Bar for-sale... #'s seem funny

[Grandoner]

Lets say there is this bar for-sale in my neighborhood for $100,000 (making the numbers easy for math).

I took a look at it and talked to the owner. I asked him about his books and he showed me but he said that this was only his #s that he could show me that he reports since most of the business is in cash

He showed me his sales tax #s per quarter and it looks like that came to about 200K a year (#s skewed for simplicity) in gross sales. . He also said that he has overhead which comes out to 200K per year.

Based on what the goverment sees he is breaking even. If a majority of business is cash then what is the typical % of sales that is credit cards?

If he is doing 200K in credit cards is he at least doubling that in cash?

He also said that he makes 100K a year that goes in his pocket. I don't see how that makes sense. It would look to me that he either makes way more than 100K or that he is wrong about his #s.

Also why sell a bar which has such a good profit margin for a price that a new owner could concievably pay off in one good year?

What questions should I follow up with and find out the right move?

[Barry Chandler]

This is a question that has been asked MANY times here before. Most advice you are going to get is that if you don't have access to the realistic verifiable numbers, then avoid. Why would you pay a multiple of earnings he "said" he made. You're parting with your cash based on his word. If you're happy to do that, you're braver than me.

I would only pay a multiple of independently verified revenue figures and nothing else. While we all know that there are bar owners who under report earnings to the IRS, saying that he can only show you the non-cash books is like a car dealer telling you that he can't show you the mileage of the car, but he can tell you that it's low...It doesn't make sense for a legitimate seller to expect legitimate bids when this is how the numbers are being shown....

[Rainee]

I don't see why anyone would sell a business that he expects to make $100K in profits over the next year for $100K. It would make more sense to just leave it on autopilot for however long it lasts.

If you are really interested in buying this bar, you will need to do work yourself to estimate the actual sales. If the seller is unwilling to give you access to any useful numbers (like purchase orders, bank statements, etc.) then you have to go spend some time there counting customers and sales yourself, and come up with your own estimates.

I don't think it's realistic to expect the owner of any business doing under $1million in annual revenues to have audited financials. Especially if it's a heavy cash business like a bar.

As far as estimating the cash sales from the cards, it can be done in a very rough way, but you have to have some local information about the typical check size, product mix, type of customer, etc.

[Grandoner]

I am going to push the owner for some more details. I am going to honest with him that I am interested but I need more than his word that things are the way they are.

What are some financials that I can request which he can show me regardless of his underhand dealings?

I know that of late he has become an absent owner because of another job that he has and that business has suffered some. He doesn't serve lunch and opens at 3pm. I love the location because it is right in the small downtown and off the main highway and there is only a big chic restaurant/bar and a really small dive nearby.

Otherwise I took a walk through and the place seemed in real good condition. The guy bought and remodel about 5 years ago and everything is included in the sale. There is already a dart league with a couple home teams in place, touch-screen juke-box, and 2 mega-touch machines in place and the bar has a POS system, sound system with XM radio. There is 10 years left on a lease that escalates the rent $100 each year. Rent is currently about 2k a month which puts the amount on par with other local prices per square foot.

Based on his numbers and that the bar could be doing much better with an active owner and better food sales it is a no brainer... It is figuring out if what he says is remotely true which I have to discern.

Can someone with a local bar answer this question with a range... If the bar is doing 3500 a quarter in sales tax... thats 14000 a year which would roughly be about gross sales of 175k FROM CREDIT CARDS.... that info I am sure that I can verify. How much more in sales is going on in cash? Another 175K, more or less?

I am sure that if I take over I will save in labor costs as myself and a family member will be managing full-time, however I want to get more utilization out of the kitchen.

[scott1988]

Grandoner,
For the last time, if they won't give you the numbers you NEED TO MAKE AN ACCURATE AND INFORMED DECISION..............


"walk away".

Enough with the idea that because you "feel" that it's a good deal it is. It probably isn't which is why they are selling. They probably know something you don't (and won't tell you) or just have a gut feeling about the economy or know that it is more work than it's worth or who knows? As mentioned earlier, if you could put a business on autopilot as this person has (by not being there) and still make $100k a year would you ever sell it?

Bottom line, the seller is full of crap and is feeding it to you buffet style. Eat all you want, there's plenty more where it came from.

And one last thing, just because you and another family member could work it and save a little money (by "hopefully" reducing labor costs) do you really believe that you would save enough to justify NOT spending time outside of work with your family? Think about it, you may end up working 80, 90, or even over 100 a week to just break even (possibly). Is it really worth it to have a second wife (your business) that you see more than your first one & your kids (assuming you may be married with kids)?

Look, a TON of people "think" owning and running a bar/nightclub/restaraunt/pub/coffee shop is cool but when reality sets in for those that just can't seem to make it (for whatever the reason(s) may be), it isn't fun and usually ends up causing way way way more stress than you and your family can handle. Do yourself a favor and get the information you NEED so you can go into it with GOOD INFORMATION.

