Buying or Selling a Bar/Grill/Liquor Store in a recession.
Although we are “Officially” in a recession, MLBA members have felt the pull back in spending for at least a couple of years. However, there are some real opportunities for both buyers and sellers in this market.
First for Sellers
There are a lot of outsourced, downsized or just laid off professionals out there, and not just from the hospitality industry. Many of these professionals know that they will not be able to acquire another similar position and are buying themselves an income by acquiring a business. Most of these buyers have substantial cash to put down on a business that fits their needs and are motivated to complete a transaction.
These buyers are typically well educated and have done their homework on the type of business that they want to acquire.
Things for sellers to remember:
1.) Clean up the books. Be prepared to show all income with documentation. Rule of thumb, if your tax records show good cash flow we can still find bank financing. If you have not been showing income, you may be the bank. Contract for Deed (with property), Promissory Note (business only), are popular in tough banking environments.
2.) Clean up the Bar/Store. Nobody wants to buy a dirty facility. Clean up the store room, basement, offices, etc., with many choices out there buyers can be pickier with the facility.
3.) If it does not work, fix it or get rid of it. We had a client who didn’t get a sale because he had 8 or 10 pieces of equipment in the Bar/Store that didn’t’ work or needed work.
4.) Don’t stop promoting just because you’re thinking of selling. Many clients ask if they should stop adverting or stop promotions, when they want to sell their business. Remember the average business takes 190 days to sell. Keep running your business like you’re going to be there for another 2 years. Buyers are not looking for a “dead” business. They want to be excited by the opportunity. If at all possible, don’t close the doors, even in a recession, you will get more for your business if it is open versus closed.
5.) Keep it confidential. Don’t put a “For Sale” sign on your door. This will drive customers away and your valued employees will start looking for their next job. Use a confidential business broker or if selling the business yourself don’t use the business name in any ads. Our experience has shown that if the business is sold confidentially to a qualified buyer, most of the staff and customers will stay. Additionally most new owners instill fresh energy into the business which drive up sales and staff will make the same or more money.
Things for buyers to remember:
1.) Low Price for a business doesn’t necessarily mean it’s a great deal. There are many factors to take into consideration when making an acquisition i.e.; location, rent, accessibility, parking, demographics of neighborhood, competitions, just to name a few.
2.) Do your homework before you go to see the banker. Getting approval for business loans has become more difficult yet is still possible. Your resume, personal financial statements, business plan, lease information, projected sales and cash flow will go a long way to getting favorable response from your banker.
3.) Study and understand your lease/note. This is your largest fixed cost and typically can’t be easily adjusted. Also, landlords/bankers are requiring personal guarantees on everything now. The good news is that interest is going down and landlords are negotiating on lease terms to acquire tenants. Get professional help. Sure Lawyers and accountants are expensive, but entering into long term legal agreements without professional advice can be a great deal more expensive.
4.) Be careful about getting into business with your friends. Partnerships are like marriages and more often then not they don’t work and can end up in expensive court proceedings.
5.) Don’t strap yourself for cash. Be sure to leave a cushion in your financing. Many times the reason a business fails it’s because the owners ran out of cash before the business can establish itself. The build out may come in over budget or didn’t include features needed for your concept, you opened on December 1st and had 4 weekends of snowstorms, etc, plan for the unexpected.
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