Need help, trying to buy bar.

[barlooker]

Hello all,

I am considering buying a bar in my area, Denver. I know this is a broad question that can have many answers, but here it goes.

Is there a typical multiplier or valuation method used when valuing a bar?

1x multiplier of the cash flow? 3x?

1x cash flow plus the realistic value of the assets if you have to sell them?

I have been looking at bars for sale for the last year and it seems they vary from 1x cash flow to 2x cashflow.

Is there a good place to get past business comps on bar sales?

Any help would be appreciated.

Thanks

Barlooker

[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)

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.

[owneroper]

in your search have you come up with any answers as to why bar x sells for $$ and bar y sells for $$$. Have you come to understand the market your looking at? I dont have a dime but still watch for sale ads in my area just to see what things are going for.