9 Things to Consider Before Buying a Bar in the US

Owning a bar requires hard work, dedication and funding. Here are 9 things you need to consider before you buy one.

The idea of buying a bar may conjure up lively times with good friends and drinks. Perhaps you’ve always wanted to own a place where everyone knows your name. But owning a bar isn’t always cause for celebration; there’s definitely a serious side.

Being a barkeep can mean taking on long hours, giving up your weekends and holidays and dealing with the occasional unruly customer. Competition can be tough in this industry, but owning a bar can also be a successful enterprise if you have a clear vision and are you're willing to work hard.

Here are 9 things to consider before purchasing a bar:

1. Do you have the personality to own and run a bar?

Even if you don’t plan to tend the bar yourself, you need to be a people person to be successful in the bar industry. Being a night owl and being responsibie with your on liqour intake is also important.

You need to be accepting of different types of personalities. You will likely have employees who have other priorities such as school or alternative employment that take precedence over their job at the bar. If you have the choice to be “hands off” in your business, make sure you hire good managers. 

2. What kind of bar is right for you?

There are many different types of bars available for purchase, from the local neighborhood bars, trendy wine bars, dance clubs, popular microbrews, or sports bars.

Keep in mind that the type of bar you choose will play a big factor in your operation costs. For example, you will need excellent audio and visual technology if you want to compete with today’s sports bars that offer football and other sporting events. 

3. Who is your target market?

The bar industry has a high failure rate, so it’s important to identify your target market to make sure you are meeting their needs. Does the bar you're interested in have a concept, location and size that works for current and potential customers? Is there potential for growing the business or do you need to focus on improving it first?

4. The location of the bar

There is some debate in the bar industry surrounding the importance of physical location. Some bar owners consider the location to be of enormous importance, especially if your goal is to get local foot traffic.

Others say people will seek out your bar for a reason, as you create a buzz and make your bar a destination. Regardless, you should take into consideration safety, parking and accessibility to customers when choosing a location. 

5. The name of the bar

The name of your bar should speak to your concept. If you need to rename the bar you buy, brainstorm names until you find one that you absolutely love. Answer these questions to spark some creativity:

• How well does the original name fit with your own concept?
• What type of customer does the name appeal to?
• What expectations does the name imply to customers?
• Is this name easy for customers to remember and then find online?

6. How will you track liquor and food sales?

The level of sales you expect should help you decide on an accounting system. Theft can be a problem at all levels, not just with bartenders.

In a cash-and-carry system, the drink is paid for by the customer before it is rung up. It’s the fastest way to do business, but also invites giving drinks away for free. Alternatively, a point-of-sale system is the most efficient and effective way to track sales. However, these systems can be expensive. Regardless of which route you choose, having some type of inventory controls in place will be key. 

7. Do you have enough capital to keep the business going?

Many bars fail due to being undercapitalized. Experts recommend having enough money on hand to operate for a year including at least six month's worth of rent and operating expenditures. 

Even if you've got this far without raising finance, having access to good working capital will help you avoid stormy weather if something goes wrong. If you'd like more guidance on funding options, you can read our guide on loans for small businesses. 

8. Marketing the bar

It’s important to get word-of-mouth buzz going about your bar. That will come from customer referrals and targeted promotions you offer. Community events and charity functions can also help bring exposure to your business.

And of course, have a strong digital presence is crucial to survive in any industry. Having active social media accounts will build brand awareness, help you connect with your community, and it will help you analyze what your competitors are doing. Likewise, having a website that includes a booking system will benefit both you and your customers. 

9. Latest bar trends

Stay up to date on the latest industry trends by reading trade magazines and blogs to find ideas for promotions, additions to food and drink menus and marketing advice.

A savvy bar owner will look at regional, country wide and international trends too, in order to keep ahead of local competition. 

The bar industry is not a business to get into if you are just looking to have a place to hang out. But while every night may not be a party, the bar business could be lucrative if you are organized. Remember that as a bar owner, your role will be more of a facilitator of fun rather than participant. 

So, are you ready to be a bar owner? Discover multiple bars for sale in the United States, and kickstart your new business venture!

Tuesday, June 24, 2014

1.  Buying the Assets vs. Buying the Company

Buying a business can be structured as an asset sale or as the purchase of an ownership interest in the legal entity that owns the restaurant. There are critical differences between these two options which come into when dealing with the State Liquor Authority, Sales Tax Department and a myriad of vendors.  Generally speaking, if you only buy the assets of a restaurant you will not be responsible for the prior owner’s liabilities unless you specifically agree to assume them.  This is true with the exception of the prior owner’s sales tax liability, if any, for which you must obtain a waiver from the tax department.

Despite this, sometimes it is in your best interest to buy the company itself, even though the seller’s liabilities might remain. This is particularly true when you intend to apply for a liquor license in a difficult community in New York City.   Only by reviewing all of the facts can you best determine how to structure your deal.

2.  What Assets are Included

Every restaurant and bar has a myriad of assets, both tangible and intangible. Some assets are owned outright while others are frequently leased (e.g. dishwashers, soda machines, POS systems).  Be sure to identify each and every asset you are acquiring in the purchase and which assets the Seller has no right to transfer.  If the Seller is leasing equipment, does he/she expect you to assume his lease agreement and if so, what are the terms of the lease.  No buyer wants to close on a purchase only to discover that the many of the assets have been removed from the restaurant because the seller was under a different impression as to what was  being sold.

