Acquiring a bar can be an exciting and lucrative business venture, but it’s crucial to avoid common pitfalls that could lead to financial losses or operational headaches. Whether you're a first-time buyer or a seasoned restaurateur, the intricacies of purchasing a bar are unique and often misunderstood. Here’s a comprehensive guide to the essential Do’s and Don’ts when considering the acquisition of a bar, based on years of experience in restaurant brokerage and hundreds of transactions.
👉Do’s of Bar Acquisition
1: Do Conduct Thorough Due Diligence: Before signing on the dotted line, you must understand exactly what you’re buying. Due diligence involves evaluating the financials, inspecting the physical condition of the bar, and reviewing any potential liabilities. When looking at financials, don’t just glance at revenue—dig deeper into profitability, operating expenses, and debt obligations. Examine utility bills, employee payroll, and vendor contracts. This financial audit helps you determine the bar's true earning potential and exposes any red flags.
It’s equally important to inspect the physical state of the property. Bars are subject to significant wear and tear, so structural integrity, equipment condition, and code compliance are vital factors to review. Uncovering issues here early can save thousands in future repairs.
2: Do Check the Liquor License: Liquor licenses are often the backbone of a bar’s success, but they can also be one of the trickiest components of a sale. Regulations around liquor licenses vary by state and even by county, and they can greatly influence the value of a bar. Some regions may have a limited number of licenses available, while others may impose strict restrictions on transferability.
Before proceeding with the purchase, ensure the bar's liquor license is current and transferable. If the license needs to be re-applied for, it could delay your opening timeline. Engaging with a local attorney specializing in liquor laws can help streamline this process and prevent delays or legal complications.
Read: https://blog.wesellrestaurants.com/does-the-liquor-license-transfer-when-i-buy-a-restaurant
3: Do Consider Location Carefully: Location is just as important for bars as it is for restaurants. The right location can attract your target clientele and keep foot traffic steady. Examine the demographics of the surrounding area, nearby competition, and the bar’s historical performance. Is it in a trendy neighborhood, or is the area on the decline? Assess whether the location aligns with your vision for the type of bar you want to operate.
Additionally, consider parking availability, visibility, and proximity to other attractions or businesses that can drive customer flow. If the location already has a loyal customer base, evaluate what makes it successful and how you can sustain or grow it.
4: Do Verify Zoning and Permits: Zoning laws can make or break a bar acquisition deal. Ensure the bar’s location is zoned for the type of operation you plan to run. Some areas may have noise restrictions, limitations on operating hours, or other local ordinances that could affect profitability.
Along with zoning, you’ll need to verify that all necessary permits are in place. These might include health permits, fire safety approvals, and alcohol service permits. Missing or expired permits can delay operations and result in costly fines. Get ahead of this by checking with local municipalities and ensuring all documents are up to date.
5: Do Get Professional Help: Purchasing a bar is not a simple transaction. Surround yourself with a team of experts, including a Certified Restaurant Broker, a business attorney, and a tax advisor. A restaurant broker from We Sell Restaurants can help guide you through the complexities of the sale, ensure a fair price, and assist with negotiations. Meanwhile, an attorney can help protect your interests by reviewing contracts, leases, and compliance issues. A tax advisor will help you understand the tax implications of your purchase, especially if the bar comes with real estate or involves complex financial arrangements.
By leveraging professional expertise, you mitigate risks and ensure a smoother transaction process.
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👉Don’ts of Bar Acquisition
1: Don’t Rely Solely on Seller's Financials: While the seller’s financials are a starting point, it’s unwise to rely on them entirely. Sellers may unintentionally or intentionally omit key details, such as seasonality effects or one-time expenses that could significantly impact your profitability. Always ask for multiple years of financial records and compare them against industry benchmarks.
A good practice is to hire a third-party auditor to validate the financials. This extra step can protect you from overvaluing the business and help identify any discrepancies that may raise concerns.
2: Don’t Ignore Lease Agreements: For most bars, the location is leased, making the terms of that lease a critical part of the deal. It’s easy to get excited about a bar’s revenue and overlook a lease that could be a ticking time bomb. Understand the length of the lease, the rent escalation clauses, and the renewal terms. Also, be wary of leases that can be terminated at the landlord’s discretion.
Additionally, confirm whether the lease is transferable to a new owner. If the lease includes a personal guarantee, you may be on the hook for liabilities even after you sell the bar down the line. Carefully review lease terms with an attorney before committing to the purchase.
3: Don’t Overlook Employee Contracts and Relationships: Bars rely heavily on their staff, and buying a bar means inheriting its employees. Review existing employment contracts, payroll records, and any collective bargaining agreements. Understand the bar's staffing needs and whether you’ll need to make adjustments post-sale. If key staff members, such as a manager or head bartender, are essential to the bar's success, you may want to negotiate their continued employment as part of the deal.
It’s also important to assess the bar’s relationship with its employees. Is there high turnover or morale issues that you’ll need to address? A toxic work environment can negatively impact your customer service and reputation.
4: Don’t Underestimate the Time Commitment: Owning and operating a bar requires significant time and energy. Even if the bar appears to be running smoothly, you’ll likely need to invest more hours initially to get familiar with operations, staff, and customer flow. This is especially true if the bar needs changes or improvements to reach its full potential.
Understand the demands of the business before diving in. If your goal is a more passive ownership role, ensure you have a strong management team in place before closing the deal.
5: Don’t Skip the Transition Plan: The transition between the previous owner and yourself is critical to maintaining the bar's success. Discuss the transition period upfront and get the seller’s agreement to assist with training and introductions to key vendors, regular customers, and staff.
Without a solid transition plan, you risk losing valuable relationships and knowledge that can take years to rebuild. Ensure the seller stays on board long enough to guide you through any potential challenges during the initial months of ownership.
Maximize Your Success by Avoiding Common Mistakes:
Buying a bar can be a profitable venture if done correctly, but it requires careful planning and consideration of many factors. From due diligence to understanding local laws, each step plays a crucial role in ensuring a smooth transaction and a thriving business post-purchase. By following these do’s and don’ts, and leaning on expert advice, you can make informed decisions, avoid costly mistakes, and set your bar up for success from day one. Remember, a Certified Restaurant Broker is a key asset in this process, offering the expertise and insights you need to make a confident, well-informed purchase.
Navigating the complexities of buying a bar is no small feat, but with proper guidance and preparation, you’ll be well on your way to enjoying the rewards of bar ownership. Don’t hesitate to seek out professional advice from We Sell Restaurants and use this guide as your roadmap to avoid common acquisition pitfalls.
Tips: https://blog.wesellrestaurants.com/bars-for-sale-5-important-tips-for-buyers
Robin Gagnon, Certified Restaurant Broker®, MBA, CBI, CFE is the co-founder of We Sell Restaurants and industry expert in restaurant sales and valuation. Named by Nation’s Restaurant News as one of the “Most Influential Suppliers and Vendors” to the restaurant industry, her articles and expertise appear nationwide in QSR Magazine, Franchising World, Forbes, Yahoo Finance, and BizBuySell. She is the co-author of Appetite for Acquisition, an award-winning book on buying restaurants.