Reading a Restaurant's Financials Before You Make an Offer

A listing that leads with "$1.2M in annual revenue" is telling you almost nothing about whether the business is a good deal. Revenue is top-line noise; what you're actually buying is what's left after costs — and how reliably that number repeats.

Past the headline number

• Prime cost. Food + labor cost as a percentage of revenue. Healthy full-service restaurants typically run 60%–65%; anything meaningfully higher is worth understanding before you assume you can fix it post-close.
• SDE trend, not just SDE level. A single strong year on top of two flat or declining ones tells a very different story than three years of steady growth, even at the same trailing-twelve-month number.
• Add-backs, itemized. Owner salary, personal vehicle, family on payroll, one-time repairs — every add-back should be documented, not asserted. If a seller can't show you the line item, don't include it in your math.
• Rent as a percentage of revenue. Above roughly 10% starts putting real pressure on margins regardless of how well the restaurant otherwise runs.

Documents worth asking for

Two to three years of tax returns, a current P&L, a copy of the lease with remaining term and renewal options, and — if available — POS reports that let you sanity-check reported revenue against actual transaction volume.

None of this is about finding a reason to walk away. It's about knowing exactly what you're financing before a lender asks you the same questions.