Need help with purchasing a bar please (credit, lender, loans)

[2STEP]

Hi everyone. I already posted this in another section so I don't want to double post. Please check out the link and post any advice that you can offer. Thanks in advance!

Trying to purchase a bar, need help please!

[Golfinnova]

1. Find out where the bar is and spend at least one week observing everything, how many people are in the bar at each hour of the day? Do they have bands come in to play certain nights, is food served? How many people work at the location? You will be working a ton there as you stated, but you will need people which means you need to handle hiring/training/firing, etc. You also should understand profit margins on alcohol and food. You should also learn basic accounting such as knowing how to read a income statement, profit and loss statement, etc.

2. Ask specifically why the bar is being sold. Is the owner burned out, is he/she losing money and wants to cut losses, is there a personal issue? Don't settle for the first answer, trust but verify.

3. Talk to the employees and get a sense of what is happening every night. Are there a lot of fights and other activities that make the bar a target for restricting or yanking a liquor license?

4. Check out other bars within a 5-mile radius and compare notes.

5. As with looking into buying a restaurant, the main rule is location, location, location. If the bar is off the beaten path, then it's probably not a good deal.

6. Don't settle for the asking price, offer 3/4 of the asking price and negotiate. Be prepared to walk away as there are lots of bars all over.

[sunsprit]

Run away from this deal ... a bar business purchase ... without putting any further effort into it whatsoever.

Why, you ask ... am I being so negative about this for you?

Because your OP stated that you've never owned a business before. Nothing indicated any experience in sales, marketing, operations, food service, entertainment background, or any other aspect of a food and beverage/alcohol management business experience.

Desire and a willingness to succeed are certainly essential, but without background skills, this is a business that you are not prepared to operate, even though it's a going business now ... and there's nothing to indicate cash flow/p&l, ROI on your investment for the business, inventory costs, etc etc.

I've known a number of successful bar/restaurant/entertainment business owners, and as you've anticipated ... the bar is their life. You really need to examine that statement: the bar is their life. Every day ... many hours per week, per month. You may take home only a living income from working 80-100 hour weeks, if an income at all. Is that how you really want to spend all your time?

Even the best, experienced, and degreed professionals in the hospitality/restaurant business have a high failure rate in this business. Without any background or training in this area, you're flying blind. I've watched friends businesses be robbed by staffers pocketing short cash (or raiding the till), bartenders pouring heavy for friends, waitstaff hustling for themselves instead of the operations, businesses get shut down because of valet staff hustling drugs (at multi-million $ bar/restaurants, no less), required food service operations/staff unable to deliver a saleable product profitably at the price point of your menu, "bad" reputation due to becoming the focal point of too many bar fighters in the crowd, serving to underage clientele ... the list of problem areas that I've seen is enormous, and I'm only able to report those problem areas as an observer of my friend's businesses, not an experienced bar operator.

Some of those businesses were the "fad" place of their area for awhile and had incredible positive cash flow for awhile (sometimes, years) ... but when they failed, they had just as incredible negative cash flow which the owners (highly experienced operators) were unable to stop until they closed the doors. Some of them had to invest a lot of money to re-brand/remodel and re-open the doors again ... some achieved a repeat of their prior success for awhile, some never did. Again, these folks were degreed (DU or other university degree in the hospitality/restaurant management field), experienced, and seasoned veterans of the business ... and they had difficulties which were beyond their ability to control or manage. Sometimes it's just the vagaries of the business model and the mood of the clientele that shifts for/against you ....

The other general caution I'd give you is that you will not be able to operate a business like this without having a substantial line of credit or cash in hand. Don't think that you'll go into this with a little downpayment and make your operating expenses/tax deposits/wages & salaries/lease payment/business loan payment and an income to take home out of current cash flow. You will need substantial operating funds in hand before you even attempt this business, or you won't be in business very long ... and you may find that you've had to pledge your assets (such as home equity) for your personal responsibility on the line of credit and loan you've obtained. Essentially, you could lose everything you own, everything you've worked for up until now for a business you may know nothing about. That's a huge risk ... or did you think that you're simply going to walk in with a minimal downpayment and a lender would be adequately secured by the business asset you're buying? Highly unlikely .... a lender, whose business is money, not bar operations ... will want to be readily secured for the loan. You'll be pledging a lot more than your interest in this bar, especially where you don't own the real estate where the bar is operating. This will be an especially difficult loan to obtain if your bar business plan doesn't show that you've got any management/ownership experience to bring to the business ... despite some high profile bad business loans in the papers these days, bankers (for the most part) aren't stupid at risk-taking. Don't be surprised if they want you to invest over 50% of your own money into a downpayment and still secure the balance with your other assets in addition to the business asset you're buying ... and they may even want a lot more collateral to secure the balance. For the most part, the "bar business" asset you're purchasing is worth little more as collateral than the wholesale value of the inventory on hand and the depreciated value of the fixtures that you might own (tables, chairs, pool tables, dispensing equipment, etc) ... the "blue sky" is not a tangible asset that can be turned into cash by a distress business auction/sale. You are not buying a major recognized "brand" with a lot of value attached to the business name/reputation here, it's simply a local bar ....

So look at what you're buying from the perspective of somebody who is loaning money for the business ... what assets do I really own here, and what are they really worth in today's market? Are you just spending a lot of money and getting into debt to simply buy yourself a low paying job? Did a business broker "sell" a bar owner on the concept that their place is worth some multiple of current annual profit or cash flow to get a listing? Are you buying a lot of "blue sky" at this price point, or is there solid cash flow to justify the investment and a decent chance that you can continue to maintain that cash flow?

I wouldn't take on a business like this without having at least 2-3 years worth of my own personal living expenses already covered from other independent cash flow or cash on hand in reserve.

No matter how much you've perhaps enjoyed being a client of a bar in the past and thought it might be a fun business ... it's a lot different being on the other side and trying to make it cash flow.

Unless there's a whole bunch more to your story to be disclosed, you do not have the skills to operate this business. It takes more than good intentions and hard work and lots of hours to be a success at this. You need to be able to accurately understand the current cash flow, the costs of operations, the tax burdens, the accounting costs, the current labor/employee situation, the current business trends, the opportunity for expanding the business (if any), and so forth. Nothing is as simple and easy as it appears on the surface in this type of business ... it's why there's such a failure rate in the hospitality/restaurant/bar business sector.

[Golfinnova]

Very well put sunsprit, a very tough business for anyone to get into.

[desertsun41]

The first thing I think of is anyone who has that kind of money does not need advice from people here. I say that kind of money because there is not a bank from here to Somalia who is going to lend one thin dime in this economic depression on any business let alone a risky biz like a bar. Which leaves you paying cash.

With the drunk driving laws being what they are and the pigs who like to hide across the street watching people as they leave the bar so they can stomp on them and violate their rights, people just are not drinking like they used to. The article/ad also suggests the building needs a lot of work which also tells me the owner is not financially secure. If he was then he would make the improvements himself and charge market rent.

The other thing you have against you are the rules of business. In the first 5 years 80% of all businesses will fail........bla bla bla.... And here we are in a depression that is worsening every day, 60,000 people each month are losing their jobs, more then that in your area, the average Joe rarely has any entertainment dollars left to go out for a drink anymore.

Good luck to ya man......