3.  Valuation

It is necessary to accurately value the assets or the company that you are buying. An unreasonably high purchase price lends itself to failure of your business.  Unfortunately, both parties are emotionally invested when it comes to the purchase price, and often buyers are distracted by the allure of owning you’re their first restaurant or bar, that they overvalue what they purchasing.   There are many formulas when valuing a business or its assets, but often that is skewed by the intangible mystic that comes with purchase of a restaurant or bar in New York City.  In short, carefully review and analyze all available financial data (e.g. profit and loss statements, tax records) and speak to a knowledgeable restaurant broker who can discuss comparable sales in the area.

4. Seller Financing

A buyer’s purchase price can be paid in many ways, including the transfer of cash at closing, waiver of debt, property exchange, and in many cases, seller’ financing.  The payment method can affect the total purchase price and have important tax consequences for you (and the seller).  It is surprising just how often seller financing is overlooked.  Seller financing can be as simple as an extension of credit to you through a promissory note or loan agreement, or as complex as an exchange of services in the continuing operation of the business (e.g. consulting services). In either scenario, the cash required to be paid by Buyer at closing is reduced.

5.  Monitoring Period

Buying a restaurant’s assets or an ownership interest in a restaurant (regardless of the percentage), without performing a due diligence review of the seller is a recipe for disaster.  How do you protect yourself?  Consider the inclusion of monitoring period in your purchase agreement that will give you free and transparent access to seller’s business, cash flow, accounts receivable and company debts.  

During this monitoring period you will be able to review the seller's books and records, inspect the restaurant and its assets, speak to key employees, speak with the local police precinct and community board about the seller’s license history, and generally, see what you can find out about the business from third parties.  While you are not guaranteed to find every problem with the business, a monitoring period is certainly a good start.

6. Seller’s Warranty

Even with the monitoring period, you cannot be sure that you are getting all of the necessary information? Have you missed something? Or, worse, has the seller misrepresented pertinent details of the business?   In New York, a seller has no legal obligation to tell you anything about its business.  You have all heard the expression “Buyer Beware," well so long as the seller hasn’t actually lied to you, it’s your problem, not his, once you close on the deal.   Once again, how do you protect yourself?  Simple, have the seller make written representations in the purchase agreement pertaining to the assets, ownership, debts, etc. of the company.  In doing so, you shift responsibility to the seller in that, if any representation or warranty is discovered to be false, you have a right to seek reimbursement from the seller for any damages you sustain.  If you fail to obtain these representations, in writing in the purchase agreement, you will have no claim after you close.

Determining which representations and warranties to include in the purchase agreement is not an easy task and is probably the one of the most negotiated points of a purchase agreement.  Without these representations and warranties, you are left to blindly trust the seller and hope that what you think you are buying, is what you will actually get. 

7.  Conditions to Closing

Many times things happen which warrant the cancelation of a purchase agreement.  For example, having one’s liquor license denied by the Community Board or the State Liquor Authority would spell disaster for a restaurant or bar.  In short, things happen between the execution of a purchase agreement and closing that make it problematic to close.  Other examples include:  (a) denial of loan application, (b) loss of critical investor, (c) landlord refusal to accept lease assignment, (d) rejection of building plans by Landmarks or the DOB, etc. 

If you fail to identify those conditions which permit you to cancel an agreement, you are liable to lose any down payment made under the terms of the agreement, but also you open yourself up to a lawsuit for damages or worse, being required to perform under the agreement.

8.  Shady Sellers

Between the time you sign the purchase agreement and the time you close, the seller has ample opportunity to harm your purchase if they are so inclined.  I frequently handle sales where the seller, in an effort to save money, reduces their customary inventory, fires key personnel, cuts utility services, refuses to pay suppliers and although infrequent, takes a loan out using the assets as collateral.   If you are purchasing a business which you intend to continue operating without change, reductions such as these will undoubtedly alienate your customers, suppliers and employees.  Moreover, if you haven’t identified what inventory or assets are being transferred, the loose definition of “all assets” is bound to be tested by the seller. 

Alternatively, if you are buying an ownership interest in seller’s business (say 40% for $100,000) take steps to ensure that the seller is restricted from issuing any additional stock or equity in the company to other people without your permission. This is common where the buyer is intended to be a “silent investor”.  If you are not careful, what you end up with may be very different from that which you thought you were buying. 

9.  Non-competition

If the seller has a good reputation in the community you might consider inserting a non-compete provision in your purchase agreement.  Most buyers do not include non-compete provisions into their purchase agreements and my experience tells me that this is because of a prevailing notion that non-competes are unenforceable, but that is not accurate.  Carefully constructed non-compete provisions are enforceable, especially when there is something unique to the skill, trade or business of the parties, or when a business is being purchased. Provided that the agreement is carefully tailored to confine the agreements terms (i.e. reasonable geographic limitations, duration, and independent value received for entering into the agreement), they are enforceable and may be the only thing standing in the way of seller challenging you on what is now your own turf.

10.  UCC Liens on Assets Purchased

The last think you want to discover is that the assets you are buying are not actually owned by the seller, or that there is a lien on the assets by a third-party.  Asset (UCC) liens are very common and can be verified by a simple background check at the State and Federal levels.   The purpose of filing a UCC lien is to place all potential buyers of the assets on notice of a debt owed by the seller and secured by the seller’s assets.  Failing to perform a UCC lien search is a great way to assume the seller’s debt up to the fair market value of the assets purchased.