Restaurants are one of the most searched categories on business-for-sale marketplaces — and one of the highest-risk. The failure rate is widely cited, the margins are thin, and the buyer's ability to sustain the business often depends on factors that don't appear in the financials: the lease, the kitchen, the chef, the licence.

Evaluating a restaurant requires everything the standard business evaluation framework covers — multiple, DSCR, margins, growth, risk — plus a set of restaurant-specific checks that can make or break the deal regardless of how good the numbers look on paper.

Start With the Standard Financial Tests

Before anything else, run the numbers. A restaurant that can't pass the basic financial tests doesn't need a deeper investigation.

Acquisition multiple: Australian cafés and casual dining restaurants typically trade at 2–3.5x SDE. Full-service restaurants with established reputations and strong earnings can reach 3.5–5x. Anything above that requires specific justification. Check the restaurant/café industry benchmark for current ranges.

DSCR: Calculate whether the business can service its acquisition debt at the asking price. Restaurants have thin margins and volatile cash flows, which means lenders scrutinise DSCR closely in this sector. A DSCR below 1.3x in hospitality should prompt either price negotiation or serious consideration of whether the deal works.

Net margin: Hospitality is a low-margin industry. Net margins of 10–15% are considered healthy for a well-run café or casual restaurant. Full-service restaurants can be lower. Below 8% in a well-established venue — not a startup — is a signal to investigate costs carefully.

Earnings trend: A restaurant where revenue or profit has declined over 2+ years needs a specific, credible explanation. "The market has been tough" is not sufficient. Chef departure, a nearby competitor opening, a COVID recovery that stalled — these are all real explanations, but they require verification and context.

Restaurant-Specific Check 1: The Lease

For any restaurant, the lease is half the business. Get this wrong and nothing else matters.

What to check:

Term remaining: A restaurant lease with less than 3 years remaining and no confirmed option to renew is a serious risk. Restaurants often invest $100K–$500K in fit-out — if the lease doesn't renew, that investment is lost.
Options to renew: Does the lease have renewal options? At what rent? Have they been exercised or are they still available?
Rental cost as a percentage of revenue: Hospitality industry rule of thumb is that rent should not exceed 10% of revenue. Above 12–15%, the rent is eating into an already thin margin significantly.
Landlord relationship: Is the landlord cooperative? Have they agreed in principle to a lease assignment to a new owner?
Change-of-ownership clause: Does the lease allow assignment, or does it require landlord consent and potentially a new lease negotiation?

Never settle a restaurant acquisition without a confirmed lease assignment or signed new lease in place.

Restaurant-Specific Check 2: The Kitchen and Equipment

The kitchen is a capital asset that depreciates. A buyer who doesn't assess its condition before settlement inherits a maintenance liability.

What to inspect:

Age and condition of major equipment: commercial ovens, refrigeration, dishwashers, extraction systems, POS system
When was the last service on each major item?
Is the extraction system (rangehood, ducting) compliant with council fire safety requirements?
Are there any outstanding compliance issues — grease traps, gas certifications, electrical safety?
What is the replacement cost of the equipment? Is it reflected in the asking price?

Hire a qualified hospitality equipment inspector to do a physical walkthrough before you sign heads of agreement. A $1,000 inspection can save you $50,000 in unexpected equipment replacements.

Restaurant-Specific Check 3: Licences and Permits

Restaurants operate under a web of licences that may or may not transfer on a change of ownership.

Key licences to check:

Liquor licence: Does the venue have a liquor licence? What type (general, limited, BYO)? Does it transfer to a new owner, or does the new owner need to reapply? Reapplication can take months and is not guaranteed.
Food business registration: This typically transfers, but verify with the local council.
Outdoor dining permits: If the restaurant has a footpath or outdoor area, check that the permit is current and transferable.
Music licence (APRA/AMCOS): Minor but worth checking — failure to maintain this leads to compliance notices.

Critical: Never assume a liquor licence transfers automatically. Verify with the relevant state authority before proceeding.

Restaurant-Specific Check 4: Chef and Key Staff Dependency

In many restaurants, the chef is a significant driver of customer loyalty. If the chef leaves post-acquisition, revenue may follow.

Questions to ask:

Is the current head chef the reason customers return? (Be honest — ask the broker directly.)
Does the chef have an employment contract, and are they willing to stay post-sale?
If the chef is leaving with the owner, what is the plan for replacement?
What is the average tenure of kitchen staff? High turnover is both a cost and a quality signal.
Who manages front-of-house? Is that person staying?

Owner-operator restaurants — where the owner IS the chef — present the highest key-person dependency in the sector. In these cases, insist on a meaningful transition period (typically 3–6 months) where the owner stays on to train the new operator and introduce them to suppliers and key customers.

Restaurant-Specific Check 5: Customer and Revenue Profile

Where does revenue come from?

Walk-in vs. repeat customers vs. bookings
Regular lunch crowd (corporate area?) vs. tourist-dependent
Events and functions revenue (high margin but can be volatile)
Delivery platform revenue (Uber Eats, DoorDash) — note the platforms take 15–30% commission

Seasonality: Some restaurants are heavily seasonal (beach location, tourist area, corporate lunch trade that disappears in December/January). Understand the monthly revenue profile, not just the annual total. A restaurant making $80K/month in summer and $30K/month in winter is very different from one making $55K/month consistently.

Catering or wholesale revenue: If a meaningful portion of revenue comes from catering contracts or wholesale supply, verify those relationships are with the business, not the owner personally.

Red Flags Specific to Restaurant Acquisitions

Add these to your standard evaluation red flags:

Lease expiring within 24 months with no confirmed renewal — don't proceed without written confirmation from the landlord
Liquor licence that doesn't transfer — the revenue profile changes dramatically without it
Chef leaving with the owner, no succession plan — price significantly for this risk or walk away
Major equipment at end of life — refrigeration failure can shut a restaurant for a week; oven failure for three days
Declining lunch trade in a corporate area — may signal remote work patterns permanently reducing footfall
TripAdvisor or Google reviews declining — check the trend over the past 12–24 months, not just the overall score
Excessive owner add-backs for meals, entertainment, travel — legitimate in restaurants, but the total should be realistic

How to Score a Restaurant Listing

Run the standard business evaluation framework on any restaurant listing, then layer the restaurant-specific checks on top.

BizBuyScore automatically benchmarks restaurants against the café/restaurant industry category — covering margins, multiples, and DSCR minimums for the sector. Enter the financials and get your score in under two minutes, then use the checklist above to investigate the qualitative factors the score doesn't capture.

Evaluate any restaurant listing with BizBuyScore's free tool. Industry-benchmarked scoring for cafés and restaurants across margins, valuation multiple, and DSCR — in under two minutes.

How to Evaluate a Restaurant for Sale: A Practical Scoring Checklist