How to Value a Restaurant in Canada

Valuing any business starts with the fundamentals: the Income, Market, and Asset-based approaches, and their key metrics, most notably Seller’s Discretionary Earnings (SDE). These provide the hard numbers, and form the quantitative backbone of any valuation. But when it comes to restaurants, the real story rarely lives in the spreadsheet.

(Need a refresher on the basics? Check out our articles on SDE & EBITDA Explained↗ and How Valuations Are Done↗.)

Restaurants are unique. Two establishments with identical revenues and profits can have wildly different market values. Buyers aren’t just acquiring cash flow, they’re stepping into a living, breathing operation shaped by brand, reputation, location, and execution. In this article, we’ll explore the qualitative drivers that make or break restaurant valuations in today’s Canadian market.

‍

The Lease Agreement

For almost all businesses residing in leased premises, their lease agreement is important. For most restaurants, this is doubly so, and is often the single most make-or-break factor for buyers. In some cases, it’s worth more than the business itself. A smart buyer will scrutinize it before anything else.

Length and Terms: A favourable lease with a decade or more left (including renewals) isn’t just reassuring, it’s often required for bank financing. A long lease with poor tenant terms, however, can significantly undermine the restaurant’s value even if other indicators are strong. This is why experienced M&A advisors and business brokers will typically ask for the 5-year financials and the lease right away. Buyers go through it line by line, and depending on its terms, your business could be ruled out immediately.

Rental Rate: Paying below-market rent is a massive, transferable advantage. Ideally, occupancy costs sit between 6% and 10% of gross sales, but this figure can vary significantly based on region and traffic.

Transferability: If your lease can’t be assigned to a new owner relatively easily, you may not have a saleable business at all.

‍

Brand, Goodwill, and Reputation

Goodwill is the invisible asset that keeps the tables full. It’s not something you can touch, but it’s often what buyers covet most.

Customer Loyalty: A steady, loyal base equals predictable revenue, and lower perceived risk.

Online Presence: Google reviews, Yelp ratings, and social media chatter aren’t just marketing, they’re valuation drivers. A 4.8-star average rating across 496 reviews translates directly into buyer confidence.

Differentiation: A concept that stands out in a crowded market, whether it’s a unique menu, ambiance, or story, it creates defensible value that competitors can’t quickly and easily copy.

‍

Operational Excellence & Human Capital

A restaurant’s success lives and dies with its people and its systems. Buyers know this, which is why these factors weigh so heavily in valuations.

Staff & Management: A trained, stable team that runs smoothly without constant owner supervision reduces “key person risk.” High turnover in key positions is a red flag that signals deeper issues and terrifies risk-averse buyers.

Systems & Procedures: Documented recipes, reliable supplier relationships, and strong SOPs turn chaos into a turn-key operation. Buyers will pay more for a business that’s ready to run from day one. Even if a strong buyer can shore up weak systems fairly quickly, they’ll factor in the added cost and time, and expect a discount.

‍

Tangible Assets & Facilities

Equipment and ambiance might not make headlines, but they’re deal-shapers.

Condition Matters: Outdated equipment or old furnishings are capital expenditures buyers will subtract from their offer.

First Impressions: A spotless kitchen and inviting dining space instantly signal a well-managed operation. Buyers want to step into success, not inherit problems. Just as you’d never show a house without cleaning it, the same principle applies to your business.

(For restaurant owners that own their real estate as well, check out our article on How to Value a Business with Real Estate↗.)

‍

The Delivery & Takeout Revolution

Any credible valuation has to reflect the current market, and Canadian restaurants are in the middle of a major shift. Consumer habits, delivery economics, and regional pressures all weigh heavily on value.

Off-premise dining is no longer an add-on; it’s a core revenue stream. How a restaurant handles this channel has a direct impact on its worth.

Uber Eats and DoorDash bring reach but at a steep cost: 15% to 30% commissions that erode already thin margins. A restaurant that leans too heavily on these platforms may show strong sales but weak profitability. For some models, it’s simply the cost of doing business; for others, it’s an uncontrollable risk.

Restaurants that invest in their own ordering systems (and have clientele that actually use them), whether through a website or app, are far more attractive. They keep the 15–30% split that would otherwise go to middlemen. They also own the customer data, which for larger chains can fuel loyalty programs and direct marketing.

A balanced mix of dine-in, direct takeout, proprietary delivery, and catering reduces risk. Buyers will always pay more for revenue streams that don’t depend on a single channel.

‍

Conclusion

The financials provide the framework, but a restaurant’s real value comes from the brand, the people, the systems, and its ability to thrive in a changing market. A favourable long-term lease, loyal customer base, efficient operations, and a smart approach to delivery can transform a restaurant from just another business into a premium, defensible investment.

‍

If you’re planning a sale, succession, or just want a clear picture of what your business is worth, reach out↗ or view pricing↗ to see how we can help.