Advice needed on buying an existing bar/night club

[Boilermaker]

Hello to all. I have found a bar that i would like to buy, but i think it may priced a little too high. It's located in middle Tennessee in a small town but within 25 minutes from three larger towns. It's in the town i went to school in and i know most of the people. The building is 3400 square feet with a fairly large dance area and stage. It's in good shape with very few repairs needed. It has 2 pool tables. It's a beer sales only place. There is no competition to speak of anywhere around. The owner has been renting the place for years because of his age and the stress involved. I think it could be made into a real happening place. The price is $128,900. I would appreciate any thoughts on this price or anything concerning this post. Thanks in advance. Oh yea, It comes with 17.3 acres, mostly hillside and wooded.

[speedyflyers]

Sounds Good especially with all of the property 17.3 acres... I would ask the current owner what his yearly sales were for the past three or fours .. Maybe that DIAMOND in the rough...Not too bad...

[Boilermaker]

I talked to the owner and thought about asking that question but didn't figure i would get a honest answer, plus he's been renting it out for several years to different people. I know he rents it for $800 a month. The thing is, nobody that has rented it has put any real effort into trying to improve business. I also know the guy that's renting it now would love to buy it, but can't get the money. I really believe there's money to be made there. Another plus is the law dosen't hassle anyone (i know most of 'em). There is a real need for a decent place to go out and enjoy a band or just have fun in general around here (without having to worry so much about trouble). This is southern redneck country, and i have redneck ways myself, since i was born and raised here, so i can relate with everybody ok i think. Hey, if all else failed, i could convert it into a restaurant i guess. Thanks, and any more advice would be greatly appreciated.

[speedyflyers]

Based on what you are saying that nobody has put any real effort into the place -then I am sure you will put in the effort and make it a success. I would go for it then !!!!



Best Wishes----


Mike

[mauimanana]

it is worth it for the land alone imo and that its a turn-key bar w/ ample sf area is a perk. drop $100 k cash on the table and i bet he'd take it and give you the grid coordinates to the still location.

sounds like an excellent deal overall and could be a killer road house. its win win for you i reckon. if it fails then you can always use the land for a paint baller theme park ( dem rednecks like dem some paint ball ) and have a place to shoot pool and depending on what they are store your antiques. i collect vintage beannie babies so i keep mine in a plastic container on the top bunk until toy's-r-us starts its own antiques road show and then im rich. rich i say!

question: why no hard liqour permit being your in the land of whiskey?


all the best

m

[Boilermaker]

Thanks for the advice guys. I'm sure the hills and hollers around here are not worth as much as they would be in a lot of places. It's all about location. However, land hardly ever gets cheaper and believe me, you would be surprised where a person can put a single wide trailer (sorry-mobile home). He wont take the 100k, i've already tried that. He's probably got enough money to live 2 or 3 lifetimes now.He's the one that built the place, so i guess it's a pride thing or something, plus he can just sit back and make the $800 a month rent like he's been doing. I'm off to the tax advisor's office today to talk to him about it. I need to know what's writeoffable and what's not. Maybe ya'll could help me on that as well. Many thanks !

[mauimanana]

cant offer much advise with regards to the creative accounting side of the house since thats not my forte. i rely on accountants, lawyers, realtors and a muse for sound financial, legal, investment and astrological interpretations.

the property still seems like a good investment ( they aint making anymore ) even if it was scrub bush and quicksand. that the place is the only show in town and is a turn-key operation in good shape seems like a solid investment for the price.

the ff&e and inventory may not be worth much, but it is the building/property that is the asset and the long term investment. take a look at some of the restaurant, bars and nightclubs for sale online you will find very little for that price and almost none if any w/ property/land.

if you had a background in this business and were a builder then maybe you could put something together from the ground up in your town. not knowing your town/area i would still think that this is a better deal. the options this property affords are allow for expansion of service options ( restaurant, package store, rental wether retail, commercial or warehouse )and structural which you will be hard pressed to find in a similiar property anywhere.

id be very comfortable with the direction your going and though not even the best concept in the ideal location can guarantee success yours has a viable exit strategy and offers the freedom to establish a real town tradition. not to mention that all those female divorcees that you know from back in high school will be squeezing into their wranglers and shaking their money makers at ya. whos ya daddy now baby..yeehaw


all the best

m

[Boilermaker]

