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Thread: How to valuate a bar/restaurant

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    How to valuate a bar/restaurant

    Long story short dad owns such an establishment....wants to retire and get out. Nobody has any fucking money anymore, and all his machine players are gone which was paying for a lot of shit. (slots parlors and casinos popping up everywhere now prob contributed some to this, but mainly economy)

    I am entertaining the possibility of buying it.

    Great location, but business has suffered hard the past few years with the economy and is in pretty bad shape revenue wise at this moment. Just hanging on pretty much, watching other medium size bars in general area drop like flies.

    The restaurant part is pretty small and is a kind of side thing, I would turn that into a liquor store anyway. (I told him to do that 5 fucking years ago but he is hard headed, now if he can't sell he is finally caving in and going to try to do it)

    But anyway...the main thing is I am probably going to see revenues falling for the last 5 yrs little bit at a time, should I just use the worst numbers? Any other suggestions help would be appreciated. I have always started businesses from ground up, don't really have too much knowledge on acquiring established company.

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    Diamond shortbuspoker's Avatar
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    Odd that you would post this since I just heard Dave Ramsey talking about it on his radio show the other day. Here is a link to his answer when asked by a listener.

    http://www.daveramsey.com/index.cfm?...ntItemId=10720

    I would think that Hutmaster would have a good grasp on the subject too.

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    2 times avg monthly revenue

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    Quote Originally Posted by shortbuspoker View Post
    Odd that you would post this since I just heard Dave Ramsey talking about it on his radio show the other day. Here is a link to his answer when asked by a listener.

    http://www.daveramsey.com/index.cfm?...ntItemId=10720

    I would think that Hutmaster would have a good grasp on the subject too.
    Awesome, have to run to get some food but will listen in a minute.

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    Serial Blogger BeerAndPoker's Avatar
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    If he's intending to sell to you for what a fair market rate would be then a lot goes off current condition of the building, value of what is inside, location value,etc... The businesses success or lack their of in the past few years can be crucial too. As far as what is what you would need to go through the proper channels and work negotiate what works for you.

    My advice is if you say the place has been going down hill that you need to make significant changes figuring out what you can do to draw people in whether it's a complete remodel or whatever it might be. Look at the competition around and try to do something they aren't which can draw people in but not give away profits.

    Don't get stuck in the whole "economy is going to shit" type of mentality. While that can be true their is money to be made and you need to figure out what changes you can make to do it. Be up for the challenge and as the old saying goes if at first you don't succeed try again.

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    usually when you do a valuation you do best/base/worst as far as scenarios go...then make your decisions based on those numbers...

    just be careful when you do the valuations because shit in gives you shit out...

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    That link had some good info. Couple things I heard I could address...

    I am really just dipping my toes in the water now, I have a small bit of info on the business, really don't like to get too personal with him about his financial matters but know this...

    Building is worth about 450k. (recently appraised, refinanced)

    Owes about 250k on it. Good condition, just spent 25k on new roof. Not really anything needed repair wise. Outdoor lot could use some work, just repaving lot but that could wait...it isn't that bad but needs a bit of work.

    Bar upstairs has maybe...just guessing here...50k worth of stuff in it including liquor/other stuff.

    Kitchen/restaurant downstairs has maybe another 50k guess.

    Huge parking lot, rents half of it to business next door.

    7 day liquor license goes with it, this is by far the most valuable asset IMO. They only have a certain number they give out, and don't issue new ones. I could sell alcohol and have a nice little liquor store biz to go along with the bar. We were talking about it last week and he estimated he only needs about 25k to get that up and running mainly from stocking the shelves with liquor. This alone is worth huge money.( I would love to hear if anyone knows a ballpark market value of this, I have my own number but I could be waay off I don't know)

    Pit Beef stand in back he rents space too as well, but only a few days a week in season.

    At the peak (2004-2008ish) when shit was rolling, he claimed (on paper) 120k as his personal income. If I had to guess it is probably half that now, maybe a little more.

