Buy a dead bar?

[BDiamond]

First of all this forum is great and us newbies really appreciate all of the help from the vets! Thanks Guys and Gals!

I've been in the business for about 5 years mostly as a DJ and bartender. I have managed a restaurant and understand inventory control, labor cost, etc.

A nightclub in town had a shooting on New Year's Eve and went from hitting capacity every weekend to absolutely ZERO for the past month. His entire staff quit and he hasn't been able to hire anyone back. I had worked at the bar when a different owner had and he was serving about 30 lunches per day and grossing 20-25K weeks. He since sold it to the current owners, they changed everything, and business slowed down considerably.

I have been tippin the bartender $10 bills and have found out that the owners are scared to death and are looking for a way out. They want to sell but no one has made an offer. It went from listing at 180K and is now at 50K. They are current with all vendors, don't owe any back rent, and everything inside, tables chairs, glassware, is theirs.

I talked with the landlord and the rent is $1.2 a sq. ft + a percentage of triple net which I found out the owners are paying $6500 a month. YIKES! Capacity is about 350.

Everyone in town is tryin to do the lounge thing where it's specialty drinks, low lighting, long lines, etc. I've spent 3 weeks talking to people and I get the same three things.

1. Cheap Drinks
2. Good Music
3. A place where they can be themselves.

(Gosh I'm long winded!!)

My questions are these:

1. Is 50K reasonable considering I'm not buying a business with existing clientele? I'm basicallly starting from scratch. My thinking is I take an inventory of their property and liquor inventory and offer them pennies on the dollar say take it or leave it.

2. The current owners have not done anything to change the public's perception of the place. I would have to do that advertising, word-of-mouth, promotions, etc. Is it anyones opinion that I should avoid the place like the plague since everyone else is, is it the owners stupidity not to try to reinvent the perception of his place, or should I be excited about the opportunity I have to get into the place and make it my own?

3. I don't have a ton of capital to work with. IF I do this I would be taking the equity out of my house ($80,000). My credit is destroyed from an ex-GF I cosigned on some things with so a personal line if I needed more cash might not be available. Am I undercapitalized even though this might be a great opportunity?

4. Might it ba an idea to say to the owners - I know how to get everyone back in here and I can have the bar entirely staffed with one phone call (which I can) and try to work out a deal with them. But how would the deal get structured?

An answer to any of these question would be of great help in "sealing the deal" so to say. Thanks in advance for what I know will be some great advice!

Brian

[mquillen]

First off, do not discuss your great plans for getting business with the owners. That would only give them negotiating leverage.

What kind of area is the place in? Have there been other shootings or was this an isolated fluke?

Any offer should be contingent upon your negotiation of an acceptable lease--I would imagine the lessor would be happy to do that given the situation. Most landlords keep a pretty good eye on what is happening with their tenants. By the way, I'm not 100% against a lease that includes overrides for the landlord, if it's set up properly. Such a lease must be structured in favor of the tenant (i.e. below market rates) if sales don't meet expectations, and offer the landlord A LITTLE upside potential if sales skyrocket. It's important that if sales only meet realistic expectations, the lessee is not paying above market rates. Obviously, hindsight is 20/20 with these leases.

Whenever I negotiate a lease, I try to look at my time horizon for ownership, so that I have a marketable enterprise when I decide to sell. No one wants to be at the landlords mercy when they're trying to sell their business.

[Toz]

Brian - So why do you want to be an owner, especially of this "dark room"? If you believe it has some potential with your hand on the the till(er), sell yourself to the current captives as a "turn-around" guy. If you can save their investment, put them back on the road to profit, make a nice pile of cash for yourself AND fill out your CV, you'll be way ahead. With a good rep as a savy operator, good deals will come banging at your door. If you insist on mortaging your house, have someone kick you in the balls first. Leverage your experience, not your house. Best of luck to you.

[BDiamond]

Ya Know Toz I had thought of the same thing. I have done this for other companies ranging from home improvement companies to telemarketing rooms. They struggle, I come in with a plan, build them up bigger and better then they had ever been, the place practically runs itself and then BAM! They kick me to the curb. I'm tired of that whole process.

My problem is that I lack experience in what the industry standard is in negotiating these types of arrangements. Weekly salary and a precentage of the business? What if one party wants the other to bow out? Do I get the right to but them out after a certain amount of time? what if they want to buy me out? Couldn't I just lease everything from them? At what cost to myself?

I would want control over all aspects of the operation. I want to remodel, change the name, music format, promotions during the week, drink pricing, etc.