I appreciate the good advice M. I think you're right AND i think i'm gonna go for it. The only thing that kinda bothers me is the guy that's renting the place wont show me the books because he wants the place but can't afford it. I would like to have an idea how much they're bringing in monthly now. He's been renting it for about two years, so he must be doing ok. I did check on the liquor thing and found out that people have been trying to get a liquor law passed for years to no avail. However, it's ok to BYOB as long as you keep it in a bag. What's your thinking on that? As for those ladies in the tight fittin wranglers, i've been married and divorced 3 times and had to start over from zero each time. That is definitely NOT why i'm buying this bar. But i never say never. :) Bmaker

[mauimanana]

well i aint been known for being the sharpest tool in the tool shed or the sweetest apple in the orchard, but then again i aint never screwed anyone over in my life neither so feck um all.

forget about the books. if you were droppin a load on a leased property then i'd want to know the books because you can end up with a load of shit. people in this business sell when the sellin is good and all that for health reasons or other hog wash is just that. the only difference between a good pig and bad pig is how much you have in the piggy bank.

sure the guy dont wanna show his books and why would he. you may be homegrown from mayberry but you aint mayberry no mo. i'd be pissed too if someone who aint paid dere dues was gonna take my cornbread. feck um! its about you and your childrens futures and not that *****foot.

well liqour allowances will happen when they do and i always pray for the best and expect the worse. cant miss applepie when ya aint never had it.

byob will do just fine i reckon and if you turn that place into a real "porkys" type road house and not some country horse shit bistro then you will do better than well. i figure the old coot that owns it is more of scrooge than a scoundrel anywho. i know lots of old timers that way and the funny thing is they kicked the bucket after living on spam, chicken feed and handmedowns yet have 10's of thousands stashed under the floor boards while their kin folk is on welfare and white lightning.

this is great opportunity for you and your children. much feck up room from where im sitting. maybe do some thinking and web browsing for interior modifications/entertainment and pull in some hot mid level bands and you will pull in more than enough to turn that pig into ham steak in short order.

this industry is based on entertainment and socializing. liqour sales, door cover charges, games, food, merchandise and private function out sourcing are revenue sources, but not necessarily in that order. people need a place to party and byob ( for a fee ) works great.

as for the divorcees thats none of my business. you just might be one of those marrying type folk that hate to be alone. me im more about practice, practice, and more practice before i get hitched. practice may not make perfect but it sure enough do make for increased jackin off memories when your wife done gotten pop tart fat and hot pocket flatulent and not in the mood for anything but watching dr phil marathons about other pop tart fat and hot pocket flatulent married women.

well like i stated aint no one much listen to me much these days since them damn new fangled naked girlie sights offering free dirty birdy talk chat lines started.


all the best

your pal

m

[Boilermaker]

Your right M. Hey, You sure talk pretty good redneck for a Hawaii guy. You seem to know a lot about our homemade refreshments too. You aint from Tennessee are you ? Thanks for the info, Bmkr

[owneroper]

why dont you see if you can talk to beer distributor and or beer driver, To see what they are buying. I dont think they are supposed to tell you others business but I have lucked out twice. Check there trash. suck up to a barmaid or two. Maybe you can get and idea that way about sales

[Boilermaker]

Thanks Owneroper, I'll give that a try.

[Estefon]

I hate to be the cog in the wheel on this discussion, but the land alone may not be worth $128k. Have you had it appraised?

You really need to look at his numbers Boiler Maker. Search my previous posts for answers to this question. I've dispensed alot of advice on the subject of buying an existing restaurant and have looked over at least a half dozen P&Ls.

You need 3 years of P&L's, Tax Returns and Up-to Date balance sheets before anything else.

The guy who rents the place isn't showing you the books? You mean the current owner? What exactly are you buying here? What I mean is, are you buying the 17 acres and the building or just the businees? or both?

Slow down. There's no such thing as an opportunity of a life time. Be opportunistic.

Steve

[Boilermaker]

I am buying it all. I am having it appraised too. I cannot force the guy renting it to show me anything. He is NOT the owner. Also, like i said, this guy wants to buy the property too but can't come up with the money, so he's pissed because i'm buying it and wont show me anything. Even if he did show me the books, i doubt very seriously if they would be accurate, don't you ? All i can do is go on what the owner(who was a friend of my father) tells me he brought in when he actually ran it himself, which has been about 14 years ago. I AM taking my time on this. You see, a realtor has it now for about another 2 1/2 months. They are asking 132k for it. I made 'em an offer of 110k. They came down to 128,900. I made 'em a final offer yesterday of 125k. Take it or leave it. They left it. SOOO, I called the owner and told him that i would wait until it got out of their hands and i would give him what HE wants for it. If it sells before then, i guess it wasn't meant for me to have it. But he promised me the first shot at it. Besides, it will give me more time to research some things. We'll see what happens in 2 1/2 months. Thanks, Bmkr

[Largo Robert]

You need 3 years of P&L's, Tax Returns and Up-to Date balance sheets before anything else.This just simply isn't true. In a closely held, cash company, the purpose of a tax return is to MINIMIZE taxes by underreporting revenues, and padding expenses. It doesn't show squat in terms of the value of the operation.

