The value of a typical restaurant in London has plummeted by more than £43,000 during the past year following a ‘perfect storm’ engulfing the market, it has been claimed.
The value of a restaurant in the capital was estimated at £140,000 in 2016, but that figure has now fallen to £97,000, according to online business transfer service BizDaq.
It said the severity of the decline suggested either a drop in demand or rising costs was “significantly” affecting business owners in the capital.
Coffee shops have also seen their potential worth slashed. Their average value in London fell from £92,000 to just £62,000 in a year, according to BizDaq.
Curiously, not all foodservice operators have seen their valuation eroded.
Café owners in the capital have cause to celebrate, with average values rising from £65,000 to £70,000.
The trend in London bucks is what has been seen nationally, where the average value of a typical British cafe had dropped 15% to £45,000 over the past year, while coffee shops have gone from £62,000 to £65,000.
The pattern of declining valuations for coffee shops and restaurants mirrors a broader trend seen by small businesses located in London.
Nationally the average UK small business is valued at £90,000 in 2017, around £4,000 less than 2016.
Bizdaq used data from nearly 7,500 small business valuations performed over the last three years to calculate how much return owners could expect on their investment if they sold their business.
They found that although small businesses are worth more than they were in 2015 (£89,000), values have dropped compared to last year.
As values are directly linked to turnover and net profit, this signals that falling levels of consumer spending, and/or increasing costs, are adversely affecting the values of small businesses across the country – leaving owners unable to reach the true value of their business.
Whilst small business values in the North have remained almost the same, dropping from an average value of £80,000 to £79,000, values in the South have fallen from £97,000 to £91,000 between 2016 and 2017.
Sean Mallon, CEO of Bizdaq, said: “It’s frustrating to see that small businesses are reducing in value across the UK, leaving the nation’s small business owners with diminishing levels of return on their hard work and investment. In a period of economic uncertainty however, this is not unexpected.
“It’s interesting to see the differing values from region to region, and surprising how only short geographical boundaries can make a large difference to a business’ value. London in particular has seen a dramatic swing in values over the past year.
“A business’ value is in many instances tied to revenues, and particularly profit, so falling values may be indicative of a fall in these across the board, with a recent rise in interest rates putting further strain on the UK’s small businesses.”
Interestingly, said Mr Mallon, manufacturing businesses have seen a nearly £100,000 increase, climbing to an average of £418,500 from £325,000 last year.
“This is good news for manufacturing business owners who want to leave the business, as it means they’ll be able to achieve a much higher sale price than if they were to sell the previous year,” he commented.