View Full Version : Leasing a Bar

05-22-2005, 11:09 AM
I have an opportunity to lease a bar rather then purchase it. This would include basically taking over the business that's there for an agreed upon period of time without ownership rights (althought there may be an option to purchase at the end). Lease cost would be triple net and include leasing the business as well as rent on the space, since the current owner owns the building as well. Any ideas on what a fair price for this would be? It's about a $400,000 per year local bar business. Thoughts on leasing as a concept?

05-23-2005, 08:20 PM
bad idea. why would you go in somewhere and in a few years after you are rocking you get booted out ? why not buy the bar and pay over time in monthly payments ?

05-24-2005, 03:21 AM
Hey Fletch,

If you can afford to purchase the bar, you should rather than lease it from the owner. I assume, however, that the owner has offered lease you the place because you don't have the money to buy it and he really wants you to have it. Acquiring a loan from a bank is almost impossible and if you don't have any friends or family who can help you out, then you're kinda stuck.

If I'm wrong here let me know. Do you currently work for or know the present owner well? Why is he offering to lease the bar to you? If you don't know the owner from Adam, then it's a bad idea (well, it's a bad idea anyway, but if you know him/her the terms could be reasonable or something better could be worked out).

My wife and I are pretty young to be bar/restaurant owners and a similar situation came upon us about a year ago. No money, a little bit of capital, but lots of experience. We didn't do a lease, but he was willing to finance us the majority of the business over a fixed period of time.

As far as a fair price, there are two ways of looking at it. You can buy the place at a certain percentage of it's gross annual sales, or it's annual cashflow. You should look at both. What does the owner think it's worth? You'll need to see his/her balance sheets, P&Ls (profit and loss statements) and tax returns for a minimum of two years. But we're getting way ahead of ourselves here. First, you need to give us some more background information.

05-24-2005, 07:48 AM
Good questions. I don't currently work there, but do know the owner. It was his suggestion, but it does seem like a way to test the business without purchasing first and yes, without a big down payment. The balance sheet numbers aren't great, but of course, like most bars, the owner has implied that I'll find things are much better when I work it. Thus the desire to check it out first. I know this has been done. I just have no idea what a fair lease payment is, does a portion normally go towards purchase, etc, etc.

As for purchase price, he seems to think it's worth a lot more then I do. Is there a set rule of thumb for basing a value on percentage of gross sales?

05-24-2005, 10:05 PM
if you are set on doing this then go work there for a while and see what the real deal is. yes it is a cash biz but he can say anything to get you in. go into it with your eyes open and keep us informed.mike

05-25-2005, 11:03 AM
Part of your question is about determining fair value for lease (or purchase), based on business history.

I'm going to recommend my favorite small business resource: www.score.org

SCORE is an organization of mostly retired busiensses people, partly funded by the United States Small Business Administration. Their prupose is to counsel and help small businesses. This is exactly the kind of analysis they can help with!

Check out their website and see if they have a branch in your community.

05-25-2005, 09:14 PM
Hey Fletch,

I don't have much time to write here (I told the wife I was coming home real fast to design some signs for Father's Day ;) ), but I just wanted to put in my two cents on your situation real fast.

The fair market value for any bar is based upon alot of variables, but ultimately comes down to what the person pays for it. Just out of curiousity, how much is he asking for it?

The best way to estimate the value of the restaurant is to first find out what it is that you're buying. Most likely you'll be buying the FF&E and goodwill of the business. The way to place a value at that is to find the operating cash flow of the bar. Cash flow is your general profit, plus your depreciation, interest, amoritization and any expenses like salary or one time purchases like a new updated computer system, etc..) Finding the cash flow will tell you the rate of return that you should expect.

Then you need to find the cap rate for the bar. This can be done by analyzing other bars in the same market and finding their return or an educated "guess" is often made based upon how well the bar is managed. A well run, finely tuned bar with little overhead and better tahn average profits will have a positive cap rate somewhere around 30%.

Flying blind here, but a bar that runs around 400k in annual sales, should be running around 60-80k in positive cashflow, which should place the value of the place somewhere around $200-270k.

I highly recommend that you find a bar and restaurant broker to help you with the process is you're serious. It let's the owner know you're serious and will help you get a better price. At least consult with one in your area. They do this thing for a living, unlike any of us on this forum.

I've never heard of a lasing a bar before to be honest with you. Sure, leasing a building or equipment, but never the entire business. If money is tight, see what he can do to finance your purchase and what financial guarantees you might have to back you up.