NEVER buy a restaurant or bar with the assumption it will just continue as is.

What you are buying are assets and location. If there is a book of business, consider that to be "goodwill". You are buying the "ability" to produce revenue quickly, nothing more.

Additionally, a bar is a CASH business. Do you have any idea how much cash never gets to the bank and goes unreported? The industry attracts some pretty shady characters, ones you shouldn't trust what they say.

The MOST important consideration is the projected fixed expenses. Base your "break even analysis" on that. Keep in mind YOUR BEA basis may be different from his, because the costs of the property (PITI) may be higher.

The second most important consideration is a comprehensive list of assets, and not their balance sheet value, since that may/will include depreciation.

If you buy a restaurant/bar with the expectations the revenue stream will continue as is, you'll me very disappointed.

[Estefon]

Purchasing goodwill is part of purchasing a business Robert. If they are hiding their revenue streams to avoid paying taxes, then they're paying for it the end when they can't get the price they deserve when they want to sell.

Hiding your revenue streams and over-recording your expenses is no different than a tipped employee of yours not reporting all of his/her income. When it comes down to getting the loan for the new car or house, the bank won't approve it. Simply because they are not claiming and cannot verify what they make.

I've reviewed dozens of P&Ls over the years for bars that I wish to purchase. But why should I take the owners word that the pool tables earn $25k/ year when he's not willing to report it on his income statement?


The MOST important consideration is the projected fixed expenses. Base your "break even analysis" on that. Keep in mind YOUR BEA basis may be different from his, because the costs of the property (PITI) may be higher.

BEA can't be compiled unless you know his entire expenses and this guy isn't willing to open his books. It's a rough estimate in this business to calculate BE, but it can be done with close accuracy.

Lastly, if the guy isn't willing to open his books, all you are buying is the value of the land, building, furniture, fixtures and equipment. There is no goodwill. Appraise it from that standpoint and go from there.


The second most important consideration is a comprehensive list of assets, and not their balance sheet value, since that may/will include depreciation

I agree. Have a solid asset purchase agreement. What exactly are you buying and what is it worth.


If you buy a restaurant/bar with the expectations the revenue stream will continue as is, you'll me very disappointed

I disagree. If the bar you're buying into has the proper systems established, then you're buying into the systems as well. If done correctly, you should only need a couple of weeks of training from the seller to understand how those systems work.

Regards,

Steve

[Largo Robert]

"Opening books" and asking for balance sheets, tax returns and P&L's are two completely different animals.

Even the most basic Due Diligence will reveal enough info to do a BEA. Rent, utilities, insurance, etc., the basics, will give you all you need. I'm not suggesting to buy a business without doing due diligence. I AM suggesting you can buy a business without tax returns, P&L's, etc., and do fine.

Aditionally, if you BUY a cash business and SELL a cash business, the price spread would be the same. Yes, if you sell a cash biz w/o all the accounting and tax fluff the price may be lower. But that's prolly how the seller bought it in the first place. No biggie, folks in the biz understand it.

"Goodwill" is defined as the difference between the purchase price and the net assets on the balance sheet. That can mean anything. So, yes, buying FF&E only..i.e. an "asset" sale can clearly include goodwill. A business currently open and and generating undisclosed revenue, as opposed to a business opening from scratch, can have "goodwill" as the revenue stream generated to the point the new venture hits the same revenue #. Considerable.

I'm not trying to pick nits. I have extensive experience in acquisitiions and divestitures, from small businesses as I am selling now, to selling two businesses to public companies (in healthcare), and becoming part of the acquisitioin team for a public company.

Buyong your basic bar or other cash business is a totally different animal than buying that rely on credit cards, checks and receivables. Cash cannot be tracked. The others can.

I am selling my bar as "assets" only. I can show and confirm revenues, I give total access to expenses, but I'm not disclosing P&L's or tax returns. Those buyers that express interest that obviously are out of their element (i.e. new buyers who have no bar experience, or have never owned a cash business before) are put off by that, and get all huffy, like they think they're being screwed. I have found those who have been in the business and understand it don't even ask. The folks from within the biz come back at different times of day and nite and hang around, having a few pops, and check things out with their own eyes.

