I own 50% of a franchise restaurant that is in a busy university city neighbourhood. We have high and low seasons based on school seasons but we’re still expecting close to if not more than 1m in revenue.
My business partner and I started this 1 year ago with lots of loans and technically have 0 money down on this. The bank is lending us 500k (personally guaranteed) and I have personally lent the business 300k with a high interest rate. most of it went to renovations and buy out of the previous location + assets. We also have fairly low royalty with the franchisor.
both partners are fairly hands off , maybe working 5-10 hours a week combined doing small management tasks, but otherwise the franchise runs itself with a good manager in place.
our EBITDA is roughly 40% but obviously the interest drops us closer to 20-25% margins.
While its nice to have some “passive” income, I’m trying to focus my efforts on my other businesses and I want to sell my 50%. My partner doesn’t have the means to buy me out.
How would you guys value this? I have no idea where to start.
Business broker here.
$1M in revenue at 40% EBITDA is great for a largely absentee restaurant.
There are many factors that influence the value. Assuming fairly average factors, the value might be around 3X the EBITDA, maybe $1.2M. If you’re selling to your partner rather than an outsider. The value of your share might be around $600k. (An outsider would pay less because they don’t have exclusive control of the business.)
An even bigger challenge than the valuation will be getting paid. Most partners don’t have the cash to buy out the other. Even if they did, they can simply refuse to spend it.
You might consider converting your equity into debt by adding the $600k to your existing note of $300k. Then you could settle part of the $900k by cashing it out early. For example, you could offer to take $150k in cash now in exchange for knocking out $200k in debt. This way your partner has a reason to use his cash reserves or to find outside money.