    As far as customer base, it will likely have to be totally new. I might maintain some regulars but there aren't many, and "my crowd" I would bring in would be totally different. His main base I would classify as pre retirement...over 40ish working class crowd. Mine would transition to a much younger, different crowd. I guess I would have to factor in a transition period and rebuilding the base with a different, younger demographic.

    The one thing that peaked my interest, was he said he would entertain a lease to own situation, that is how he got it in the first place in '99 (How he managed that I will never know, he was dead broke at the time but somehow made it happen)

    I will get more details in the near future, like what he wants for it....total revenue, profit etc. He has everything from the day it was opened, I can go all the way back 15 or so years if I need to.

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    Try to get on Bar Rescue. Attend some industry related conferences where you can learn shit for a small fee.

    You can hire consultants to give you a groundwork but in order to be successful in longterm you gotta be able to trust their advice.

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    Quote Originally Posted by OSA View Post
    Try to get on Bar Rescue. Attend some industry related conferences where you can learn shit for a small fee.

    You can hire consultants to give you a groundwork but in order to be successful in longterm you gotta be able to trust their advice.
    Oddly enough the Bar Rescue idea has crossed my mind, but that is a hope and a prayer and my Dad would probably tell them to fuck off even if I pulled off the miracle of getting them in there.

    The main reason I want to buy is because I firmly believe the location of this place is a huge asset that he isn't maximizing. It is literally located directly on one of the busiest streets in this metro area, with an absolute MASSIVE amount of traffic that passes by every day. I am talking probably 10's of thousands of cars every day, riding right past the sign/parking lot coming to and from work.

    I have thrown pops ideas over the years as business was falling off, but it is his way or the highway and if he didn't think of the idea he won't do it. I told that bastard for 5 years now....bag the fucking restaurant (which he has "re invented" no less than 6 times to different people/tenants over the years) and put a damn liquor store in there and watch the money roll in. It took him huge losses in revenue and on the brink of not being able to pay bills to even consider it.

    I could always hire an appraiser to look at all the numbers and just bottom line it for me, but I like doing and learning things especially business related. I actually have an acquaintance who might be able to give me a referral of someone reliable, so hiring someone to value it might not be out of the question.

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    Just had a very established long time owner of a few bars/restaurants basically tell me "good luck, probably not a good idea, extremely hard to turn a profit these days especially if you are new to this industry"

    Also told me that license didn't have much value right now.

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    Diamond BCR's Avatar
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    Buying a bar from your own father is not an ideal scenario unless he's quite wealthy and essentially gifting it to you.

    If he needs to get fair market value for retirement, it's to your disadvantage. The best thing about buying bars is that there are so many distressed owners that you can bend over. But there is no joy in that deal if it's your dad.

    You can often buy a bar for the license plus 1$ in areas where the licenses are limited and they are the most valuable asset of the business. I'm talking a bar with $50k worth of equipment, but not the building obviously. Rarely did I even want the building. When I did, I only wanted it at .65 on the dollar, and that's if it was a developing area, and the right size building that could be flipped to a restaurant chain or something relatively quickly.

    There are just so many retired guys and young kids who always dreamed of opening a bar, that the only value is in taking advantage of them once they've cornered themselves and need out before they lose their house.

    The only advantage to buying a bar from your father is you'd get truth regarding the accounting. You could try a lease to own deal, but what you described is an owner-centric bar, so the books hardly matter. In other words, you'd want a new clientele, which always chases off the old clientele, and if it doesn't work, you've crashed his business right before he needs to sell.

    I would be curious if they have instituted smoking bans in Maryland in the same time-frame as the economy has tanked. They have in PA and Ohio, and it's probably worth 20% off revenue. First you ignore it and get a warning, then a $1k fine, then it multiplies, and pretty soon you are forced to enforce them. In LA, a patio is fine, but in Maryland, 7 months of the year it's a pain in the ass at night and hurts business.

    This is the time people are getting out. I got out some time ago because it just wasn't worth it in my areas. If you want to get into the bar business, you need to get in really low at someone's expense, and you don't want that to be family.