[Boilermaker]

Good advice guys and very much appreciated. Bmkr

[mauimanana]

well im not too busy savvy and there are alot of things to consider before buying a bar or nightclub.

i guess i look at the sale of this bar as not much you buying a bar as you are buying a commercial investment property. all how you look at it i guess and since the current owner rents the building and odes not operate the bar then thats what it is and what its worth. $800 per month. banks dont always give loans on bars and restaurants but last i checked they sure as shit give them for real estate. how many kegs or bottles does he sell? who cares! whats he get on the door? whats it matter! does he make more than enough to pay the rent, utilities, payroll and a profit? i would think so since he wants to buy the business.

this is "road house" that sells beer and makes it the easiest and most trouble free of all. the f f & e are most likely not worth anything since it is a rented out building and has been for some time. actually anything of value will probably be swiped before the deal is closed anyhow which means say goodbye to the neon beer signs and pool sticks.

i have spent the last 12 months looking at bars and potential sites for bars on 3 continents and like i mentioned in one of my previous posts you are going to be hard pressed to find any bars, bars w/ building or bars/with the building and 17.3 acres. do you know what the cost of building materials alone are these days and then hvac, water/sewer/septic, electrical/utuilities and then add on labor, permits, inspections, architect fees. all adds up to alot of time and money. i see bars from scratch in leased buildings go in the hole 100k before the doors even open from the initial rent & deposit and the what they are paying during the build out and set up stage.

lets see :

17.3 acres of wooded hillside ( some of which has to have road frontage and is buildable or can be leased )

the building is 3,400 sf which is a good size, good shape and can be added on to since you own the land and its a small town so you wont have to deal with all the crap in most towns. these restrictions range from nit pick to just plain insane.

turn-key operation - sells beer! no need for a pos system, soda/juice guns, high end sound & lights etc. can add a kitchen and increase sales.

all ya need is a few upright glass door coolers for beer & visuals, 2 taps w/ 1 keg cooler, cans of soda and mixer, ice & cups. a few other thngs but you get the drift. no pressure w/ fat rents, huge stock inventory,

it is a win win situation imo and i would scoop it up if i was in your position. now saying that is because i know " I " can make it work and i bet i could pay that place off within the year. hell my weekend biker rallys that i would have would pull in enough to pay all my expenses in one weekend plus.

listen boilmaker these other chaps on here are probably offering you much more sound advice than me. im a simple dude and with a builder background i can see the potential of what can be and dont worry so much about what was or what is and more about what im gonna do. just remember this, "dont try to stick a round peg into a square hole". ( unless its a really purty hole )


theres an old saying , you can take the boy outta the country, but ya cant take the country outta the boy." this is a country bar and thats what it should stay. see too many people get caught up on concept and fail to keep in mind the county.

and as forrest gumps would say.

and thats all i got ta say bout that

[Boilermaker]

My thoughts exactly Mauimanana ! Thanks

[Largo Robert]

I would buy the property in one corporate entity, then lease JUST the bar property to another corporate entity you also own. Make sure the property is somehow legally demised enough to do that. Then you'd be able to develop other parts of the 17 acres.

Then if you wanted to swell the bar, you could keep leasing that property with the sale, and keep the property.

If you worked it right, you could end up with the property for a fraction of what you actually paid for it.

Just a thought.

[Boilermaker]

Totally confused now ! Could you put that in redneck layman terms ?

[Largo Robert]

Totally confused now ! Could you put that in redneck layman terms ?There are two components:

1) the bar

2) the Real estate.

You form two different operating entities:

1) the real estate

2) the bar operations.

You have #2 above formally rent from #1 above. This should free you, if you want, to develop the rest of the property independantly.

If you sell the bar along with the lease, you may ecover a big chunk of the purchase price of the real estate, and you STILL have a revenue stream from the lease.

Example, just for grins:

You buy the property for $130k. You lease the bar from yourself for $1000 a month. At some time in the future, you sell the bar for $50k and the buyer assumes the lease. That means you actually bought the property for $80k, you have $1000 a month rental income, and you can still do something with the rest of the property.

:)

I don't know all the particulars, but I'm seeing a smokin' deal even at the asking price.

Better?

