Restaurant Owner’s Discretionary Earnings (ODE)
In general, a healthy restaurant with good financials should have an ODE of at least 15-20% of revenue.
Owner’s Discretionary Earnings (ODE) is a financial metric used to determine the total earnings that an owner-operator of a small restaurant business generates from the business in a given period. ODE is often used in the context of restaurant business valuation, particularly for small and medium-sized businesses.
ODE represents the total income that an owner-operator receives from the business, including salary, benefits, and other perks such as bonuses or personal expenses that are paid for by the business. It also includes any non-operating income or expenses that are directly attributable to the owner, such as interest income or rent paid by the business to the owner for the use of property.
ODE is calculated by taking the business’s earnings before interest, taxes, depreciation, and amortization (EBITDA) and adding back any owner-related expenses, such as the owner’s salary, benefits, and personal expenses. ODE can provide a more accurate picture of a business’s true profitability than other financial metrics, as it takes into account the owner’s compensation and other personal expenses that may not be directly related to the operation of the business.
ODE is an important consideration for restaurant business buyers and sellers, as it can impact the overall valuation of the restaurant business. In general, a higher ODE will result in a higher valuation, as it indicates that the business is generating more income for the owner-operator. Conversely, a lower ODE may indicate that the business is less profitable, which could lead to a lower valuation.