much money it makes for the owner. The standard method is called the SDE multiple — Seller's Discretionary Earnings multiplied by a factor that reflects how attractive the business is to a buyer.

The higher your SDE and the stronger your business fundamentals, the higher the multiple a buyer will pay.

What Is SDE?

SDE stands for Seller's Discretionary Earnings. It is the total financial benefit the owner receives from the business each year, calculated as:

Net Profit + Owner's Salary + Personal Expenses Run Through the Business

The reason personal expenses are added back is that a new owner would not have those same expenses. By adding them back, you give buyers a true picture of the earning power of the business.

For example, if your restaurant shows $60,000 in net profit, you pay yourself $80,000, and you run $10,000 in personal expenses through the business, your SDE is $150,000.

What Multiple Should You Use?

Restaurant sale prices typically fall between 1.5x and 3x SDE depending on the strength of the business:

• 1.5x — Newer restaurants, highly owner-dependent operations, limited lease term remaining, no liquor license

• 2.25x — Established restaurant with consistent sales, good reputation, experienced staff, reasonable lease

• 3x — Strong brand, long-term lease, full liquor license, management team in place, growing sales

Most independent restaurants sell somewhere between 1.5x and 2.5x. A 3x valuation is achievable but requires a well-documented, turnkey operation that does not depend on the owner being present every day.

What Factors Increase Your Restaurant's Value?

If you are planning to sell in the next one to three years, focus on these value drivers:

• Increase your SDE by growing sales and reducing discretionary spending

• Secure a long-term lease with renewal options — buyers won't pay top dollar for a short remaining lease

• Obtain or maintain a full liquor license — this alone can add significant value

• Build a management team so the restaurant can run without you

• Keep clean, organized financial records for at least three years

• Maintain equipment and the physical space

What Factors Decrease Your Restaurant's Value?

• Owner is the key employee and face of the business

• Short lease with no renewal options

• Declining sales trend over the past two years

• Deferred maintenance on equipment or the facility

• Messy or incomplete financial records

• No liquor license in a market where competitors have one

FAQ Section

How much is my restaurant worth? Most independent restaurants sell for 1.5x to 3x their annual Seller's Discretionary Earnings (SDE). SDE is your net profit plus your owner's salary plus any personal expenses run through the business. Use this calculator to get an instant estimate based on your actual numbers.

What is the SDE multiple method for restaurant valuation? The SDE multiple method values a restaurant by multiplying the owner's total annual earnings from the business by a factor that reflects business quality. A struggling or owner-dependent restaurant might sell at 1.5x SDE. A thriving, well-staffed restaurant with a long lease and liquor license might sell at 3x SDE.

What is a good SDE for a restaurant? There is no single answer — it depends on the size of the operation. What matters is the SDE as a percentage of gross sales. An SDE margin of 15–25% of gross sales is considered healthy for a full-service restaurant.

How do I increase the value of my restaurant before selling? Focus on growing SDE, securing a long lease, obtaining a liquor license, reducing owner dependence, and maintaining clean financial records for at least three years. Each of these factors can push your valuation multiple higher.

Do I need a business broker to sell my restaurant? You do not need one to get a valuation estimate — that is what this calculator is for. However, a licensed business broker can help you market the business confidentially, qualify buyers, and negotiate the best price when you are ready to sell.

Does a liquor license increase restaurant value? Yes, significantly. A transferable full liquor license is one of the most valuable assets a restaurant can have. It increases both the buyer pool and the multiple buyers are willing to pay.