[Boilermaker]

It's way over MY head, but i will run it by my accountant and see what he thinks about it. I really do appreciate you trying to help me on this. You make it sound like a sure fire win/win situation. I will definately dig deeper into this. Thanks again for your advice, Boilermaker

[mauimanana]

i love blt's except when the toasted bread gets cold and not really soggy but sort of chewey and then the bacon dont bite off good and you tear up the whole sandwich.


i aint sure what jimmy buffet was saying exactly since i aint no lawyer and aint too good with them fancy words. my best guess is that iffin you bought the land and instead as a company like say boilermaker land & trust that you git more options to do with it than if it was just gus' plot.


say blt inc. owns the land and on the land theres a building then you got land and a building. now say the building got a still in it ( yeah i know ya dont keep stills indoors so lets say a meth lab instead ok ) then ya got land, a building and a bonefide business that earns money. now the building has a value either as a rental by itself or as a business thats in the building and has all the stuff inside to run as a business. the current building is rented to jebidiah who runs the still ( no he aint started it but he runs it now as his own business ) and pays rent to cletus ( the current owner ) and they aint got no long term agreement and knows when the building is sold jebidiah gotta scat.

see most bars and nightclubs in the big cities are in rented buildings and have leases. not too many own the building and almost none own any land outside the foot print of the structure.


so when blt inc buys the land they gits everything. so now either blt can rent the building to jebidiah if they wanna be neighborly and all or they can sell jebidiah the still for a fee and make um pay rent. if that scoundrel dont wanna poney up the loot then they can kick the awnry rascal to the creek and offer it up to anyone. another option is for blt to start another company so as to not have relations with the still business which might cause blt future problems. so this new company lets say we call it tallywackers llc rents out the building w/ the still and pays rent back to the blt ( kinda like petting yourslef with both hands ) and runs the still.

now in the mean time blt may be thinking about gettin the property divided into double wide lots which they will either rent out or sell. hell maybe even put their own double wides in with some red wood decks and polyester curtains and sell the entire shabang as a fat package. figure maybe they can make a big deal out of it and rent out the tallywacker saloon and have a bbq and maybe git miss tenessee valley 1998 to show up and richard pettys 2nd cousin twice removed dobie petty to show up and sign corn dogs.

thing is that by doin business this way it provides personal insulation and financial benefits from the revenuers. by having billy bob own the property and rent the building to bobby joe while peggy sue runs the still and then allowing bobby bill build the double wides and peggy bill to sell them you might end up with alot more bills in the end and less chance of being sued.


a bird in the hand brother beats a bird turd on the noggin.

own the land
rent the land
own the land rent the building
own the land rent the building and bsuiness
own the land sell the business and rent the building
sell the business and the building, build on the land and rent the buildings
run the business until the roi and develop and sell or rent the land & be happy

ya know i aint too bright and it dont bother me none too much except when we have family gatherings and we all play jack daniels jeporady but dang if i dont know the difference between a load of shit and a shit load.

what is i'll buy it all for $128,900.00 alex?


m

[Estefon]

Robert's correct in forming two distinct entities.

The second benefit to forming two seperate entities is the tax write-off.

You can deduct the full amount that you pay to the property management company as "rent" and the property management company can deduct the interest payable. Just be sure the sales tax that the property management company will have to pay isn't too excruciating. It's only 2% for mine.

On another note. $128,900 for 17.5 acres of land puts it at $7,365/acre. I've grown up in rural America and know that that's a pretty high price.

Secondly, the building is only worth what the business existing in it can produce in revenue. That's the funny thing about commercial property. You can have an independent appraiser come out and value the building at $500,000, but if the tenant cannot afford to pay the $4,000 in rent because it's losing money, so what. It's not worth $500k.

If he's not willing to show you the books, that means he's hiding or lying about something IMO.

Steve

PS. I still respectfully disagree with Robert on the issue of CASH business transactions not recording all of their income and expecting you to accept it on blind faith as the purchaser. Unless you're paying cash for it, the bank will not accept it.

That's a conversation for another day.

[Boilermaker]

I knew it, I just knew it. You ARE from around here ! You even know my family(except you left out Bubba), but he stayed up in the holler most of the time tending to the still. :D It all makes perfect sense now M. Hey, when we all make it big time, we're gonna come over to Howareye and pay you a visit. I bet you got some fine ladies over there (with all there teeth and everthang). Say, bout how long of a drive is it ? I might oughta get the old lady to change the oil fore we head out. Really, I appreciate the information and it does make sense. I'll think on it a while. Bmkr

[Largo Robert]

PS. I still respectfully disagree with Robert on the issue of CASH business transactions not recording all of their income and expecting you to accept it on blind faith as the purchaser. Unless you're paying cash for it, the bank will not accept it.Banks rarely loan money on cash businesses, unless there are hard assets involved, like RE or a quota liquor license (and even then, they will require a low LTV on then asset.) That is why there is a ton of owner financing in the restaurant/bar business. Folks in the biz understand that. Look at internet ads for cash businesses; the vast majority have owner financing with 30-40% down.

I offer to carry some paper on my bar sale.

