The short answer
Most Australian cafes and restaurants change hands at between roughly 1.5 and 2.5 times their adjusted annual earnings — where adjusted means a genuine market wage for the work the owner performs has already been deducted. A cafe generating $100,000 of properly adjusted earnings will typically sell somewhere between $150,000 and $250,000, plus stock at value. That is lower than most owners expect, and often well below what a broker's appraisal letter suggested. The gap is rarely dishonesty; it is methodology. Hospitality sits at the bottom of the small-business multiple range for structural reasons: low barriers to entry, high closure rates, dependence on a lease the owner does not control, thin and volatile margins, and heavy reliance on the person behind the counter. None of that makes a good cafe worthless. It makes the earnings base — and the evidence behind it — matter more than in almost any other industry. The multiple is the easy part; the supportable position lives in the adjustments.
Where broker rules of thumb come from — and why they run high
The rules of thumb that circulate in hospitality — a multiple of weekly takings, a flat figure per seat, a percentage of annual turnover — share a common flaw: they ignore profitability entirely. Two cafes each taking $20,000 a week can have completely different cost structures; one clears $120,000 a year and the other loses money, yet a takings-based rule prices them identically. Rules of thumb are also usually quoted from asking prices, and asking prices are not evidence of value — completed transactions are, and settled prices in hospitality routinely land well below the original listing. There is an incentive dimension too: an appraisal prepared to win a listing serves a different purpose from a valuation prepared to be defended, and it shows in the number. The market value standard that applies for tax and other formal purposes — the willing but not anxious buyer and seller from Spencer v Commonwealth (1907), carried through IVS 104 — asks what a knowledgeable purchaser would actually pay. Knowledgeable purchasers of cafes read the lease and normalise the wages before they talk multiples.
Owner wages: the adjustment that changes the answer
The single largest distortion in hospitality profit is the owner's unpaid labour. Most cafes and small restaurants are owner-operated: the owner runs the roster, works the machine or the pass, does the ordering and the books, and draws whatever is left rather than a wage. The profit and loss statement then shows a figure that is really two things added together — a return on the business, and an unpaid salary for a demanding full-time job. A valuation has to separate them, because a buyer will either work those hours themselves or pay someone to. To illustrate: a cafe showing $160,000 of profit, where the owner works fifty-plus hours a week in a role that would cost, say, $90,000 plus superannuation to replace, has adjusted earnings closer to $60,000. At 2.0x, that is a business worth around $120,000 — not the $320,000 the unadjusted figure implies. The wage assumed must be evidenced, not plucked: the role actually performed, the hours worked, and what that role costs in the local market. Family members paid below or above market rates are normalised the same way. Applying a multiple to unadjusted profit is not optimistic — it is measuring the wrong thing.
The lease is often the most important document in the file
In hospitality the lease is not an administrative detail; it is frequently the single largest driver of value after the earnings themselves. The business occupies premises it does not own, and everything — the fit-out, the walk-in trade, the goodwill — depends on the right to keep occupying them. Remaining tenure plus options is the first question: a venue with eighteen months left and no option is a fundamentally different asset from the same venue with a five-year term and a five-year option, because the buyer of the first is buying a countdown. Assignment provisions matter, because the sale itself requires landlord consent, and a difficult assignment clause can delay or kill a transaction. Demolition and relocation clauses, common in shopping centres and strip developments, can cap value regardless of trading performance. The rent itself needs testing against the earnings: the ATO's small business benchmarks publish rent-to-turnover ranges for cafes and restaurants by turnover band, and a venue paying materially above the range for its type has an earnings problem a new owner inherits at the next review. A supportable valuation reads the lease in full and states what it found. A rule of thumb does not.
