Bar Sale

[minime]

I'm being approached quite often lately about the sale of my existing and very popoular club and sportsbar. Any ideas on how to price the thing?

[NYCdude917]

An excerpt from the book titled: Start and Run a Money-Making Bar (2nd Edition), by Bruce Fier

"As a rule of thumb, bars and restaurants are purchased for the price of one year's gross receipts. You will need someone well qualified in the business to determine the accuracy of reported gross receipts."

Jeff

[David]

I agree with Jeff. Hire someone that is astute at appraising your type of business.

Another good rule of thumb is this, take the high three within the last five years. Add those together and divide by three. That will give you a ballpark figure.

If you are getting a lot of offers, there must be something in the works in your area. Check with the Chamber of Commerce and the local building department to see what the long range plan is for your area.

[Newbei]

Why would you base purchase price simply off of Gross Sales? If the bar is selling everything at cost or at little to no profit, what's the point of paying off of "Gross Sales"?

There must be a more accurate way to determine what a bar business is worth. Shouldn't net profit be taken into consideration in any valuation?

After all, if a business does 1M in Sales and COG, Labor and Operating expenses add up to 1M, what's the point in having your money tied up in something that's not giving a return on your investment? This seems to be happening more and more these days with the economy the way it is. Profits are not keeping up with expenses in other words.

[emallay]

It is more common for the valuation on a bar / nightclub to be based on a multiple of earnings, not gross sales. The top line, by itself, means nothing. About the only time it has much meaning is with a money-losing operation. In such cases, the scale of the top line might help the owner get *something*, but it usually means bad news for the owner if the focus is top-line.

If you are earning profit, your bottom line is the key - then, a multiple is used to get a rough valuation. This multiple varies a lot depending on the region. Three to five times multiple is typical for the deals I've been involved with, though I've seen both higher and lower depending on the sophistication of the buyer / seller, market conditions, etc.

Often, earnings multiples are higher in this industry than in many others because buyers assume the bottom line is somewhat understated due to non-declared revenues (ie, 'skimming') by the current ownership.

Once you've done the multiple, you have a valuation baseline. After that, other factors come into play such as the terms of the lease, age of the business, trendlines on revenues, COGS, EBITDA, EBIT, local market factors, and so on.

In your case, people are approaching you, so the multiples should work in your favor. Note, though, that many people are just kicking tires in this industry -- most inquiries aren't serious. Don't get too worked up (or reveal too much confidential info) until you know for sure they are serious.

Good luck.

Eugene.

[Estefon]

If I could sell my bar for one years worth of gross receipts I would do it in a heartbeat! I've read Bruce Fier's book years ago (I dusted it off my bookshelf and am skimming it now). His information is 15 years old and superficial at best.

Emallay is correct. The proper valuation of a business is based upon cash-flow and profitability, not sales. And don't get too excited when people approach you about buying your bar. 99 times out of 100, they are full of shit.

[HYDDYN MAVURIK]

I'm being approached quite often lately about the sale of my existing and very popular club and sportsbar. Any ideas on how to price the thing?

I think that if you have legitimate buyers to buy your nightclub/sportsbar. You should always determine what you are actually selling to the buyer.

If you are selling everything...place, land, equipment, financials, investments, operation manuals, intangibles (trademarks, copyrights, brand name, and value) and event plans...you should get valuation on all those items kind of like a business plan. It is a business sale proposal. (THIS PROPOSAL IS A CONFIDENTIAL DOCUMENT AND SHOULD BE TREATED AS SUCH. Leave a copy with your attorney and have one for yourself at a location that is not the venue itself.) Always update it. You get a monetary figure and you add twenty percent plus attorney fees.

I think that it would be great if every business did yearly valuations on what they are actually worth. Always have a figure in mind when you are wanting to sell your business. Have a lawyer negotiate terms. Always direct potential buyers of your establishment to your lawyer/business affairs representative for anyone thinking of purchasing your venue. The sincere buyers will go to your lawyer and set up some meetings to observe the proposal.