It's the nature of the business. I don't make the rules. I just play by them.

And again, most people buying a bar want to change the theme, style, etc. They are looking for equipment and location, not necessarily an ongoing profitable entity. They are not necessarily looking for a documented, profitable ongoing entity that will pass CPA scrutiny. And if they find one of those, the price is MUCH higher.

And to swerve into another area, in an effort to help newbies: if you have to run something fundamental by your CPA, you are not prepared to go into the bar business. I have respect for CPA's, and Lord knows I've hired a ton of them over the years (try selling an entity to a public company and see how many anal retentive accountant types you get to interface with...). But the purpose of a CPA is TAXES and TAX RETURNS, primarily. They understand all the forms and other crap that creates a return.

You should understand finance before you even buy a hot dog stand, or start a lawn service. If you don't understand the basics of finance, you're doomed and don't even know it. Most community colleges have a non-credit course in entrepreneurship, or something similar. Many Business Plan software packages have modules to help financial planning and BEA. LEARN before you pull the trigger.

Finance and accounting are two completely different animals. Finance guys plan things. Accountants count what was done. Big difference. Finance guys predict and implement; accountants count the beans after the fact.

Asking an accountant what to do is like asking the scoreboard operator and statistician at a pro football game to call the plays for ther head coaches.

Just my experience as a serial entrepreneur. I'm sure opinions vary...

[Boilermaker]

My mistake. I meant to say: A FINANCIAL ADVISOR (which is a friend of mine and has a few fairly well know clients like country music stars and other high rollers). Thanks for the advice though. It is very much appreciated.

[Estefon]

Banks rarely loan money on cash businesses, unless there are hard assets involved, like RE or a quota liquor license (and even then, they will require a low LTV on then asset.) That is why there is a ton of owner financing in the restaurant/bar business. Folks in the biz understand that. Look at internet ads for cash businesses; the vast majority have owner financing with 30-40% down.

Banks will loan mone on cash businesses, or any business for that matter as long as it's proving positive cashflow. Assets, such as liquor licenses or FF&E will help substantiate the loan, but as long as the cashflow can show that the loan can be supported, it's fine.

To qualify for an SBA 7A loan, you will need to put 20% down. It's risky and the interest rate is usually higher than conventionals (1.5%-2% over prime typically) and it's only for 10 years.

Owner financing in this business is a result of owners not being able to justify their selling price. They hope to find some schmuck who has "always dreamed of owning a bar someday" to carry their note. They don't want to do a 30% seller carry back, but they are forced to as a result of poor accounting and reporting practices. However, if they recorded all of their income and were prepared to pay taxes on that income then they could sell it much faster and at a higher price.

I understand where you're coming from Robert. There's only one P&L that I've reviewed out of a dozen that the owner is recording all of their income. The standard has become an epidemic.


And again, most people buying a bar want to change the theme, style, etc. They are looking for equipment and location, not necessarily an ongoing profitable entity. They are not necessarily looking for a documented, profitable ongoing entity that will pass CPA scrutiny. And if they find one of those, the price is MUCH higher.

A bank will not approve a loan unless you can substantiate the investment. Most people do not have $600k to buy a bar that's only cashflowing at $75k/ year. Again, by not documenting your cashflow, your limiting your pool of potential buyers. If the bar were to prove that it was cashflowing at $200k / year then it would be a different story.


Asking an accountant what to do is like asking the scoreboard operator and statistician at a pro football game to call the plays for ther head coaches.

I agree. Figure this stuff out on your own and ask the questions you need to ask to understand.

I find this debate to be very stimulating Robert and I appreciate your input.

Regards,

Steve

[Largo Robert]

Steve-

There is a whole industry out there of folks who finance bars with 30-40% done, forclose when the buyers don't know what to do and default in a few months-most have never run businesses before, much less a restaurant/bar-and resell to some other poor schmoe. Repeat process. They actually make a lot of $$$, believe it or not.

If I had a business netting $200k, I'd be selling it for $1.0-1.2 million.

Frankly, I'd rather buy an underpriced bar with a good location and workable FF&E with owner financing than have to suffer the interminable BS a bank or SBA loan would entail (and no doubt you know exactly what I mean...:eek: ). But that's just me. Opinions vary, for sure.

And I agree, aa good discussion...

