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    2 Replies Latest reply on Jul 8, 2008 12:40 PM by Adducent

    Financing an established bar

    garcia443 Newbie

      I'm looking for some advice.


      A college roommate and I have been given the opportunity to purchase a bar in our college town. The cost of the Bar (equipment, name, lease, ect) is around $250K or we can purchase the land and building with it for around $600K. We are still negotiating the final price.


      He has come up with a little over $100k (his parents are willing to take a home equity loan for that amount). I have $10 cash plus what ever I can borrow. The owner is also willing to finance part of the purchase (I believe around $50K he has notes on the rest that we'll have to pay). We are looking for about a 60/40 partnership.


      Here's what I know so far. The bar operated at a $904 loss last tax year, so the SBA is not much help. I believe this is merely a paper loss for tax purposes as the guy who owns it has several other businesses in town. He has a salary of $1100 per month that'll be eliminated and there is a manager who has a $25k per year position that my partner is going to take over. It's been open for about 1.5years thus far. I will take a salary of about $1 per month for the first year (I will only be doing payroll and not involved in to much of the day to day as I have a full time job that I will keep in case we incur small losses in the short term).


      We are in the process of writing a business plan on the premise that there are several new apartment complexes opening within walking distance and no other bars close. My partner has interned there for the last year and has sponsored several of the most profitable nights the bar has had.


      A little about me, I have a credit score of around 730 and have about 10k in credit card debt. I don't own a house so I don't have equity or a large mortgage. I only pay $500 per month for rent. I own one of my vehicles out right (its worth about $6K), but have a lease on another ($400 per month). I have around $12k in an IRA that I rolled over from my last job. Last year I made just over $50K and this year will be about the same. Although; I have a business admin degree, have management experience, and currently work in finance for a company (non banking) I have never worked in a bar.


      What are our financial options? More importantly what are my financial options? Does anyone have any advice for us? If I'm missing any important information let me know.


        • Re: Financing an established bar
          dtominus Wayfarer
          Does the business take credit cards, If so, I would ask the owner to do a business cash advance, That
          may help with the cash he is wanting , you take over the bar until the advance is paid back , I can explain
          in more detail please call me ....



          David Tominus
          • Re: Financing an established bar

            To give you an idea of your financial options requires more info on the business itself. Where you talk about the owner willing to finance part of the purchase what do you mean when you say the owner "has notes on the rest that we'll have to pay"?


            If the purchase price is $250,000 for the business (without the real estate) and, as an example, say you are assuming notes payable of $200,000 ... then you should only pay the seller $50,000 for the balance of sale.


            If he wants you to pay him $250,000 on top of assuming notes payable then you may be paying too much for this business. Even if you re-cast your financials to add-back the current owner's salary you are talking about a business that only generates about $13,000 in profit annually (unless there are a lot of other costs buried in there that can be further re-cast to roll to the bottom line). I think you should take a hard look at the financials to make sure that this is a worthwhile investment for you.


            Some questions:


            1. Why is the owner selling (it doesn't look like they have owned it very long)? This is a very important thing to determine early on when looking at a business to buy.
            2. Do you know what they are basing their asking price on? Are you sure that it is a fair and acceptable price?
            3. What is the actual revenue and net income of the business for the past 2 to 3 years (or for the period that the current owner has owned the business). Are sales and net income going up, flat or declining? Based on what you may spend to buy the business does it make good financial sense to buy the business based on the risk/reward?
            4. How strong is the balance sheet ... i.e. are there assets with value or is the business carrying debt? If it carries liquor/beer inventory of any size you may have some value there to tap (no pun intended) if it is not encumbered (money owed on it).

            If your plan in part is based on the business growing because of new apartment complexes opening nearby you need to be sure about that. Are they under construction or are they just in the planning stage?


            You might want to check with the leasing agents to see the level of interest they have received in order to gage demand for the apartments. Empty apartment buildings won't help generate traffic for your bar. Be sure that they will actually be there to build up the nearby demographics before you pin your hopes on them to help you make the bar a success once you own it.


            I hope the above helps and gives you some things to look at and consider. If you have other specific questions, post here or let me know and I'll help you with what feedback I can give you.

            Dennis Lowery
            Adducent, Inc.