Leasehold: the restaurateur's guide

Buying goodwill is a key step in opening a restaurant. To make the right choice, you need to understand how it works, its price and how it can vary. The same applies if you want to sell a business! So, what do you need to know about goodwill in the restaurant business? How much does it cost? How do you value it? Everything you need to know is in this guide.

What is restaurant goodwill?

Under French law, a "fond de commerce" is the basis of a commercial activity.

A business consists of 2 things: 

• Tangible elements: furniture, kitchen equipment (tools), raw materials (food), etc. 
• Intangible elements : the name of the establishment, the right to the lease, licenses, and even the clientele, the reputation of the establishment, etc.

💡To put it simply: the goodwill of a restaurant includes everything saul the premises.

⚖️Pour A little background information: the concept of "fond de commerce" (goodwill) first appeared in 1909, as a way of valuing the work of shopkeepers. It marks the idea that the installation and creation of certain resources (a clientele, a reputation, an intelligent menu, profitable marketing) have a real value.

Every merchant therefore owns a business, and this business constitutes transferable and assignable property . (French Commercial Code, articles L. 141-1 to L146-4)

💡A goodwill can be sold, bought or leased. It enables a restaurateur to take over a restaurant without starting from scratch, or a restaurateur to resell his business with everything he has built up (loyal customers, licenses, stock...). 

Restaurant goodwill: why buy, lease or sell?

As a restaurateur, the question of what to buy depends on your situation and your objectives. 

You can : 

• Buying a business.  

✔️ Advantage: becoming an owner is a key option for building your business froma solid starting point. You capitalize on an existing customer base, a strategic location and equipment already in place. 

✖️ Disadvantage: buying a business involves an initial investment and significant ancillary costs (notary, work, inventory, etc.). It's also a gamble you have to take! That's why it's important to estimate the value of the business before committing yourself.

• Renting a business 

✔️ Advantage: lease management is an attractive option if you want to limit your initial investment. You can operate the restaurant and then decide to buy the business later. Ideal for testing a new concept or location.

✖️ Disadvantage: as you are a tenant, part of your profits must be paid back to the owner in the form of rent. 

• Selling a business 

✔️ Advantage: Are you retiring or changing business? If so, selling your business is an essential step in your life as a restaurateur. If you're in a phase of transition or change of activity, selling your business can enable you to make the most of your work and investments. 

✖️ Disadvantage: to be a winner, good preparation is essential. To increase the value of your business, you'll need to highlight your key figures(sales, profitability), improve the presentation of your establishment, prepare a file with all your current contracts (lease, suppliers)...

💡 Don't hesitate to call in an expert to set a fair price and negotiate with potential buyers.

• Creating a business 

✔️ Advantage: you start from scratch! You can rent bare commercial premises and create your own concept. This option is particularly suited to experienced restaurateurs or those who want to stand out from the crowd with an an innovative concept.

✖️ Disadvantage: the budget to open the restaurant and the investment will be substantial (equipment, works, communication, marketing, etc.). 

How much does it cost to buy goodwill for a restaurant? 

It all depends on : 

• Size of establishment (m2, number of covers) ;
• Restaurant category ;
• Location.

💡In France, the average price of restaurant goodwill can range from €50,000 to €500,000.

👉 In a medium-sized town in central France, prices can fall below €50,000, especially for smaller restaurants.

👉 In strategic areas such as Paris and the Côte d'Azur, the goodwill of a successful restaurant can be worth several million euros!

For a traditional restaurant, the price of the goodwill generally represents between 50% and 100% of pre-tax sales.

💡A restaurant generating annual sales of €300,000 could be sold for between €150,000 and €300,000.

Infast food, margins are higher because of higher customer turnover. Count on 100% to 150% of annual sales.

👉 For a gourmet restaurant, the price of goodwill is more difficult to assess, as it depends heavily on the reputation of the chef and the establishment.

However, the lower profitability of these restaurants (2% to 4% net margin) may limit their price.

🤓 What if your restaurant could find its ideal margin? Read our article!

How to estimate the value of a restaurant's goodwill? 

As you can see, estimating the value of a business is crucial in the restaurant sector, whether you're looking to buy, sell or lease.

💡Thisis all the more important if you're selling your business, as the capital gain you'll make is subject to taxation.

There are 3 methods for assessing the value of a restaurant's goodwill:

• Estimation via sales figures.

In this case, the price represents a percentage (also known as a coefficient) of the business's annual sales. This is usually around 80%.

• Appraisal based on lease value 

If sales are low or difficult to estimate, base your decision on the value of the equipment and the potential of the lease. To do this, we take into account the value of the restaurant's surface area, location and clientele, as well as assets such as equipment (oven, cold room, etc.).

• Estimation by comparison. 

To value the business, we refer to the prices charged for other businesses with similar characteristics (activity, location, sales, restaurant layout, dimensions, etc.).

To ensure that your estimate is as accurate as possible, call on the experts: 

• A chartered accountant to analyze profitability;
• A lawyer to secure the sale;
• A specialized agent to understand the local market.

Who owns a restaurant's goodwill? 

The owner of the business may be :

• One person;
• A legal entity. 

For example: an individual, a company or even an association can acquire or inherit it. 

The owner has control over the management and operation of the business. He may decide to sell it, lease it, or transfer his rights to another party through commercial transactions. 

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