[mauimanana]

excellent point/counter point debate largo robert and estefon and would recommend others to read your posts.

i agree that the listing price is on the high side. that being said you have to take into consideration all the factors involved to determine wether this the best deal in town.

imo the books issue here is a non-factor since the bar is a rented business. there is a fairly new trend and i only know of a few in the states and that trend is the ready-bar lease. in england there is a company ( i do not recall the company name ) that is leasing ready-to-go-bars and it is becomming quite popular.

as for the book of the business in question i am highly doubtful that this is an on the up and up by the books operation. i agree with both points of view made. it has been my experience that small - medium bars that serve only beverages and provide games can produce the documentation, however, for any place that has a cover charge on a regular or semi-regular basis i doubt you are going to anything to back up this revenue source. this usually goes right into pocket and is not claimed nor can be verified or estimated with any degree of accuracy.

again great information provided. im not sure how it applies to this business/property sale and it dosent really matter because i think ole boilermaker keeps that kinda money in a shoebox.


all the best

m

ps hey boilermaker you n the misses got an open invitation anytime to come on over and we can cook up some vittuals with all da fix'ins and hell ill make bake up one of mommas famous show fly pies. best check with the feller at the fillin station before you come since last i checked the bridge was out and ya might wanna pack up the bass boat. me and old duke be waitin on the front porch.

[Largo Robert]

Books or not, high price or low price, the net cash-in-pocket comes out to be the same. You take cash out of the operations over time, sell the place cheap, and you have little, if any, capital gains to pay-because you've already taken the proceeds.

Different concepts. Some businesses net cask flow, some net equity.

If I wanted to build equity in a business to reap when it sells, it wouldn't be in a bar. It would be real estate.

Not arguing, just outlining different schools of thought.

[Boilermaker]

Well guys, it seems i have a slight problem. I was gonna wait a couple of months until the business was out of the realtor's hands and save about 10k, but the owner called me this morning and said the realtor told him that if i do that, they will still have to be paid their commision since i've already contacted them about it and have looked at it. Now what kinda screwed up law is this ? I told you Tennessee had some funky ass laws. They said i would have to wait 6 months to buy to avoid this. Funny thing about it is i haven't even met with the realtor, only talked on the phone. What's your advice on this ? Go ahead and buy now or what ? Ask a lawyer ? Has anybody experienced this before ? :confused:

[Largo Robert]

Well guys, it seems i have a slight problem. I was gonna wait a couple of months until the business was out of the realtor's hands and save about 10k, but the owner called me this morning and said the realtor told him that if i do that, they will still have to be paid their commision since i've already contacted them about it and have looked at it. Now what kinda screwed up law is this ? I told you Tennessee had some funky ass laws. They said i would have to wait 6 months to buy to avoid this. Funny thing about it is i haven't even met with the realtor, only talked on the phone. What's your advice on this ? Go ahead and buy now or what ? Ask a lawyer ? Has anybody experienced this before ? :confused:It's the real estate law everywhere that I'm aware of.

Honestly, $10k is not that much money in a deal like this, because a high percentage, 60-80% will be leveraged, a pittance on the monthly nut.

The lost opportunity cost might be more that the $10k. I'd meet with both the realtor and owner to see if a deal can be struck. Maybe the realtor would take a lower commission and the owner will come off his price a tad.

Best luck!

[owneroper]

largo is right, it is the law everywhere. But you can try for a lower commission since he isnt splitting with another agent, will lose 3% if another agent brings in buyer

[Estefon]

Sorry for the lapse in my reply, but I've been busy. I still wanted to chime in where I can and respond to Robert.



Steve-

There is a whole industry out there of folks who finance bars with 30-40% done, forclose when the buyers don't know what to do and default in a few months-most have never run businesses before, much less a restaurant/bar-and resell to some other poor schmoe. Repeat process. They actually make a lot of $$$, believe it or not.



This, I know. I'm trying to be one of them. However, if the business reported all of their income, they wouldn't NEED to finance a bar at 30%. Most banks will require the seller to do a 5% seller carry back anyway, so if the business fail then they'll get it back. As a seller, I'd rather do a 5% seller carry back than a 30% one any day.


If I had a business netting $200k, I'd be selling it for $1.0-1.2 million.

I have one cashflowing $200k plus that I'll sell you for $650k. Liquor License included and recently remodeled. No joke.


Frankly, I'd rather buy an underpriced bar with a good location and workable FF&E with owner financing than have to suffer the interminable BS a bank or SBA loan would entail (and no doubt you know exactly what I mean... ).

Yes and no. This depends on the price.

Acquiring an SBA loan is a piece of cake. Filling out my liquor license was more of a pain in the ass. Perhaps you just had the wrong broker. They do almost all the work for you. If anyone is serious, contact me and I'll get you in touch with my SBA broker. He's worth his weight in gold.

