The impact of inflation on restaurant purchases and sales

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In all walks of life, things are getting more expensive. Gasoline, rent, and grocery store necessities have all skyrocketed. While the restaurant industry is no stranger to the side effects of inflation, there is some good news to report. Inflation has a positive impact on restaurant sales.

Rise in Restaurant Values ​​and Rise in Median Revenues

The value of restaurants sold rose 51% in the first quarter of 2022, according to the latest BizBuySell Analytics Report. The restaurants sold at a median price of $225,000 compared to $149,000 for the prior year period. The BizBuySell Insight Report is a nationally recognized economic indicator that tracks the selling and listing prices of small businesses across the United States. The report, which is produced by Business for Sale Online Markets, includes data from more than 70 major US markets and 65 small businesses, including restaurants..

A second indicator of the rising tide of restaurant value is median restaurant revenue reported as sold. In the first quarter of 2021, the BizBuySell Insight report tracked restaurant transaction revenue sold at a record $720,000, compared to $600,000 for 2021. A 20% increase in revenue aligns with inflationary pressure on price and the increase in sales that accompanies it.

The financial gains in the restaurant industry are extraordinary, especially since the overall business is experiencing slower earnings. The median revenue of businesses sold fell 5% in the first quarter, the report finds.

Buyers: How to Navigate the Inflation Landscape

Buyers looking to navigate the changing landscape of restaurant buying in a time of inflation should consider these strategies.

Focus on the “now”—Inflation is a game-changer for many businesses. Typically the buyer would look deep into the history of the restaurant, but now buyers are focusing on current trends. Thus, sellers should have an up-to-date track of the last 12 months of financial statements ready for presentation.

Understand the inflation policies implemented—Attention to the current practice of the establishment. If the current owner has already made adjustments for inflation, take this into account as sales and profits will be affected.

Plan to spend more“It is important to be aware of the impact of inflation on other industries. For example, if the buyer chooses to change their idea from buying an existing restaurant and instead chooses to build their own, this involves working with a construction team. Construction has been hit hard by inflation, and the wait time for equipment, as well as the delay in launching, could put you on the red lane ahead of your grand opening.

Pay attention to geography “Location is still one of the most important factors for potential buyers, but it also remains very fluid. According to the same BizBuySell report, the Pacific Coast is seeing a turnaround in 2022 with 21% of reported units sold at the start of the year. Mountain states are four points higher than the same time last year. This year they have completely exceeded pre-COVID levels. Meanwhile, the South continues to dominate with 42% of restaurants sold.

Now is the time to buy“It is important to recognize that the US government will try to bring inflation down by tightening credit by raising interest rates. For many, it would be beneficial to lock in a rate now before higher rates take effect. As ongoing labor challenges continue to be a concern for potential business owners across the country, the restaurant industry is making up the shortfall. Restaurants and drinking places added 46,100 jobs in May, the National Restaurant Association reported.

Positive outlook for 2022

The outlook is good for restaurant sales. The number of closed deals increased by 42% in the first quarter. Ultimately, the increased value of restaurants creates an optimistic outlook for the industry. Higher selling prices come as positive evidence that the industry is recovering.

As we know, inflation has both positive and negative influences on the economy. While it’s not the death of a deal for those looking to invest in a restaurant, it’s important for buyers to recognize the opportunities available to them, especially if they’re willing to take a chance.

Robin Gagnon is the CEO and co-founder of We Sell Restaurants, the nation’s largest restaurant brokerage firm and the only nationwide franchise specializing in restaurant sales.

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