    Your ability to pack a bar that size can also flip on you over night. At 27, you can fill it effortlessly. At 37, you're relying on hot bartenders to fill it for you because your friends are now married and have 2 kids, and while they might stop in for a few, they aren't closing the place down. That was huge for me getting out in my small-medium size metropolitan area. When you can't pack it with your own social circle, it's uncomfortable, and even if your staff can, it isn't nearly as enjoyable to be involved as it once was.

    If you live in some booming town in the south, or west, it's a different dynamic. In the NE and mid-west, where we are bleeding young people, particularly educated ones with money to spend, it's not a growth business.

     
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      tony bagadonuts: Great insight

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    Quote Originally Posted by BCR View Post
    Buying a bar from your own father is not an ideal scenario unless he's quite wealthy and essentially gifting it to you.

    If he needs to get fair market value for retirement, it's to your disadvantage. The best thing about buying bars is that there are so many distressed owners that you can bend over. But there is no joy in that deal if it's your dad.
    Far from wealthy, and much of his net worth is tied up in the business. Yeah no way I could offer him or he would accept some ridiculously low number.
    You can often buy a bar for the license plus 1$ in areas where the licenses are limited and they are the most valuable asset of the business. I'm talking a bar with $50k worth of equipment, but not the building obviously. Rarely did I even want the building. When I did, I only wanted it at .65 on the dollar, and that's if it was a developing area, and the right size building that could be flipped to a restaurant chain or something relatively quickly.
    Building is in an area that is already developed, high traffic business area. It should appreciate nicely over the years, but I see what you are saying.

    There are just so many retired guys and young kids who always dreamed of opening a bar, that the only value is in taking advantage of them once they've cornered themselves and need out before they lose their house.

    The only advantage to buying a bar from your father is you'd get truth regarding the accounting. You could try a lease to own deal, but what you described is an owner-centric bar, so the books hardly matter. In other words, you'd want a new clientele, which always chases off the old clientele, and if it doesn't work, you've crashed his business right before he needs to sell.
    Never thought about that, and yeah that would be a disaster. Although the business right now is hurting bad, but I guess it could get worse if things didn't work out.

    I would be curious if they have instituted smoking bans in Maryland in the same time-frame as the economy has tanked. They have in PA and Ohio, and it's probably worth 20% off revenue. First you ignore it and get a warning, then a $1k fine, then it multiplies, and pretty soon you are forced to enforce them. In LA, a patio is fine, but in Maryland, 7 months of the year it's a pain in the ass at night and hurts business.
    Smoking ban was implemented March 1, 2008. That didn't even cross my mind in the OP when I laid out the dates it was doing well. Probably not a coincidence. The clientele in the bar was made up of a lot of smokers, could definitely be a big factor.

    This is the time people are getting out. I got out some time ago because it just wasn't worth it in my areas. If you want to get into the bar business, you need to get in really low at someone's expense, and you don't want that to be family.

    Your ability to pack a bar that size can also flip on you over night. At 27, you can fill it effortlessly. At 37, you're relying on hot bartenders to fill it for you because your friends are now married and have 2 kids, and while they might stop in for a few, they aren't closing the place down. That was huge for me getting out in my small-medium size metropolitan area. When you can't pack it with your own social circle, it's uncomfortable, and even if your staff can, it isn't nearly as enjoyable to be involved as it once was.

    If you live in some booming town in the south, or west, it's a different dynamic. In the NE and mid-west, where we are bleeding young people, particularly educated ones with money to spend, it's not a growth business
    The bolded is literally my exact scenario, down to age (I am 35) and type of area it would be in (Maryland). Most of my friends have wife, kids and don't have time to do shit anymore. That one hit home.....think you just made my decision a lot easier.

    BCR you are the fucking man, have so much knowledge about shit. Thanks man.