The whole story to me comes down to this. Bar and Nightclub owners are thinking very short term. In order to avoid paying taxes they're hiding their cash revenues and upping their expenses. Not only is it unethical, it's illegal. I've seen bar owners pay their home utility and grocery bills through the business.

The last bar I evaluated told me that he has underreported his pool table revenue by $25k. How do I know this? I don't know him and he can't verify it. This is simply a business transaction. Bars and restaurants typically sell for 3 times their annual cashflow. In my opinion, not reporting that $25k in pool revenue for the past two years may have saved him $15k in taxes, but it cost him $75k in a potential selling price.

I have servers who work for me that complain when they don't qualify for an apartment. She makes over $40k per year and can't qualify for an $800/month apartment. Why? Because her W-2's only say she earned $17k last year.

There are two things in life that are certain. Death and Taxes. If you have to pay taxes, that means you made money. Don't lie, don't cheat, don't steal and you'll come out ahead every time.

Steve

[Largo Robert]

Estefon, I don't disagree with anything you say. Well, maybe about the ease of an SBA thingy. Maybe rules have changed. I tried going that route here in FL back in then 90's for an expansion, and dropped the thought like a molten rock when I saw the bureaucracy involved.

Bars attract some seedy characters. I don't get too personal with a lot of my customers because sometimes my "spider senses" go off, and I really don't want to know.

There are people with money that have no/little/bad credit, and with...err..."interesting" enough backgrounds that require they use straw dogs for the name on the license.

There is a "subprime" market in small bar/pub financing, just like there is in real estate. It's "subprime" for a reason, if you know what I mean...;)

I don't make the market, I just have to deal with it.

[bruce]

When you are talking money, net figures are not what you use to figure value if I understand correctly. Cash flow is what determines price, net determines whether or not you survive. The higher the gross, the better chance we have of a small net.

[teenclub]

There are two components:

1) the bar

2) the Real estate.

You form two different operating entities:

1) the real estate

2) the bar operations.

You have #2 above formally rent from #1 above. This should free you, if you want, to develop the rest of the property independantly.

If you sell the bar along with the lease, you may ecover a big chunk of the purchase price of the real estate, and you STILL have a revenue stream from the lease.

Example, just for grins:

You buy the property for $130k. You lease the bar from yourself for $1000 a month. At some time in the future, you sell the bar for $50k and the buyer assumes the lease. That means you actually bought the property for $80k, you have $1000 a month rental income, and you can still do something with the rest of the property.

:)

I don't know all the particulars, but I'm seeing a smokin' deal even at the asking price.

Better?theres gotta be a ton of tax benefits doing it that way also

in the end you will come out WAAAYYYY on top in owning the assets of the land in general, and whatever gets developed on top of it. You got plenty of room.

[Estefon]

Hi TeenClub,

You have exceeded your message limits on your PMs, so I'm sending this publicly. Sorry if it's intrusive.

I've always appreciated your input and enthusiasm on this site. Although I'm not certain of the venture you're looking at, you are correct in everything you stated about SBA loans.

The loan I was referring to was regarding a SBA 7a loan. That is, a business acquisition loan. This isn't for venture capital. I'm not a banker, so I can't give you all the details, but I"d be more than happy to give you the name and number of the guy that I've gone through in the past. He doesn't work for the SBA, but with them (if you get my drift). His bank works only with SBA loans.

I'll call you in a couple of hours and give you my contact information. Unfortunately, I'll be out of town from 6/6 until 6/11. So, if you don't hear back from me until this monday, please understand.

Steve

[skirtchsnbadguy]

what is the local population #?

does he have financials?

Does he have Z tape?

Does he have a copy of the lease to show you?

Does he have liquor invoices for purchases to show you?

Who is your clientele? How old? What do they drink? IF you were a customer here, what do you LIKE about the business? What makes you want to put your clothes on and drive down there on a weeknight? A weekend?

How has the business performed in the past? What is the outlook for the future?

How much money in sales does he generate? What are his liquor/beer cost percentages? Can you improve upon sales? How?

Do you have a business plan that you personally wrote? A marketing plan?

Have you "spied" on the business yet? Gone in and had a beer and watched employees?

Will the owner cooperate during the due diligence phase? Will he make all books, records, bank statements, P&Ls, tax returns, invoices, etc available to you? If he hesitates, he's hiding something.

A great guide book is: "How to buy a good business at a great price" by richard parker. It is a 500 page binder course that takes you from step 1-100 in the A-Z's of buying an existing business. Google "Diomo Corp" to find him. btw, i'm NOT affiliated with this guy whatsover, but i have used his materials to buy my bars. A GREAT resource! I'd send you mine, but that be like a religious man sending you his bible. :)