Trendinista: How a weak online reputation can hurt valuation

In the social media era, online reviews have a lot to do with a restaurant’s ultimate success. But that’s not the only ramification they have. A new survey finds that negative reviews, or even not having enough positive reviews, can significantly reduce a restaurant’s perceived value when the current owner puts it up for sale. 

This finding comes from a study conducted by online business-for-sale marketplace BizBuySell.com. The company quizzed 1,400 small business owners and potential buyers about how businesses are valued today. Not all the respondents were restaurant operators. But the ones that were had plenty of say about the impact online reviews were having on the value of their business. Eighty-eight percent of restaurant owners told BizBuySell survey takers they believe online reviews affect the market valuation of their restaurant.

The survey found that social media rankings can raise or lower the final sale price of a business transaction, including those of restaurants. How much? Forty-one percent of survey respondents said the effect falls in the five to ten percent range. An additional 35 percent said that number was even higher, somewhere between 10 to 20 percent.

Given the magnitude of these figures, you’d think business owners, including restaurant operators, would be doing everything they can to manage and boost their online reputations. But the survey findings say they don’t. A meager 27 percent of business owners said they encourage customers to post reviews. Twenty-five percent take action to ameliorate bad reviews when their business gets one. And 24 percent share their business’s positive reviews by posting them on their website and/or giving them prominence on social media.

While potential customers will briefly check a restaurant’s online reviews before deciding whether or not to eat there, someone interested in buying that restaurant will analyze them closely. BizBuySell’s survey found that prospective buyers believe online reviews directly affect the value of any business. While 75 percent of business owners said there was such an effect, 89 percent of buyers hold that view.

Buyers also give more credence to online reviews than business owners do. Seventy-two percent of buyers agree that online reviews are a good indication of the quality of a business’s products and services. Just 58 percent of owners say they present an accurate picture.

Why the differences? In many transactions, the business owner is older and less social media-savvy than the potential buyer.

"Small business buyers often come from a younger generation than sellers and may be more perceptive to how technology will affect the future of the business," says BizBuySell g.m. Bob House. "Owners should be aware of how new innovations, business models and online reviews are affecting their value and be ready to address the issue during negotiations."

On the plus side, this survey found that restaurant owners might be blessedly exempt from the disruptive technologies and direct-to-consumer business models that are hurting many other types of businesses, particularly brick-and-mortar retail and hotels. Seventy-eight percent of restaurant owners told BizBuyComm they don’t see delivery apps such as Seamless, Eat24Hours and Grubhub as a threat. “It's hard to replace the experience of going to a restaurant," one restaurant operator said.