What purchase price should I be looking at?

[PatrickOrangeCo]

Current owner(s) are $88,000 in debt.

Current market value of items in the bar are $90,500 which he spent just over $200,000 about 18 months ago.

Basically the market value and the current debt wipe each other out. The total build out of the bar was roughly $350,000 - $400,000.

Looking at last 12 month sales logs it shows an average of $81,000 per month in gross sales with a high month of $116,000 and a low month of $62,000.

Current owner(s) owe $49,000 to state board of equalization and have lost their type 47 liquor license until this is paid.

This is in a coastal city in Southern California.

They are asking for $230,000 at the moment but I figure even if it had cost 350k to build (of which 190k was equipment which is now worth nothing since the debt equals the value) then it should be 350k - 190k is 160k to build and I should be offering no more than $120,000 or so?

No financing, it will be an all cash offer.

The other offer on the table is one of the current owner wants me to pay off the $88,000 in debt and we split 50/50 from here on out and I can run and manage the bar anyway I want. He is claiming over 500k spent on the location but can only produce just over 350k in receipts.

Any suggestions?

Anything will be much appreciated.

- Patrick

[alchemybar]

I think a few questions need to be asked/answered before a price can be put on this business.

1. Where has all the money gone? $972k in income and they still owe $49k in taxes. There must be some massive costs to operate this business.

2. Is the business shut down by the loss of licence?

3. If they couldn't make money how will it be different for you?

[Rainee]

The amount he spent on renovations and build-out previously is really not relevant to your purchase. Just because he spent the money does mean he necessarily increased the value to you.
Regarding the debt, will you be assuming his debt as part of the purchase? If it is an asset sale, then you should not be responsible for any debt or liabilities he has incurred previously. Talk to a lawyer about that.
Regarding the existing equipment and value of inventory, that should be fairly easy to value, and looks like you have assessed that at about $90K.
The $49K owed to the state - find out if you will need to pay that off in order to get re-licensed or if you can apply for a new license. I'm not that familiar with CA laws.

I would use the trailing 12 months to estimate the revenue, as long as there are not trends not explained by basic seasonal cycles. For instance, if revenue is steadily declining over that period, you should assume it will continue to decline. Otherwise, use the trailing 12 months and haircut it by an appropriate fraction depending on how confident you are in the numbers. If these numbers are audited by a third party such as a cpa, I would take them at around 80-90% of face value, less if they are unaudited.
Finally, you will need to estimate the costs of running the place, which you have not mentioned. I'm guessing they must be very high as a percent of revenue given the numbers you have provided above. A nightclub grossing around $1mm per year would generally sell for a lot more than $200K unless it has serious problems.

Once you have estimated something like an ebitda number, a fair purchase price is based on a multiple of that number. Ordinarily, I would say around 2-3x for a privately owned bar/nightclub is fair, assuming it is basically a "turnkey" operation when you take over.
However, this guy sounds like he has some serious money issues and will probably sell for significantly less in order to raise the cash.
I hope this helps.

[Evil Dewars]

The other offer on the table is one of the current owner wants me to pay off the $88,000 in debt and we split 50/50 from here on out and I can run and manage the bar anyway I want. He is claiming over 500k spent on the location but can only produce just over 350k in receipts.

Sounds like he is fishing for suckers with that one. Find someone to pay off all of my debt and still let me keep my hand in the till? Yeehaw!

Run far, far away from that offer.

[BarBoy]

Sounds like he is fishing for suckers with that one. Find someone to pay off all of my debt and still let me keep my hand in the till? Yeehaw!

Run far, far away from that offer.

Correct. something is fishy here. Plus if the state already has it out for him it may be just a matter of time before they come knocking again, as they will be watching.

Take that $230k cash and do your research and open your own place. That is, assuming you already have industry experience. If not, i'll give you the advice I gave that 23 year old on another thread: You'll shoot your eye out, kid.