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Is there a standard for restaurants of what the COGS % should be? Different for one w/ liquor lic?

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Answers (5)
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The Dean Group

Food should be around 33%, Liquor margin should be 50% or better on wine and at least 33% on beer. The best way for due diligence is really quite simple -- be there. You can look at the guest tickets and the supplier invoices, but spend a few weeks there from open to close and you'll get a feel for the "intangibles" that may not be represented in the numbers that you get.

Make sure you talk to the customers too. Be friendly. Ask them how long they've been coming and how much they like the place. Ask them if they think anything can be improved.

When the owner counts the tills at night be there and watch what he's doing. I randomly pick up historical days worth of receipts too and see if there's an ascertainable pattern. If not, I get suspicious.

Good luck.
Matt DeAngelis

Aug 29, 2009
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Corporate Raiders Guide
Adams County, CO

Personally I've seen 28% in the catering business (mostly 'american' formal) in the mountain west.
I've also seen COGS as high as 32% in Chinese buffet settings - mainly due to vendor issues, no liquour.

Aug 29, 2009
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hi Sam,

I would advise that you reconcile his/her books to tax returns. I've never met anyone who overstates income or understates expenses on a tax return. You might also want copies of the bank statements of the business for 2008 - most likely before the owner decided to sell and perhaps a bit more realistic.

Of course, I would also recommend that you visit my blog: in which I provide some advice about how to valuate a business.

Feel free to contact me if you have any questions at all.

Good Luck!

Julie A. Barnes, CPA
President, SBX, Inc.

Aug 28, 2009
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I am to begin my due diligence on a pizzeria in the North East region next week. The seller is claiming a 33% COGS, which seems to be inline with other pizzerias. My questions is: What is the best way for me to confirm his 33% COGS during my due dilgence period?

Aug 28, 2009
Eric Gagnon
We Sell Restaurants
Fulton County, GA
Premium Broker

A profitable restaurant typically generates a 28%-35% food cost. Coupled with labor costs, these expenses consume 50-75% of total sales. Because of the impact food cost make on an operation, food cost is one of the first things to examine. Beyond the bottom line, food cost also reflects an operation's food quality, value provided to the customer, and management skill level. High food costs in a restaurant available for sale signals an opportunity for correction and greater profit dollars delivered to a strong operator. Here are some typical ranges by type of operation.
Fine Dining 35%
Pizza/Italian 29%
American Casual 32%

Aug 27, 2009

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