Buying a business is a common way for people to achieve financial freedom, and bars are common start-ups for budding entrepreneurs because they can be profitable both in economic booms and downturns. Buying a bar, however, requires more than the money required for a down payment. In order to be successful, numerous factors must be considered prior to buying a bar. That said, once you know the preliminary steps to buying a bar, you are that much closer to the business of your dreams.
Determine gross profit by reviewing the profit-and-loss statement. The gross profit is the amount of revenue left over after product costs are taken into consideration. Product costs include everything it takes to make or to sell the product and usually consist of supply and labor costs.
Determine net profit by reviewing the profit-and-loss statement. Net profit is the amount of revenue that remains after all other costs are taken into consideration. Miscellaneous costs include such things as utilities, taxes, fees, advertising, and supply costs not related to production. Net profit is also called cash flow. Cash flow should be sufficient to cover 3 to 6 months of operations. With too little cash flow, unexpected costs could be disastrous and necessitate additional bank loans to avoid shutting down business operations.
Review the profit and loss statement for overspending, unusual costs, or waste. These types of costs can be easy to fix if you can identify them. Once fixed, they can create an immediate increase in profit.
Examine sales trends over the past three years. You must determine if the sales have leveled off, are in decline, or if they have peaked. If they have peaked, there is no room for improvement. If they have leveled off or are in a decline, you must decide if there is room for improvement or if the business is simply a lost cause with no opportunity for growth.
Assess your market. Do you have a sustainable market base, or is your market glutted with competition.
Examine the the potential for employee turnover and determine the bar's fiscal year. For instance, employee turnover often accompanies change in business ownership, and a business' fiscal year typically begins at its worst month in sales. If you buy a business at the beginning of the fiscal year, sales will be slower than at other times of the year, so employee turnover won't make a huge impact. If you purchase a business at the peak of the year's sales, make sure you have adequate employees to cover the surge in business.
Check to see if back taxes are owed or if any liens exist on any of the equipment.
Check to see how much time is left on all the liquor and entertainment licenses.
Review insurance claims. Bars are traditionally cash businesses, which can increase the potential for robberies. Potential theft problems can often be found in the insurance claims.
Negotiate the lease. Short leases can be slightly more expensive than longer leases, but they allow you to move locations if necessary. If you intend to remain in the area for a longer duration, a longer lease can save you money over time.
If possible, purchase the land as well as the business. If you must lease, negotiate for a staggered lease that allows you to pay a lower lease the first year and slightly more the final year. Saving money the first year allows you extra cash flow for improvements and additional or unforeseen operation costs.
Always consult an attorney to protect your interests in a business purchase. See if the bar has been cited in the past for underage drinking. Bars with reputations of serving to minors can attract minors and result in hefty fines.