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    3 Replies Latest reply on Aug 28, 2010 12:06 PM by phanio

    Purchasing an established bar

    NickNaylor Newbie
      I'm switching industries and was wondering if anyone had good input on which type of financing might work best for my prospected acquisition. I'm looking to purchase a bar valued around 800k, owner's reporting over 520k in earnings each year. Seller financing is an option but I would rather secure a loan over a longer period of time to reduce monthly expenses. I've been in the wireless industry for the last five years operating 11 retail locations that generate over 3.5 million in profits each year. I have a very solid business plan, as well as a club/bar manager that has worked in the industry for 8 years. If anyone has any suggestions I'd appreciate any piece of advice I can get.
        • Re: Purchasing an established bar
          Barky Dog Tracker

          Hey NickNaylor,

          Just a couple clarifying questions.

          $520k in earnings each year is one thing, but how much was his profit last year?

          Was he good at keeping his books? Is his profit accurate and verifiable by lending institutions?

          • Re: Purchasing an established bar
            Bridge Navigator
            Was the $520 in earning (I assume you mean profits not revenues) reported on his tax returns? Owners reported income should match their tax returns.

            A good measure to use is Seller's discretionary cash flow:

            Net Income
            + depreciation
            + amorit.
            + interest expense
            + owners wages
            = SDCF

            This is the cash you can expect to make from the business.

            SBA backed loans typically are for 10 years. You will be hard pressed to find financing for a longer period unless real estate is involved - in which case the SBA will take longer pay back terms also.

            Best of luck,

            Greg Dupuis
            Bridge Ventures, LLC
            • Re: Purchasing an established bar
              phanio Pioneer
              I would suggest that you not dismiss the owner financing so quickly. If you are looking to reduce monthly expenses - you can still do this with owner financing. Just set a five year balloon payment amortized over 25 years.

              Example, you put 10% down - leaving $790K - amortize that amount over 25 year at the agreed upon interest rate (let's say 10% for simplicity). That puts your payments at $7,179 - same as you have with a traditional bank loan. Then after five years when the balloon is due, you can either get a bank loan (easier to due since you have five years of operation under your belt) to take out the balloon or simply refinance with the owner his they are willing.

              Business Money Today