If you operate more than one restaurant, or if you are thinking about opening a second location, there is a financial metric you need to understand before almost anything else. It is called 4-Wall EBITDA, and it is the clearest single-number answer to a question every multi-unit operator eventually has to ask: is this location actually worth keeping open?

Net income can lie. Not through fraud — through allocation. When overhead costs from a central office, a shared marketing budget, or a management infrastructure get distributed across individual locations, the picture of any single restaurant’s performance becomes distorted. A location that looks unprofitable on a fully-loaded P&L might be a strong performer in isolation. A location that looks profitable might be carried by the rest of the portfolio. 4-Wall EBITDA strips away that noise and shows you what each location is actually doing within its own four walls.

What 4-Wall EBITDA Means

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a widely used proxy for operating cash flow — how much economic value a business generates before financing structure and accounting conventions affect the number.

4-Wall EBITDA takes that concept and narrows it to the controllable economics of a single location. It starts with the restaurant’s net revenue and subtracts only the costs that are directly attributable to that location: food and beverage cost, location-level labor, rent, utilities, repairs and maintenance, and other direct operating expenses. What it explicitly excludes are corporate overhead allocations — the shared costs of running a multi-unit company that exist regardless of whether any individual location operates.

The formula, simplified:

4-Wall EBITDA = Net Revenue − (COGS + Location Labor + Occupancy Costs + Direct Operating Expenses)

The result tells you how much cash a location generates to contribute to corporate overhead and profit. It is the number that answers the real question: if this location disappeared tomorrow, what would the company actually lose?

Why This Metric Matters More Than Net Income

Consider a two-location operator. The company has a central office with two people — an operations manager and a bookkeeper — who cost $180,000 per year combined. That overhead gets allocated equally across both locations, so each carries $90,000 of corporate cost on its P&L.

Location A generates $800,000 in revenue with $120,000 in fully-loaded net income after the overhead allocation. Location B generates $600,000 in revenue and shows $8,000 in net income after the same allocation.

On the net income statement, both locations appear profitable. But remove the overhead allocation and look at 4-Wall EBITDA:

– Location A: $120,000 + $90,000 = $210,000 4-Wall EBITDA

– Location B: $8,000 + $90,000 = $98,000 4-Wall EBITDA

Both locations are generating positive 4-Wall EBITDA — both are contributing to the company’s ability to cover overhead and generate profit. Now the operator can make a real assessment: is Location B’s $98,000 contribution worth the capital tied up, the management attention required, and the incremental overhead that a second location adds? That is a real question. The net income statement, with its allocated overhead, was obscuring it.

How Banks and Investors Use It

If you have ever sought financing for a restaurant — an SBA loan, a line of credit, an equity investment — the lender or investor has almost certainly looked at 4-Wall EBITDA, even if they did not use that term. It is the metric most commonly used to value restaurant businesses and assess debt capacity.

The standard rule of thumb is that restaurant businesses trade at 4 to 6 times EBITDA. A single-location restaurant with $300,000 in 4-Wall EBITDA might be valued at $1.2 to $1.8 million in an acquisition scenario. A multi-unit operator with $1.5 million in aggregate 4-Wall EBITDA might command $6 to $9 million.

Lenders use it to assess coverage ratios — whether the business generates enough operating cash flow to service its debt. A location with $150,000 in 4-Wall EBITDA and $60,000 in annual debt service has a coverage ratio of 2.5x — comfortably above the 1.25x minimum most lenders require. A location with $80,000 in 4-Wall EBITDA and the same debt load has a 1.33x coverage — technically serviceable but fragile.

Understanding your 4-Wall EBITDA is not just an internal management tool. It is the language of the capital markets that fund restaurant growth.

Using 4-Wall EBITDA to Make Decisions

The most immediate practical use of this metric is location-level performance management. If you operate multiple locations, calculate 4-Wall EBITDA for each and rank them. The results will rarely surprise you completely — you already know which locations feel strong and which feel difficult. But the numbers create a basis for decisions that gut feel cannot.

A location with negative or deteriorating 4-Wall EBITDA is a drag on the business in the most direct sense: it is consuming cash that could be deployed elsewhere. The question is whether that deterioration is structural — the market is wrong, the lease is untenable, the concept doesn’t fit the location — or operational, meaning fixable through changes in management, menu, or cost structure.

A location with strong 4-Wall EBITDA is a proof point for replication. Understanding what drives that performance — the trade area, the lease structure, the management team, the operational model — is the foundation of a scalable growth strategy.

Even for single-location operators, tracking 4-Wall EBITDA over time creates a more meaningful performance trend than watching net income fluctuate with accounting adjustments and year-end accruals. It answers the most important question in restaurant finance: is this business generating more cash than it consumes?

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The author is a former CFO for a multi-unit restaurant brand. RestaurantBottomLine.com is dedicated to helping independent operators protect their financial model.