Honestly, I would like that avenue better than risking my home. I believe in myself and my reputation in town for being able to create hype and draw a crowd just from DJing and working at the other bars in town.

Thanks for the advice Toz. I hope more people take the time to add to the board.

[Securitygeek]

50k for the bar, 80k from the mortgage, no personal capital... I don't think its possible. your looking to remodel. figure 30 - 70k for that then double that number for unexpected stuff... not including insurance. of course if you want to make a quick turnaround... research the value of the liqour license for your area... you might double or triple your money just buying the business and selling the license to somebody else then parting out the club on ebay. Just a thought. :)

[mquillen]

Call me a pessimist, but I've never seen a deal work when an outsider comes in as a partner with the old owners. Obviously the current owners don't understand the business, otherwise the place would already be doing well. Why partner with them?

How old are you? If you're young and you fail, you have time to come back. Most people in business have had to sacrifice everything at some point. Trust me--it makes you work harder. At the same time, you definitely don't want to find yourself without enough money to make your plan work. Count on the unexpected. Everything will cost twice what you budgeted and take twice as long. If the place fails because of a bad plan that's one thing, but you don't want to fail because you ran out of money and couldn't fully implement your plan.

Is there anyone else you can partner with?

[ca. club owner]

Hmmm..... Its been a while since I checked in on the world of entertianment.. This topic is kinda interesting for a few reason's.

Its all ways a tricky thing with buying (takeing over) a place that has just had a major melt down.. Im sorry to hear about the shooting 1st off. From reading your post you have done a lot of homework. So I will just put this in a simple fashion. You can go in buy the place for 50K but don't do it alone. You should find someone who has about the same amount of capitol you have then go in. Make your changes and let the business ride. I would make a very good effort to have security to be seen. So people have a feel of being safe. Safety is the #1 thing that keeps people coming besides the extra's music, drinks specials etc.. But you should partner up so you can split the costs. You don't want to pull all your money out your house and then it not be enough and you are stuck with stress...

2nd you can all ways approach the owners now and maybe buy some equity in the club. No owner wants to lose out if they have options. Its all in the approach, don't tip your hand about how you can save the place. But if they want to turn it around, and you can make it happen. Express it, as for being bought out, or kicked out etc.. Its all in the legal paperwork you draw up between you and them... There are many ways to go about this. But I figured I would just drop in with a lil insight.. Good luck


Money Talks In All Languages...

[BDiamond]

Thanks for the advice Ca. and everyone else who has posted. There are some great things to consider and good tips as well. The last time I had talked to the owners they had asked 110K and I told them that 3 figures wasn't even in the realm of possibilities and that 50K would be a top # that I would even consider and that wasn't even something I was comfortable with. I didn't hear from them for about 2 weeks. (They tried to open the place as a teen club, spent $1500 on the radio, and 5 people showed.) Then they called and wanted to talk again. I took a tour of the place, got copies of financials, asked a few questions and said I'll be in touch.
Now for the question at hand and a few problems.

The owners are 2 parents who financed their house so the kids could operate, and eventual buy, the bar. They ran it into the ground, don't have any money to put back in, and want out. Dead in the water.

As far as I'm concerned the place has no value other than the assets attached to the place. This is what I'm considering:

1. $20,000 cash. Inventory at $5 a bottle. Temporary usage on the license until mine is approved. I incur the lease payment of $6500/mo immediately.

2. $50,000. They carry the note for 3yrs at 5%. Inventory $5 a bottle. Temporary usage and they assume the lease payment until the license is approved not to extend past 90 days.

By getting them to carry the note I have the equity in my house to carry myself for start-up costs. Basically it's like getting a loan for 100K through 2 different lenders.

Question #1: Are those offers reasonable? I feel that the club as no value so really the only thing I am paying for is the assets and saving time having to go purchase everything and set it all up. Either way they come out with about $20,000 or so.

Question #2: My AGI averages about $35K a year. Due to an accident and the other parties lack of insurance I have been on disability and my tax returns show income of under 10K for the last 2 years. I've actually got back to work this year and am reporting income of about 4K a month starting this January. My FICO is about a 520 due to that and a crazy ex-girl. Will the bank even give me a loan against my house with my personal finances the way they are? I have made arrangements with my debtors to satisfy the past debts but that will take a little bit of time to get everything satisfied. If not wht are my others options as far as financing? Sub-Prime lending? Hard money lenders? I don't want ANYONE to lend me the money and get the "I'm a club owner" mentality and want directive control over whether it's the pink or green uv glasses...

Any ideas?

Thanks for the great site and the advice everyone!

Brian