Goodwill may still be on the menu at some restaurants

Last week’s item on the Mistretta case generated some immediate feedback. “I’d like to congratulate Gary Trugman on Mistretta and don’t doubt his finding minimal goodwill in that restaurant, but I would suggest you can’t automatically dismiss the element of personal goodwill in others,” says Michael Molder (Marcum LLP). “There are dozens of restaurants with national followings based on the owner/chef. A couple hours of Food Network will introduce you to some, but TV celeb chefs are only the icing on the cake. Consider, for example, the Quilted Giraffe opened by Berry Wine in New York during the mid-70s, which turned the tables in American luxury dining. If Wine had sold the restaurant for its enterprise goodwill value (instead of closing it in 1992) it might still be around today.”

Consider this excellent source. The just-published BVR's Guide to Restaurant Valuation, by Ed Moran, discusses when “the chef is famous”—or when the restaurant is simply known for grandma’s special pie. In a franchise situation, however, "simply stated, the franchisor does not attribute any personal goodwill to the operating franchisee,” Moran says. “It is not Jim Marinara's Pizza Hut. Pizza Hut allows Jim to operate the restaurant according to its established franchise standards. You seldom (if ever) see a sign saying ‘Under New Management’ in a franchise—the franchisor normally never allows this.” Similarly, the Mistretta case concerned a Louisiana Cajun franchise, which most likely led to the conclusion of little or no personal goodwill.

BVR’s Restaurant Guide also discusses the asset approach, seldom used in the industry, and devotes an entire chapter to fixed assets, including depreciation and amortization. "In the near future, we’ll provide a fair value update to the restaurant industry,” Moran says. Sample the current table of contents.