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Comparative Market Analysis: A Guide

 

Are you selling your hospitality business at the right price? With the help of your broker, you can come up with a ballpark figure for your restaurant, café or bar using a number of methods. Among the best ways is by conducting a comparative market analysis (CMA).

You can think of a CMA as a less technical version of the appraisal that your broker does to determine your business’ value. The idea sounds simple enough : you look into businesses and properties that are similar to yours and find out how they are priced. The figures you obtain can be used as a reference for how much your business may be worth in the current market. But as the old adage goes, “The devil is in the details.”
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Needless to say, not all hospitality businesses are created equal. This becomes apparent when you think of the variations in concepts and brands, apart from physical attributes like building and lot sizes. A well-crafted CMA takes these differences into account and makes adjustments to obtain a reliable figure.

Finding information for your CMA

The quality of your CMA is only as good as the information you gather. For this reason, it is essential that you know where to look. The best places to get started are:

1. Business listings – These are readily available, whether online or in newspapers and other publications. When choosing listings, limit your options to those within your area to get an idea of the market and the factors that will affect your business sale.

  • Active listings – these feature businesses that are currently up for sale. Choose a restaurant, café or bar similar to yours, but keep in mind that the prices displayed are often the owner’s asking price and not the actual value of the business.
  • Pending listings – these represent businesses that are no longer in the market but is not yet sold either. Looking into these listings will help you determine how long your hospitality business will stay in the market.
  • Cancelled listings – these are listings that represent businesses withdrawn from the market. These will help you determine if your asking price is too high.
  • Expired listings – some listings expire not just because they were priced too high but also because they were not marketed well enough. Taking these into account will give you hints on how you should market your hospitality business.

2. Sold businesses – Was a property similar to yours sold just recently in your area? If so, there is a good chance that your business will sell for almost the same price. When looking at sold businesses, take the following into account:

  • Size – this refers to both the lot and building sizes. Floor size is usually used as a standard for acquiring these measurements.
  • Location – is the café, restaurant or bar located in a mall, an intersection, near a busy street or in a remote locale? Its placement will affect its profitability, which will then affect its selling price.
  • Condition – was the business sold in good condition or did it need renovations or repairs? A business in good condition generally sells higher.
  • Amenities and equipment – what amenities did the business feature? Was the sale inclusive of equipment?

3. Relevant websites – The Internet is home to just about any information you can think of, so long as you know where to look. Doing a Google search will give you a lot of relevant results. You may also access listings by going to business marketplaces such as the Redmako Business Sales site.

4. Businesses for sale – You may also visit actual hospitality businesses for sale. Take note that you may not be given all the information you need for confidentiality reasons, but you will be able to create a solid comparison with your own venture.

Once you have gathered all the information you need, you can establish an estimated price range for your business. If all of this sounds like a lot of work for you and you’re afraid you might not have the time for the legwork needed, you can work with your business broker as their experience and expertise can help you take into account factors you may have missed, letting you produce a CMA that is both accurate and dependable.

Have you tried creating a CMA? How did you ensure its effectiveness? Tell us in the comments below.

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