Not "crap" served on a buffet.

***On a side note***....To the Admin....is there any way to have new members read a short 1 minute paragraph BEFORE they sign up about certain threads (like I want to open a bar, I can't get all the financials, looking for POS , employee advice, where to start, legal advice and etc.)? If they sign up, you direct them to a page BEFORE THEY ARE ALLOWED TO POST or BEFORE THEY CAN ACTUALLY SIGN UP that has a short paragraph or two about these subjects and that they MUST do a search or read them in order to post on here. It's almost like you need to have a quiz because we just get way way way too much of the same questions asked over and over. Grandoner, please don't think that I'm directing this statement towards you because I'm not (although this thread would be one of them as an example). There are a lot of new memebers (which is great) that simply ask the same old questions that have been asked over and over that it just gets old seeing them over and over again. That's all. Honestly, I think it's great that we get the new members on here because we need it so don't go away but please just try to look at it from our point of view as "old members" that have seen just about everything. The thing is, you can find almost everything on here by just doing a search.

I just think if there was a way to have new members be forced to read a really short paragraph about posting, it would eliminate a lot of repetitive posts. Sure, we might not get as many posts but at least the ones we get would be new and fresh.

[Akston]

To be fair, the search mechanism on this site isn't great. I've searched for some of this exact information, and the threads don't show up.

You even linked a bunch of threads with all the information, but it didn't work.

Maybe there could be one thread pinned that has links to a bunch of the common topics (e.g. how much should I pay staff, what's the profit margin, basic operational ratios, etc)

[Barry Chandler]

We'll try to put a page together with links to groups of threads around the most searched for themes, and that way the "older" members of the group could just paste the link to the page with the links.

[seed]

If the place is doing so well I would have to ask why he had to get a job that takes all his time and is ultimately hurting his business? You need to see some hard #'s! Tell him to call his beer and booze reps and get last years totals on purchases or find out when the beer delivery guy is there follow him to his next stop and ask him. No one wants to give real #'s because if you don't know your naturally going to live in a fantasy! If I have learned anything about small business the statement I am going to be rich is false. Good luck, Keep us posted and try to keep it under one thread so it is easy to follow. I enjoy reading peoples efforts on there journey. I read the blogs for entertainment and don't get put out by any questions asked.

[Grandoner]

Thanks seed... I read your journey against the town council and was thoroughly entertained although it must have been a nightmare at times for you.

I am in contact with the owner and later this week I am going to find out some more info.

On a side note... I have spoken to my wife that there is this great opportunity potential but she is against me going into the bar business. She is aware of my entrpeneur spirit but thinks bars are low-class. How do you owners show your spouses that this can be the right move?

[Ruben]

What kind of POS system does he use digital or the old school ones? If he's using a digital they all keep track of sales, unless he deletes history so that nothing is shown in case he gets audited by the guv. If its the case and he has new systems, then ask him to get those reports on a 1 yr page. Many of the POS's have features where you can output the gross sales on each pos and how much of each product was sold etc.

Just ask ;) thats how i'd go about determining if what he is actually saying is true. plus since he's doing a lot of credit card sales, the processing company would have history of all transactions and he can request them to send him documents of all sales done through his system.

[seed]

We have a few business's and work together in all of them. If your wife is already reluctant to go into the industry there is a good chance nothing but strife will come from it. The booze business is a tough business! People drink during good times and drink more during the bad times. Be sure to read Barbs story it is an eye opener. We both opened about the same time she chose to purchased and I chose to lease. I am not sold on the whole buying a business deal I like to operate them.

[Grandoner]

Another question if you may permit:

I am going over the owners books and I have calculated his expenses for a fiscal year and I am on to the next. Lengthy process indeed...

If I know his sale tax figure that he had to pay each quarter what am I actually seeing.

I think it is 8.125% in NYS where the bar is and if so I just take his total sales tax figures for the year and divide it by .08125 to get his gross sales?

Are those taxes only for credit card sales and/or for his cash claims as well?

I am doing my due diligence but I am learning as I go along... Thanks for the help

[anastaziax]

re: how much of sales can be expected to be cash vs credit card, I just don't think you can rely on what anyone else might tell you, since this will vary widely by the clientele, type of purchases, etc. For different crowds at our venue, we see credit card sales range from 10% to 60% of total sales, so really can't use any generalizations here.

[NewBar]

We have a few business's and work together in all of them. If your wife is already reluctant to go into the industry there is a good chance nothing but strife will come from it. The booze business is a tough business! People drink during good times and drink more during the bad times. Be sure to read Barbs story it is an eye opener. We both opened about the same time she chose to purchased and I chose to lease. I am not sold on the whole buying a business deal I like to operate them.

Please give us a link to Barbs story