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.

[Newbei]

Ok, most think that valuation of a bar is best done by a multiple of earnings. I agree. Earning is what pays the bills, not sales. However, if most bar owners are skimming cash, or bartenders are stealing, which is driving earnings on the tax return down, what is the next best way to valuate a bar?

Is there another formula that allows you to back into the real value of a bar business if indeed you know skimming and other things are driving down the reported earnings?

What methods are most commonly used to value a bar business?

[intensity]

This thread was started in 2002, haha

[WIDAVE]

Does 3-5 times earnings seem reasonable to all???

[Emerson]

Financial Structure and Valuation

(The below is our summary and our additions we use as an email response to people asking this question : we attribute it to Oanh from George Washington University : http://www.gwu.edu/~business/casb/Research85.htm (http://www.gwu.edu/%7Ebusiness/casb/Research85.htm))

According to industry experts, valuation of a food and beverage location is a very difficult scenario for two critical reasons.

Firstly, in a metropolitan city the value of the unit may not be what the prior operator accomplished but rather what a new operator with such approved licenses could generate in the space. In Los Angeles, where liquor licenses are an in demand commodity, a new operator looking for a viable space for a new concept will value such new unit based on their forecasted predictions.

Food and beverage locations are so operator dependant that a new operator taking over a pizza restaurant will take the licenses and then convert the unit to Mexican or French food and realize incredibly different financials.

As such, unless a new operator is intending to purchase a turnkey unit and as long as due diligence on traffic, parking and so forth has been completed, the prior year’s numbers serve only to aide negotiations rather than create a valuation.

An example of the above would be a location we just prepped for sale, which due to the value and rarity of the licensing and the great location and long lease, this unit would continue to increase in value independent of sales performance.

The second difficulty is the method of valuation used should a potential investor look to value the current business for potential investment. Here, the standard asset-based valuation cannot be used as restaurant assets generally have low liquidation value, the perishable items have low inventory value and aside from franchises, there are rarely any intangibles.

Additionally, the Cap of Income valuation cannot be applied as that value only accounts for past history and not for future performance. The most common two options applied to restaurant valuations are the cash flow based valuation and the Restaurant Multipliers Method.

Finally, a venue still in growth stages, which due may have a steady x% incline in sales across a 12 month period whilst maintaining a constant on consumables, is difficult to value simple because no plateau or constant average can be assessed.

[Newbei]

Can anyone inform us what the norm is in the bar industry for valuation? Like WiDave said, is it 3 or 5 times earning? What's the norm?

I know there will be variables, but on average, what is it?

[alchemybar]

In Australia it's roughly 3 times net profit - depending on how many years the lease has to run of course.