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    What equipment is in the resturarant. I think your undervaluing it at 50k if you have deepfryers, flat tops and ovens

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    Quote Originally Posted by PokerPrince2 View Post
    What equipment is in the resturarant. I think your undervaluing it at 50k if you have deepfryers, flat tops and ovens
    Small bar, and full kitchen with a lot of equipment. Maybe 15 tables/chairs. Deep fryer, oven standard stuff to make whatever.

    I was just guessing, no clue how much that stuff goes for. I can't see more than 50k though...I could be wrong.

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    Deep fryers are usally 5k plus even used, flattop grills are 8k used if in good condition. Youd be suprised how many new restaurants would snap those up if you put those up for sale

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    Quote Originally Posted by PokerPrince2 View Post
    Deep fryers are usally 5k plus even used, flattop grills are 8k used if in good condition. Youd be suprised how many new restaurants would snap those up if you put those up for sale
    Really...that is interesting.

    Definitely something to think about.

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    My brother is trying to open a restaurant, and getting great offers on used equipment

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    NoFraud Poker Room Manager Belly Buster's Avatar
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    Everything BCR says plus here's my thoughts:

    Buying this kind of business from family/parents sounds bad news. Firstly it will be difficult to assess a true market price. If you have a desire to own a bar and your father has a desire to sell up, then you may be better him just selling and you buying somewhere else.

    If you buy from him, one of these possibilities is highly likely:

    You overpay to help him out, the business struggles, and you lose twice
    You underpay so he helps you out, the business does well and he feels screwed and you end up feeling bad
    You don't make any changes to keep him happy but you can't make as much money as you hoped and you get frustrated
    You make some changes bue he doesn't like the changes you make, the business struggles and he blames you for screwing it up
    You make some changes bue he doesn't like the changes you make, the business does well and he feels screwed
    Ongoing interference means you end up falling out

    What experience do you have running a business?
    Quote Originally Posted by Dan Druff View Post
    BTW JACKDANIELS is the first one banned from the thread. He is accusing me of being "duped by a middle aged man who dresses like John Cena"
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    Quote Originally Posted by Belly Buster View Post
    Everything BCR says plus here's my thoughts:

    Buying this kind of business from family/parents sounds bad news. Firstly it will be difficult to assess a true market price. If you have a desire to own a bar and your father has a desire to sell up, then you may be better him just selling and you buying somewhere else.

    If you buy from him, one of these possibilities is highly likely:

    You overpay to help him out, the business struggles, and you lose twice
    You underpay so he helps you out, the business does well and he feels screwed and you end up feeling bad
    You don't make any changes to keep him happy but you can't make as much money as you hoped and you get frustrated
    You make some changes bue he doesn't like the changes you make, the business struggles and he blames you for screwing it up
    You make some changes bue he doesn't like the changes you make, the business does well and he feels screwed
    Ongoing interference means you end up falling out

    What experience do you have running a business?
    Have plenty of experience running businesses, it is what I do. I haven't worked for anyone else since I was 18 years old.

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    I bought a bar a couple of years ago. Every situation is unique and yours sounds extremely unique. When you say machines, do you mean legal gaming machines or machines that are legal to have in a business but illegal to pay cash out on? (i.e the old cherry masters)?

    How much square footage?

    The one thing I looked at when buying was "Ok, what kind of stupid shit are the current owners doing that I could immediately change for no money". These are things like management, payroll, menu, staff, prices, lack of website etc. Then there is the mountain of stuff you can change that will cost money. Hiring attractive girls, changing their dumb-ass menu, barring troublesome customers, putting up a website and having a manager that I trusted present made a huge difference in the numbers and cost nothing but sweat equity. Other changes required to put the place over the top will take considerable capital outlay

    Owning the building is a great reason to seriously consider this. I would never again own a bar or any retail store-front unless I owned the building. The bar I bought is doing well now considering where it was when I bought it, and if I owned the building/strip mall it was in, it would be Gin. Instead, it's ephemeral based on what happens with the landlord when it is time to renew the lease.

    I would say the business (not counting the real-estate) is worth about 1.5 x yearly profit plus the fire-sale cost of the equipment.

    Good luck - the bar business is tough.

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