Fit-out: an asset that quietly depreciates
Fit-out is the asset owners most overvalue and buyers most discount. The $350,000 an owner spent on a fit-out five years ago is a sunk cost, not a value; what matters to a purchaser is condition, remaining useful life and the timing of the next refresh. Hospitality fit-outs date quickly — a substantial refresh is generally treated as inevitable within a decade, and high-traffic venues show wear well before that. A buyer facing an imminent refit prices it as a deduction from the purchase price, whatever the depreciation schedule says. Three figures need to be kept apart: the written-down value in the accounts (a tax artefact), the replacement cost (what the insurer cares about), and the value in use to a purchaser of the going concern — usually the smallest of the three. The lease intersects here too: make-good clauses can require the premises to be stripped back at expiry, converting the fit-out from an asset into a contingent liability. A valuation of a cafe or restaurant that does not address fit-out age, condition and make-good exposure has skipped one of the industry's principal value drivers.
Walk-in goodwill versus destination goodwill
Hospitality goodwill comes in two forms, and they do not transfer equally. Walk-in goodwill attaches to the site: the corner position near the station, the morning commuter trade, the office towers upstairs. Customers come because the venue is where it is, and that trade largely transfers to whoever holds the lease — which is why location goodwill is the most bankable form in hospitality, and why the lease terms above matter so much. Destination goodwill is different: customers travel for the chef, the brand, the awards, the social following. Some of that is genuinely transferable — a name the entity owns, documented recipes and systems, a venue that demonstrably trades at the same level under a manager. Much of it is personal, and personal goodwill walks out the door with the owner. The valuation questions are practical: does the venue trade when the owner is absent; is the brand and IP owned by the entity being sold or by the individual; will the owner give a genuine transition period and restraint; how much of the review profile names a person rather than a place. A destination restaurant with strong personal goodwill can show excellent earnings and still support only a modest multiple, because those earnings are not maintainable in a purchaser's hands without the person who generated them.
What a supportable hospitality valuation file contains
Because hospitality multiples sit in a narrow band, the valuation outcome is driven mostly by the earnings base and the evidence behind it. The conclusion is expressed as a supportable range, with the most supportable position concluded within it — and in this industry the position turns on documentation. A defensible cafe or restaurant file typically contains:
- ·Three to five years of financial statements plus current year-to-date trading, reconciled to the POS where cash handling is material
- ·A normalisation schedule with evidence for every adjustment — market wage for the owner's role, family wages, personal expenses, one-off items
- ·The lease in full: remaining term and options, assignment conditions, rent review mechanism, demolition and make-good clauses
- ·A fit-out register with age, condition and expected refresh timing
- ·Supplier, franchise or licence agreements that constrain or support the trading model
- ·A cross-check against the ATO's small business benchmarks for the venue type and turnover band
- ·Comparable completed transactions — settled prices, not asking prices
- ·Sensitivity analysis showing how the conclusion moves across the supportable multiple range
When to move from curiosity to a formal valuation
A realistic self-assessment using the framework above costs nothing and is often enough for early thinking. A formal valuation becomes worth commissioning when the number has consequences: preparing the venue for sale, where a defensible price anchors the campaign and can withstand buyer due diligence; a partnership or shareholder exit, where one party buying out another needs a number both sides' advisers can test rather than argue about; family law property settlements, where the business interest must be valued to a standard that withstands scrutiny from the other side; and CGT events, including small business CGT concession claims under Division 152, where eligibility can turn on documented market values. For a single-venue cafe with clean records, the Essential report (from $1,495 + GST) is often sufficient; most trading venues with owner-wage adjustments and lease complexity sit naturally in the Comprehensive tier (from $3,995 + GST). Fees are fixed at engagement and never contingent on the outcome — and where an owner wants a report that arrives at a predetermined number, we will say so and decline the engagement on those terms. Prismi prepares independent valuations only; we are not a registered tax agent and do not provide tax, legal or financial advice. Your accountant and lawyer apply the valuation in their domains. Our job is a number the evidence defends — whether the audience is a buyer, a former partner, the Federal Circuit and Family Court of Australia or the ATO.