What's a bar worth?

[Newbei]

Looking for some help from all you experienced bar owners out there on how much a bar is worth? Looking at a bar that does approximately $500,000/yr GROSS. Mostly all liquor and beer. Very little food involved, maybe 10%.

Is there a good formula to use to determine what a business like this is worth? Some have told me to figure it off of gross sales, while others say to figure off of profits. Perhaps a combination of the two is best?

Any help on this subject would be greatly appreciated!! Thanks in advance!!

[BostonDave]

There are lots of formulas you can use based on gross sales or profits but I find those to be evry general and not too solid. I also hate basing off gross sales because that really doesnt mean crap...You could have cheap drinks and have the place slammed everynight and have 1M in sales but if its not profitable whats the point? There have also been many discussions on this topic already so try searching the forums for some other views.


This is how I have valued bars, this has worked in my situation but may not be for everyone...my experience has been with very similar places to what you describe, in fact the most recent is a small irish pub, similar sales figures and almost identical food to liquor ratios.

#1 would be the value of the liquor license for that city/town. Most cities around here dont have additional licenses so the ones that do exists are worth a good chunk of change (Boston is about 200K and most cities outside of boston anywhere from 50-175K for license alone. If licenses are readily available where u are for minimal fees then put no value here.

#2 would be FFE (furniture fixture equiment) does this place have anything worth squat? Any POS system, flat panel TV's, arcades they own directly, kitchen equipment, camera system etc take a good look around and try to add up what eveything would be worth in the condition they are in....most kitchen equipment used is worth substanitally less than its new cost fyi. In addition inventory needs to be valued and you need to figure out if they want it purchased seperatley at time of sale of if it is included in your price.

#3 it sound like they run a pretty decent/reputable business and name. If this is true then you would add a reasonable amount to the above 2 items for goodwill. If youre gonna keep the same name and not try to attract a totally new clientle then I would say anywhere from 25-200k would be acceptable for goodwill...this really depends on what city/town your in, how strong a business they have, etc.

#4 Real estate or lease...if there is any real estate involved in the purchase then obviosuly the value of the property must be taken into account as well...see what other similar sized properties have sold for in the area absed on SF and condition and location.

--

If its a lease situation then the attractiveness of the lease would also play an important role in how much Id value the biz. I have seen sellers get caught up in very expensive leases and would be willing to take anyhting for their business just to legally get out of their lease. On the other hand if you have a 10 yr lease left at a below market rent for that type of space then you might want to be willing to pay a little more for the business.

Good luck

[bruce]

You really need to see some bookwork that is used to pay income tax with, not an estimate.

[Newbei]

BostonDave,

Thanks so much! I havn't figured out how to search the site with the correct words to take me to the previous posts on this subject yet.

I do have financials. This is the average for the last 5 years. I have to believe that there has to be hidden profits that are not being reported, as these certainly are not too impressive.

Average Sales: $400,000
COG $235,000 59%
GP

[Newbei]

BostonDave,

Thanks for the tips. All good information. I have not figured out exactly how to search the site for specific topics yet, but I will!

I do however have some financial information to share, in which I would appreciate anyone comments on the health of this bar. Bear in mind however the previous owner was most likely paying a lot of additional expenses out of the bar, and probably also held some cash out is my guess. These last five years average numbers might show some of that:

Total Sales: $400,000
COGS: $235,000 or 59%
Total GP: $145,000 or 36%
Net Profit: $22,000 or 2.5%

Obviously not very impressive numbers. Might be a case where the employees are making more than the owner, if you know what I mean. I think the bar has potential, however I need some advice on what the bar is actually worth.

Based on this information, what would you more experienced veterans in the bar business value this business at?

[Newbei]

Anybody else have anything to add to this?

[owneroper]

make an offer for the building, liq license, ff&e, and leave very little towards business. See if that number sounds good to you. There is a reason the owner is selling, probably not making any money.

[Newbei]

Thanks Owneroper,

Problem is, if I were to offer just what the RE and FF&E is worth, the owner might be offended and write me off as someone not serious about the business. I don't have any problem paying what the business is worth, however with it not showing hardly any profit in the past five years, it makes it hard to give much for blue sky.

Trying to find a way to be able to back into what the bar is capable of, rather than what's being reported. Everyone knows owners skim off the top and don't report all that cash! Is there another way to figure out what a bar is worth, other than the reported earnings?

Thanks everyone! Really appreciate all your valuable advice!!!

[owneroper]

is the bar officially for sale? is there a stated asking price? Why is he selling it? I understand offending the owner however he screwed himself by being a bad owner and keeping shady books. thats a problem for small owners, its great when you pay taxes but when you go to sell its a big problem. I find it hard to believe ok I dont find it hard to believe he only made 22000 on 400000 in sales being an absentee owner.

The guy I bought a bar from went in the hole on 350000 sales. And no he didnt skim from the top, not saying there wasnt skimming he just didnt benefit from it. When I did the math it came out to buying beer for 63 cents and selling it for 78 cents, it just didnt make sense. I specified what I was paying for and payed the least amount for the the business/goodwill portion, when your in the hole its not worth much even though you had 350,000 in sales. I am sure a more experienced owner will come along shortly and help you out.

[rootsreality]

The current owner should not get any value from "potential" since he didn't achieve it. Pay based on the books. If its not profitable treat it as an asset sale.

[alchemybar]

22k net? pfft!!!! on 500k that is a shocking result. If you are buying the business and not the building $60k would be a fair price IMHO.